Throw This Stock Away

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Fasten your seatbelt, investors. It's going to get bumpy as one stock in particular flies into heavy turbulence.

Every week I single out a stock that has no place being in your portfolio. I'll give you my reasons, but I'm no wet blanket. I come right back with three stocks that I believe will generate better returns than the stock I'm throwing away.

Who gets tossed out this week? Come on down, Delta Air Lines (NYSE: DAL).

These fundamentals can't be used as a flotation device
Earlier this month, Atlanta-bound passengers on Delta Flight 510 figured they were in for an uneventful three-hour trip from the sandy Caribbean paradise of Providenciales in Turks and Caicos. Unfortunately for them, a fierce thunderstorm diverted the plane to Columbia, S.C.

These things happen, but there's a reason why yesterday's Wall Street Journal is grilling Delta over what transpired on April 10. See, instead of taking care of its tired customers, Delta abandoned them. The crew timed out and left the plane, and a tense situation ensued, with a hot plane sitting on the tarmac for five hours while the folks inside had no food or water. Unable to locate a replacement crew until several hours later, passengers were finally allowed to step off the plane, but then they were herded into a cordoned-off area. A three-hour flight became a 13-hour nightmare.

Stay classy, Delta.

You won't find me holding hands with the legacy carriers. My heart goes out to the pilots, flight attendants, and the rest of the support staff, but this is an industry that hasn't fared well, even when the economy is strong. Imagine what will happen with this already crummy economy if flu outbreaks keep more potential passengers home.

The last legacy carrier I criticized was UAL (Nasdaq: UAUA), back in November. I was right on that call. The rest of the market bottomed out that month while the parent company of United Air Lines peaked, but the stock has since shed two-thirds of its value.

I think I'm going to be right this time, too. The market's warming up to Delta. Its merger with Northwest last October is supposed to yield some serious synergies. Cheap fuel gives the carrier leeway to offer discount fares and still turn a profit. Analysts even see a return to profitability this year. The problem, of course, is that it's a legacy carrier.

Beyond the $14.7 billion in debt on its books -- which translated into $308 million in interest expense this past quarter alone -- Delta's on the hook for $11 billion in pension, postretirement, and related benefits. This burden makes it nearly impossible for Delta to compete against younger, nimbler, and less financially troubled carriers that have more wiggle room in setting fares.

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. Let's review the stand-ins.

• JetBlue (Nasdaq: JBLU): Delta posted a loss of $794 million this past quarter. During those same three months, JetBlue posted its first profitable quarter in four years. I'm a fan of JetBlue. I love having three dozen DirecTV (NYSE: DTV) channels to choose from on the headrest in front of me, and listening to roughly 100 Sirius XM Radio channels. It's all free. I'm a fan of the unlimited snacks, at a time when older carriers are nickel-and-diming you for everything. My admiration would end there if it didn't make financial sense for JetBlue to offer so much for so little, but it does. If Delta fares well, JetBlue should hold up even better.
• Southwest (NYSE: LUV): The usually profitable Southwest didn't close out the first quarter in the black, but it posted a loss of only $20 million before charges. It was profitable before this quarter's slip, and it is expected to remain profitable in the future. As the largest low-cost carrier, the company is a shining exception to the rule. Southwest isn't the new kid in town, but it has manageable debt, a predictable fleet of jets, and an admirable brand. The company's "DING" desktop app, alerting Southwest fans to great last-minute fares, is a brilliant example of using the Web to build a following -- and fill up empty seats.  
• AirMedia Group (Nasdaq: AMCN): In a move to diversify my picks geographically, I was hoping to go with one of the Chinese airlines. Unfortunately, both of China's largest publicly traded players are in the red at the moment (pun not intended). It's just as well, because the coolest play on China's zest for air travel is actually AirMedia. The company is a squarely profitable operator of high-end advertising networks in all 30 of China's largest airports. The stock is trading for just nine times next year's projected profitability. That makes this stock worth the wait.

And that's something that the 134 passengers of Flight 510 certainly can't say.

Other headlines out of the weekly trash bin:

• CAPS players don't like Delta, either.
• Really. They don't like it at all.
• The key to investing is to avoid value traps.