Coffee, tea, or trash can?

Every week, I recommend a stock that investors should consider dumping from their portfolios. Every week, I also nominate three stocks to take its place. This week, I'm turning my attention to the airline sector. Ever since fuel prices started plummeting, shares of air carriers began taking off. Naturally, it's a great thing for airlines to slash expenses at a time when passengers are booked at higher fares.

However, the heady gains by some of the legacy carriers fail to address the concerns that are pushing energy prices lower. If demand isn't there, won't the planes still struggle to get passengers at reasonable rates?

So, who gets tossed out this week? Come on down, UAL (NASDAQ:UAUA).

United we strand
I've never been a big fan of legacy carriers. They have chunky operating structures that make it difficult to compete against more nimble players. They are also addressing waning demand by slashing routes at a more aggressive pace than their profitable competitors are.

Normally, this would be stating the obvious, but have you seen shares of United Airlines parent UAL lately? Since bottoming out at $2.80 this summer, UAL has been a surprising five-bagger.

One would argue that the dramatic turnaround in fuel prices justifies the optimism. In fact, analysts who have watched UAL post horrendous losses now see the company turning a profit next year.

However, that still doesn't address the demand side of the equation: 5.1 million revenue-generating passengers boarded UAL flights last month, 9% fewer than last October. The planes aren't necessarily flying any emptier. UAL has slashed its flights by a similar amount. If the economy continues to weaken -- something implied by the recent bearish sentiment of oil consumption -- won't it mean even fewer people with the means to travel? Whether we're talking about consumers scaling back on leisure travel or layoff-saddled corporations reining in business trips, airlines such as UAL will have to keep taking planes out of service or slash rates to stay competitive with leaner carriers who will also take advantage of lower fuel costs.

My fellow Fools seem to agree with me, since UAL has the lowest-possible one-star rating in Motley Fool CAPS.

Good news
As I have 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 go over the three fill-ins.

  • Southwest (NYSE:LUV): You have to love an airline that has been profitable through the cyclical ups and downs. You also have to admire how the company's earnings have beaten Wall Street expectations in each of the past four quarters. The company has a winning marketing campaign. It's taking shots at the legacy carriers for their laundry list of additional fees. And it's going to have a field day now that Delta (NYSE:DAL), as of yesterday, became the sixth -- and final -- of the legacy carriers to initiate a fee on a passenger's first checked bag.
  • (NASDAQ:CTRP): Regular readers of this weekly column may recall that Ctrip was the stock being dumped in July. With the stock trading roughly 30% lower today, this is the right time to buy back in. China offers plenty of air travel-related plays that appear to be immune to the industry's stateside weakness. Ctrip is the country's leading online travel portal; it's making the most of the world's most populous nation, where the economy is improving. As an alternative, you can always go for an airline-specific play such as China Eastern Airlines (NYSE:CEA), Shanghai's primary carrier. An airline brand-agnostic play that I really like is AirMedia (NASDAQ:AMCN), an operator of high-tech advertising networks in several Chinese airports. Either way, if you have to invest in air travel, you shouldn't ignore China's charms.   
  • Priceline (NASDAQ:PCLN): The "name your own price" dot-com star reports tonight, so we will soon have a better feel for the company. I don't have a problem going out on a limb right now. Shares of Priceline are trading at nearly a third of their 52-week high and stand at just eight times next year's projected profitability. Before you start thinking Wall Street is overly optimistic, consider that Priceline has blown past analyst profit targets for nine consecutive quarters. That is favorable momentum heading into tonight's report, from a company with an insanely cheap valuation.

Other headlines out of the weekly trash can:

Do you like Rick's substitutions? Would you rather stick it out with the tossed company? Are there other stocks he should look at in future editions of this column? Let him have it in the comment box below.

Ctrip is a Motley Fool Hidden Gems selection. has been recommended to Stock Advisor subscribers. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has had nothing but favorable trips on United and Ted in the past. It's not the UAL people he's dissing; it's the model. He does not own shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.