In the past three months, airline stocks have severely lagged the S&P 500. In fact, since the beginning of March, the U.S. Global Jets ETF JETS 1.38% has delivered a 12.5 percent loss while the SPDR S&P 500 ETF Trust SPY 0.3% is up 2.8 percent.

The airliner underperformance has accelerated this week. According to Morgan Stanley analyst Rajeev Lawani, the weakness is all about skeletons in the closet for the airline industry.

“While our fundamental work indicates that airliners should post meaningful profitability vis-à-vis past downturns (with double-digit industry operating margins) and even manage break-even to modestly positive free cash flow, we do acknowledge the interim downside as these concepts are proven to the market and valuation reflects such,” Lawani explains.

Airliners have witnessed profits fall deep into negative territory during past cyclical downturns in the U.S. economy, and Morgan Stanley believes the market doesn’t trust that the next downturn will be different.

Lawani expects…

Click here to continue reading

Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!