Stock Quotes in this Article: ALK, AMR, DAL, JBLU, LCC

MINNEAPOLIS (Stockpickr) -- The airline industry cannot catch a break. It is a brutal business that lacks consistent profit growth, and its history is pockmarked by periods of large losses, stock collapses and bankruptcy. As a result, many investors, pro and amateur, avoid the sector entirely. Indeed, 2011 is proving to be another difficult year for the air carriers.

Stocks in the group are widely lower this year thanks to significantly higher oil prices. When jet fuel goes up sharply, it is difficult to generate a profit. Airlines have difficulty passing along the increased expense to consumers due to intense competition. Hedging for such a high price environment is expensive and can negatively impact results should oil prices fall.

The sell-en-masse mentality of investors may present an opportunity to buy airline stocks at big discounts today. Beneath the surface of higher oil prices is an industry that could rebound strongly if oil prices deteriorate or if the market is able to absorb the higher cost in the form of increased ticket costs to passengers.

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    Consolidation in the industry has resulted in tighter capacity. A strengthening economy has allowed airlines to be creative with surcharges for baggage, food and improved seating that have changed the profit model of the business. Case in point is the move by airlines to shift FAA fees to ticket surcharges after Congress failed to extend FAA powers last week.

    Things may not be as bad as it seems. There can be no doubt that most airlines today are priced for the bust phase of the cycle. Historically. the time to buy is when things seem to be at their worst. Here are five airline stocks to consider buying today.

    American Airlines

    One of the weaker airlines in the current malaise has been American Airlines (AMR). The company has floundered, impacted by poor management and operating performance. Its sorry state this year goes way beyond the negative impact of higher jet fuel prices. Shares of American Airlines are down about 46% in 2011.

    The company is bleeding red ink. Over the last three quarters, American has lost $2.27 per share. In the quarter ended June 30, the loss was 85 cents per share -- even more than the average Wall Street estimate.

    The numbers are bad indeed, but there was also some good news in the latest report. American announced that it was making a huge purchase of new aircraft, buying 460 planes from Boeing (BA) and Airbus. The move will make American’s fleet more fuel efficient and potentially attract fliers interested in flying newer aircraft.

    While the quarterly report was negative, the strategic move by American should be viewed positively for the long term. With shares at $4.20 per share and the company expected to cut its losses in the future, it is hard to see American trading lower from here. I would be a buyer at these levels.

    As of the most recently reported period, American was one of the top holdings of David Tepper's Appaloosa Management.

    US Airways

    Despite its being profitable, investors have been aggressively selling shares of US Airways (LCC), which also shows up in David Tepper's portfolio. Shares are down about 38% in 2011. Last week the company announced that it made a profit of 56 cents per share excluding items, which was in line with analyst estimates. Reflective of the bearish nature of airline stocks, shares of US Airways traded lower after the news.

    Clearly the market chose to focus on the negative impact of higher fuel prices. Absent inflationary pressures results would have been markedly better. Analysts have been reducing future profit estimates of late. For the current year, the average Wall Street estimate for earnings is 37 cents per share. That is 30 cents lower than where the estimate was a week ago.

    For the 2012 year, the estimate jumps to $1.53 per share. That number is also lower, but it's quite solid given where shares trade today. At current prices US Airways trades for just 4 times the 2012 estimate. I would say the stock is about as low as it’s going to go. I would be a buyer.

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    Alaska Air

    Regional airlines have fared better than hub and spoke carriers over the last decade, but they are not immune to the negative impact of rising oil prices. That makes the 9% gain in share price at Alaska Air (ALK) most impressive. The company is firing on all cylinders at a time when the rest of the industry is struggling.

    Over the last year, the company has met or beaten average Wall Street estimates for profits. In the most recent quarter ended June 30, the company made a profit of $2.44 per share, meeting analyst expectations. Shares gained immediately after the report, but the stock closed only slightly higher. Alaska did note the negative impact of higher fuel costs in the report but also stated that revenue and traffic were higher in the period.

    Analyst estimates for future profits are higher than 90 days ago as Wall Street expects continued strong performance for the airline. For the current year, the average Wall Street estimate is calling for a profit of $7.68 per share. That number grows by 11% to $8.53 in 2012. You can buy that growth for just 8 times current year earnings estimates.

    Alaska, one of Renaissance Technologies' top holdings, is also one of TheStreet Ratings' top-rated airline industry stocks.

    JetBlue

    Low-cost airlines have the most to lose with higher jet fuel prices. Given the discount in airfares, profit margins are more at risk when operating costs are going up. JetBlue (JBLU) is a point-to-point air carrier that is getting whacked by higher oil prices. Its shares are down almost 29% in 2011, including a near-4% drop in share price on Tuesday after the company reported results that missed expectations.

    JetBlue stated that it made a profit of 8 cents per share for the quarter ended June 30, missing the average estimate of 9 cents per share by a penny. Like others in the industry, JetBlue stated that profits were negatively impacted by higher fuel costs. Investors should use the selling as an opportunity to buy shares.

    The average Wall Street estimate for earnings in 2011 is 35 cents per share and grows by 60% to 56 cents per share in 2012. You can buy that growth for just 14.5 times current-year estimates. Given that oil prices may have peaked around $100 per barrel, any reduction in crude is likely to have a big positive impact on JetBlue, making the stock even more attractive at current levels.

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    Delta Air Lines

    Add Delta Air Lines (DAL) to the list of airlines suffocated by the high cost of oil. On Wednesday, Delta reported a profit of 43 cents per share, excluding items. Analysts were looking for 44 cents per share. The earnings miss is directly related to higher jet fuel expense. The company paid an average of 90 cents a gallon more for jet fuel than it did a year ago. Shares, already weak in advance of the report, slid 5% after the report was released.

    For the year the stock has lost more than 39% for the year. Missing by a penny is not all that horrible considering the headwinds the company faced in the period. Delta announced that it would be flying fewer flights for the remainder of the year. In addition it was asking some 2,000 employees to head to the exits.

    I don’t expect shares of Delta to fall much further from here. The average Wall Street estimate for the current year is $1.20 per share. The estimate grows by 52% in 2012 to $1.83 per share. At current prices Delta trades for just 7 times current-year earnings estimates. There is much more upside than downside for Delta.

    Delta, another of TheStreet Ratings' top-rated airline stocks, shows up on a recent list of 3 Funds' Best Stock Picks Ahead of Earnings.

    To see these stocks in action, visit the 5 Airline Stocks to Buy portfolio.

    -- Written by Jamie Dlugosch in Minneapolis.

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    At the time of publication, author had no positions in stocks mentioned.

    Jamie Dlugosch is a founder and contributor to MainStreet Investor and MainStreet Accredited Investor. Formerly, he was president and CEO of Al Frank Asset Management. He has contributed editorially to The Rational Investor, The Prudent Speculator, Penny Stock Winners and InvestorPlace Media.