The Big Picture for the Week of Nov 21, 2004

I saw in interesting interview of David Neeleman, CEO of Jetblue (JBLU), on Bloomberg TV. What interested me was the extent that he was saying that several airlines are under hedged against the rise in oil over the last few months. The reason for the lack of hedging is the reliance of brokerage firm price predictions.

For whatever reason, the analysts community has mostly missed the mark repeatedly, which I believe creates an opportunity for stock investors. I first wrote about this in May for the Fool. The idea is very simple and not very unique, but a catalyst for oil stocks nonetheless.

Many oil companies use a much lower price for oil in whatever price modeling needed to run an oil company in an effort to be conservative. When we start to have quarter after quarter of operations with $45-$50 oil, even oil above $40 creates the effect, it makes all sorts of oil companies very cheap. Also low oil prices are used by brokerage firms for their forecasting models too. This makes oil stocks cheap.

I expect very good things to continue for oil stocks for the foreseeable future. I have written before that on a down move oil might find a home in the low $40's and that might impact oil stocks for a short while but this pricing anomaly and what I believe is a change in worldwide global demand because of China and India are the reasons for my optimism.

Energy stocks make up 7% of the S+P 500. I am overweight the group with about an 11% weight. As bullish as I am, I could be wrong so my idea of overweight is 3%-6% more than the benchmark weight.