Recently, I welcomed Clay Mahaffey on my nationally syndicated "The George Jarkesy Show" for our special "Stock Watch" segment. Mr. Mahaffey, the Chief Analyst of the National Eagles and Angels Association, discussed Hawaiian Holdings (HA), the parent company of Hawaiian Air which he feels has a very attractive valuation. We also talked through some geopolitical risks that investors need be aware of that could adversely affect the company and change the outlook for this year. This company is a component of the National Eagles and Angels Micro Dynamic Portfolio and as part of that long only strategy it is not hedged. As a standalone position investors may want to consider stop losses or consider an options strategy to limit the downside, especially if they think that this year oil prices will move significantly higher.
George Jarkesy: Now tell our listeners what can we do to make money today?
Clay Mahaffey: Well, George, here's a company of interest - Hawaiian Holdings. It trades under the symbol HA. It's at $5.19. I like this stock because it is priced at a very attractive valuation. It's currently selling for only three times next year's earnings per share and about two times next year's cash flow.
This is a parent company to Hawaiian Air. It's an 81-year-old company. They have the best on-time service rating over the last eight years. They are highest rated for service quality in 2008 and 2009. They have 12 U.S.-gateway cities. They're adding JFK in New York this year. They're adding gateways cities in Asia, like Sydney, Tokyo, Seoul, and Manila to fly into Hawaii. They have 170 daily flights. They dominate the traffic from Hawaii to the neighboring islands around there. That's the good news.
The bad news, George, is everybody is so concerned about the jet fuel cost going forward. That's why this stock is so beaten down. People are expecting jet fuel prices to increase drastically this year. And if there's some realization that it's not going to hell in a hand basket, the stock will pop right up.
So it has a nice growth story. It was up 20 percent last year. Tourism from Japan is expected to increase. It's a year after the tsunami that kind of wiped out their travel last year. The U.S. dollar is weaker by 20 percent against the Japanese yen, which makes Hawaii a more economic tourist destination. Visitors from Australia were up 32 percent in 2011. So Hawaii, they are a lock as a world-class destination location.
George Jarkesy: All right. Real quick question and then we got to run. So they have very little hedging in place, which is why the risk is there? They haven't hedged their jet fuel?
Clay Mahaffey: It's relatively small. Their hedging - they have gains and losses between $5 and $10 million per year out of about $1.4 billion in revenue. Their jet fuel costs last year were $500 million. It's 30 percent.
George Jarkesy: So if the Strait of Hormuz or something was to erupt or Iran, Israel or something, it could put the company in bad shape, but if things go well, the company could do well?
Clay Mahaffey: Yeah. The argument on the Strait of Hormuz is Iran has to deal with our aircraft carriers and ten other French and English vessels.
George Jarkesy: Sure. So you like the position, but it is "buyers beware" on this.
Clay Mahaffey: Yes.
George Jarkesy: I don't want to call it a black swan because it's more likely than a black swan, but it could have a negative event. We might want to do some hedging or something, right?
Clay Mahaffey: Yeah.
George Jarkesy: But you like the position. You think it's cheap in a normal environment?
Clay Mahaffey: I think it's grossly oversold.
George Jarkesy: All right. Clay Mahaffey thanks for being on The George Jarkesy Show. We appreciate it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.