Bookkeeping: Beginning Allegiant Travel (ALGT)

We mentioned Allegiant Travel (ALGT) as a name on our radar this weekend - the stock had fallen from $49 to $44 Friday, and its 50 day moving average was $41 which the stock has fallen to today. So we're going to give this stock a whirl in the $40.70s with a 1.5% stake.

I will edit this entry with more information later in the day but Allegiant Travel is an airline (although it is marketed as a broader travel company) Full website here. Investor presentations, and the like here.

Allegiant Travel Company, a leisure travel company, provides scheduled passenger services from small cities to leisure destinations in the United States. It focuses on linking travelers in small cities to leisure destinations, including Las Vegas, Nevada; Phoenix, Arizona; Ft. Lauderdale, Florida; Orlando, Florida; and Tampa/St. Petersburg, Florida. The company sells air travel on a stand alone basis or bundled with hotel rooms, rental cars, and other travel related services.

Now there is a great irony since I'm so bearish on Las Vegas due to the economy but the reality is the hedge funds have basically made this an anti oil trade. Oil up, ALGT down and vice versa. Further, I can make the weakness in Las Vegas a benefit - as hotels slash rates to bring back customers, said clientele would be more apt to travel there.

Cons:

1. It's an airline! One of the worst businesses out there
2. Always a risk of accident in airline industry
3. Oil could run up, and up, and up as the "global economy will be back in 6 months" trade engulfs world markets
4. Momentum traders seem to have found this name so it could get bucked around wildly
   

Pros:

1. Despite being unhedged and in an era of $140+ oil, the company was PROFITABLE
2. Serves niche smaller city market with almost no competition - per their latest investor presentation only 2 of their routes have a competitor (down from 9 a year ago)
3. Management seems to react very aggressively; when oil prices went up they cut routes and switched to shorter routes immediately

I have been watching this name for many months and should of bought this in the upper $20s when it first caught my glance. But as I said these type of charts are my favorite (I'll post the chart later) - a stock that broke out but now has fallen back to a key support level.

Buying Allegiant Travel (ALGT) each time it falls to the 50 day moving average has been the "right" thing to do for the past 3 months, but does not guarantee future sucess. If the stock breaks below $38 I'll probably cut back as the 200 day moving average is down at $31 (and rising)

On a fundamental basis earnings estimates for 2009 have increased in the past 30 days from $3.09 to $3.32, so at $41 the PE multiple is solid for this type of growth. Obviously the wild card is oil prices which is the #1 variable cost but my thesis is oil stays in the $25-$60 range for much of 2009. Hence ALGT should be quite profitable... if oil gets over $60 let me tell you the dreamers that believe the U.S. economy is rebounding anytime soon are going to be hit with another body blow. The last thing American consumers need right now is $2.50+ gas.

p.s. HAL9000 is spinning all these commodity stocks higher today - again they are all "1 stock" in his eyes; notice how regardless of sector - fertilizer, natural gas, oil, copper, iron ore, coal, shipping stocks - its all up! It really is pathetic how individual company metrics mean nothing in this group. And now HAL9000 throws in almost every foreign/emerging market stock into the same trade. Because higher oil/shipping rates mean global growth is "back". Solar stocks continue to run on Obamamania.

I'll post some more specifics on this name later in the day....

Long Allegiant Travel in fund and personal account