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Friday, June 18, 2010

Secondary/Tertiary Plays on BP Oil Spill (ALGT)

- Fears of potential economic disaster caused by the BP oil spill are growing. There are reports of widespread cancellation in hotel reservations along Florida's west coast. You tube has a video showing simulation of the projected path of the oil spill
- Stocks of BP, APC and other oil service names, whether directly or indirectly affected have already plunged. I believe secondary and tertiary stocks that could be affected by the oil spill are beginning to fall, as well.
- I am looking at stocks of Tourism, SouthEast Regional Banks & REITs that are likely to fall further as fears of economic calamity grows, particularly in Florida. Spirit Airlines came to my mind immediately, but it is not a public company.
- Looking at Regional Airlines, I noticed Allegiant Travel Company (ALGT). Allegiant provides complete vacation packages to vacationers from small cities to major destinations in the US. Unfortunately, 5 of the top 12 destinations are in Florida and Myrtle Beach, SC. Furthermore, management gave a bullish presentation at the Bank of America Merrill Lynch Global Transportation Conference on June 15, but investors are driving the stock price down anyways.
- Options on ALGT are illiquid and the bid/ask spread wide, so it would be difficult to put on an options trade. I do not know if ALGT is easy to borrow for shorting, but the stock price looks weak and looks likely to continue it's fall. First price target is $37.50 with stop/loss at $51.70. The stock is currently $46.11, and I would look to short ALGT as stock rebounds.

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