Buy: Southwest Airlines
Some investors believe high oil prices will continue to hurt Southwest Airlines (LUV) ; its stock is down more than 20 percent over the past year, as oil prices have surged. However, the slowly improving economy -- and the pickup in air travel that often goes along with it -- should provide a good tailwind for the Dallas-based airline, says Matt Collins, an analyst for Edward Jones. Thanks to consolidation in the industry, airlines can pass along some fuel costs through higher airfares, says Collins. Southwest is adding bigger, more-fuel-efficient planes and has kept many consumers happy by not charging fees for up to two checked bags. And in an industry with a reputation for earnings misses and bankruptcies, Southwest has posted a profit for 39 straight years.
Sell: Old Dominion Freight Line
This trucker specializes in "less-than-truckload" freight (it consolidates the shipments of several customers on one truck), and it's one of the strongest in the industry. But the Thomasville, N.C., firm's stock trades at 17 times this year's expected earnings, one of the higher valuations in the industry, says Matthew Young, an equity analyst for Morningstar. Old Dominion (ODFL) has been able to pass along fuel surcharges, but paradoxically, the improving economy might bring more rival trucks back on the road. The company says it works to be efficient when oil prices are high.
Hold: Dollar General
Shares of this Goodlettsville, Tenn., retailer have surged 50 percent in the past year. Sales in 2011 were $14.8 billion, up 14 percent from a year earlier. Rising gas prices could persuade consumers to shop more at Dollar General (DG), says David White, a financial planner in Bloomfield Hills, Mich. Still, investors might wonder why some shareholders sold 25 million shares this spring at $45 a share, just beneath the stock's 52-week high. At the time of the sale, Dollar General said it didn't receive any proceeds from the transactions.