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As far as I’ve been able to discover, it was a research note from Wolfe Research that began the negative “rethink.”

Wolfe forecast that the airlines including United Airlines (UAL) and American Airlines (AAL) were burning cash so fast because of the jump in the cost of jet fuel that they might need to sell stock to secure more liquidity..

The worry isn’t outlandish. Oil broke above $115 a barrel (for U.S. West Texas Intermediate) today and JPMorgan Chase and Goldman Sachs have both recently projected that crude could rise to $185 a barrel by the end of 2022.

Today shares of American Airlines (AA) were off 7.13%. United Airlines (UAL) dropped 9.07%. And Delta Air Lines (DAL) was down 5.63%.

Wolfe named Southwest (LUV), Alaska Air (ALK) and Sun Country (SNCY) as best positioned to navigate higher fuel costs.

Which makes my January 31, 2022 pick of Delta for my Jubak Picks Portfolio somewhat “premature” The logic to that pick was to 1) position the portfolio for gains on airline and other re-opening stocks from another post-Pandemic economic recovery this coming summer, and 2) to crate a hedge in case the Iranian nuclear negotiations produced at deal by the Friday, March 4, unofficial deadline. An end to sanctions on Iranian oil would, on the promise that this oil would be coming back into the market, led to a big drop in oil prices. As of Thursday night, still no deal. Iran said on Thursday more efforts were needed to revive its 2015 nuclear deal, while the European Union official coordinating nuclear talks between Tehran and the United States and its allies said “we are definitely not there yet” but that talks were in the “final stages.”

That position in my Jubak Picks portfolio is down 13.45% since January 31 as of the close on March 4.

So what to do now?

I think the best course is to hold on rather than try to sell and re-time a new entry.

At today’s close of $34.52, the stock is well below the $57 a share fair value calculated by Morningstar. Morningstar gives the stocks it actively follows star ratings that indicate where the day’s stock price is in relation to fair value. A one-star rating indicates that the stock is extremely above fair value. It is trading at a substantial premium. Morningstar calculates a one-star price for Delta at $99.75 A five-star rating, on the other hand, indicates that a stock is trading well below its fair value as calculated by Morningstar. That company calculates the five-star price for Delta right now at $28.50, just a tad below today’s close at $34.52.

I think there’s a good chance that a further spike in oil prices will send the stock down to near that five-star price. In other words you might be able to pick it up even cheaper than today.

On the other hand, the stock is trading at a 36% discount from fair value, Morningstar calculates.

I still think we’ll get a summer rally in economic recovery stocks and that airlines will be among the best ways to play that recovery. In comparison Disney (DIS), another economic recovery favorite of mine, is trading as of today’s close of $144.72 just at fair value, as calculated by Morningstar. No discount in Disney, by these figures, yet.

Full disclosure: I own January 2023 Call Options on Delta in my personal portfolios.