This Unloved Stock Could Deliver an 80%-Plus Short-Term Gain

While value investing and short-term trading seem to be at opposite ends of the investment spectrum, there are ways short-term traders can use long-term value investing principles to profit. Value investors look for cheap stocks and buy in the hope that over the long term there will be a very large move in the stock. When a short-term trader finds a value stock with a chart that is indicating that it's a buy, they can trade it for a short-term gain as the value investors are accumulating their positions. And through the use of options they could leverage a relatively small price move into a large gain.
Looking at unloved sectors in the stock market, the hunting ground for many value investors, airlines stand out as dismal performers besieged by bad news. Some of the major airlines may not make it -- bankruptcy seems to be part of the business plan for major carriers. Regional airlines, on the other hand, seem to have business plans based on profitable operations. Among the regional airlines, Southwest Airlines (NYSE: LUV) stands out as a potential trade.

The weekly chart shows that LUV is trading near support. The pattern could be thought of as an extended cup-and-handle with the handle currently being formed and defining the support level.


The 52-week high is slightly above $10 a share and there is every reason for a value investor to believe that the stock will eventually return to that level. (more)