Editor’s Note: Here’s a real contrarian play: Eric Roseman, Investment Director of Sovereign Society, says airline stocks are primed to offer major profit returns in the near future.

The airline industry has been battered by the surge in oil prices. Major companies have already cut services, raised fees, and announced job losses. And share prices have collapsed since the start of the year: United Airlines (UAUA) is down a whopping 84.6%, Delta Airlines (DAL) 64.8%, Continental (CAL) 48.7% and Northwest (NWA) 58.9%.

So why invest now? Eric says a correction in crude oil prices is inevitable; and when fuel goes down, airline stocks will fly again…

Why the World’s Worst Business Is Now One of the Best Buying Opportunities on the Planet

by Eric Roseman

Skyrocketing energy prices are making the headlines almost daily since last spring. Over the last 12 months, crude oil prices have more than doubled and gas prices are heading to US$5 per gallon.

Meanwhile, out in the financial markets, investors are blindly buying energy stocks. Commodity fund managers are lunging after crude oil and natural gas futures. A full-blown mania now surrounds the energy pits.

In just about every facet of global business and consumer livelihood, high energy prices are wreaking havoc. Prices are rising, if not soaring, for most goods across the world. Oil’s ubiquitous role is forcing consumers and companies alike to boost spending, reducing discretionary income and slicing corporate profits.

Oil’s “Unstoppable” Prices Are Yesterday’s News

But surging oil is yesterday’s news. Demand destruction is underway. There will be a point when high prices finally force consumers to use less oil products, buy less gas and other distillate fuels. Granted it doesn’t seem like it, but consumers are already buying less gas since April.

What Goes Up WILL Come Down: Oil’s Path This Year

Since March 31st, crude oil prices have soared more than 35% — an astonishing rally in a short period of time. At some point, a correction looms. That’s when some sectors suffering from expensive oil will post some spectacular gains. That includes my absolute favorite contrarian play right now: Airlines.

The Worst Business in the World

Yes, I know the airline industry is arguably the worst business in the world right now.

Soaring jet fuel prices, expensive labor costs and rising airport user fees are forcing carriers worldwide to cut routes, reduce capacity, and shed labor. Many analysts forecast several big carriers, mostly in the United States, will probably collapse this year if jet fuel prices remain at these elevated levels.

In fact, you could say airline stocks have been a one-way ticket to the poorhouse lately. That’s certainly been the case over the last 18 months as input costs have surged, mainly because of a 100%-plus rally for jet fuel.

Airline stocks also earn the dubious ranking as the worst performing sector of the market over the last 12 months — even worse than the financials!

Since June 2007, the AMEX XAL Airline Index of global carriers has collapsed a formidable 62%. Over the same period, jet fuel prices have doubled. Airlines have cut capacity. Also, executives in the business are warning that we’re facing the worst economic climate for the industry since 9/11. In short, these are dark times for airline executives, employees and passengers.

Notice: It’s the Exact Opposite of Oil in the Airline Sector

How Many Airlines Do You Know that Are Raising Dividends?

Historically, I’ve avoided the airline sector like the plague. I’ve only turned bullish on this sector a handful of times in my 16-year investment career.

But at these bombed-out levels and ultra-low valuations the airlines are just too contrarian to ignore. Plus, I see a major catalyst coming for rapid price appreciation in the airlines on the heels of lower oil prices in the months to come.

I’m now buying one of the best-managed airlines in the world. This blue-chip company just raised its dividend again recently. The stock now pays an effective 8% per annum in one of the world’s strongest currencies. That yield is almost twice the rate paid by 10-year bonds in the United States and Europe.

This stock is also trading at a 52-week low, still earning profits and has most of its jet fuel hedged at about US$75 per barrel. How many airlines do you know that are still making money, yet alone raising dividend payments?

The way I see it, if oil prices suffer a 20% correction or more, which is highly likely after a nonstop blistering rally since last summer, industries leveraged to the price of oil or in this case, jet fuel, will rocket higher.

Since the advent of the sub-prime debacle in July 2007, every segment of the commodity bull market has suffered a correction — except the energy complex. The rally has literally been unstoppable so far.

Go Against the Herd for the Best Profits By Christmas

All secular bull markets face corrections — even oil. These corrections tend to be brutal. So you can expect oil prices to post a savage correction. When that happens, the industries that have been handcuffed by high oil prices will post major reversals — including the best-managed airlines.

Plus, global governments are now throwing everything they can at high oil prices, including the Saudis, so the odds of a brief respite are growing more likely by the day.

If oil prices decline, as I expect them to, then input costs for all carriers will decline markedly, if even for just several months. There is certainly enough room to juice this speculation for at least a quick 35% to 50% profit, possibly more. Plus, add some dividends into the picture, profitable earnings, and a big bear market rally and you should hit a home-run in airlines before December.

Sometimes, it pays to look the other way behind the trail of a blazing bull market in energy prices. In this case, some airlines will reward investors with big profits over the next 6-12 months. I’m betting on it.

Source: Why the World’s Worst Business Is Now One of the Best Buying Opportunities on the Planet