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  • Southwest CEO pulls up airline sector with comments [View news story]
    For anybody who wants to talk about efficient markets....the reaction here has been absurd. LUV tipped an extra 1% capacity, which would have made little to no difference, and the airlines plunge through their ridiculously low 200 DMAs--AAL could have made it down to a 3 handle on PE for *this* year's earnings. How do you justify 3.9 X earnings for most any company? AAL should at least be in the 60s, along with DAL, and UAL should be higher than that. However, even that is a ridiculous and irrational discount imo.
    Jun 1, 2015. 04:20 PM | 10 Likes Like |Link to Comment
  • Retired Or Soon To Be? Here's A Back Test You Need To Review [View article]
    Dave, thx. My thought is that most investors, and especially DGI investors, are quite happy with a fairly normal market. The lesson learned from Dave's investing example is to hang in there, and good companies will often come roaring back. However, when your balance is down 30%-50% it takes a lot of fortitude to ride it out. Showing how low it got might help to illustrate both the temptation and perils of selling. BAC had a great divvy and it was selling up to the 50s--it lost about 90% of its value. I think it is interesting to just read the currents on the investing websites. At bottoms, you see a lot of stories about crashes and how B&H is dead. In healthier markets, you see a lot of stories about DGI, how much Warren Buffett makes in the stock market, and what the next great company/sector is going to be. I think it is good to study the extremes, so you know what to do ahead of time. Looking at how low Dave's portfolio would have gotten in '09 would also be a good argument for diversification and having some cash to add to your dividends, so you can buy more at bottoms. But, as I said, I thought it was a nice illustration as it was.
    May 30, 2015. 04:27 PM | 2 Likes Like |Link to Comment
  • American Airlines: The Most Undervalued Company Of The Airline Industry And S&P 500 [View article]
    1) - Investing in airlines, even solid ones, is very contrarian. Therefore, you get in at a huge discount.
    2) - They dealt with this in the CC. Basically, the comparison is between low cost, long term debt and leasing, and they think debt is better. Interest was still less than a billion a year. So, the debt is easily covered by a 42Bn dollar company.
    3) - Three possibilities. Oil up; oil down; oil sideways. Hedging saves money in one of the three possibilities--oil up. Hedging loses money in two-thirds of the possibilities. If airline execs could accurately predict oil prices, they would do better to sell the planes and make billions on commodity speculation. They can't, and AALs strategy has been the winner.
    I haven't followed Parker like many here seem to have, but AAL has made a lot of solid decisions over the last year or two. They are beating other airlines on oil price, fleet updating (I think they will soon have the youngest fleet), buying stock on large dips in price (most companies do a bad job of buying panic), and refinancing high cost debt. They have been looking very shrewd since I have been watching. Airlines do have a lot of varied risk, but the price here is lower than last year when AAL was making a lot less money and oil was $95 barrel. The panic and price are both irrational imo.
    May 29, 2015. 12:34 PM | 4 Likes Like |Link to Comment
  • American Airlines: The Most Undervalued Company Of The Airline Industry And S&P 500 [View article]
    MJM, I don't get it. Apple could be accused of oligopoly status, but I wouldn't say that about the airlines. First of all, there are three. How many big US cellphone makers are there? Plus Southwest, Spirit, Jetblue, Alaska, Hawaiian, and many other offer a lot of competition. Apple is making way more money than the airlines, yet people seem to worry about the "oligopoly" any time the airlines turn a profit. I don't understand that. Also, AAL is selling for 3.5-5X this year's earnings because of the panic over unrestrained competition! Southwest said they were going to raise capacity up to 1% over the previous plan and Mr. Market checked into the hospital for depression over the competition in the air.
    May 29, 2015. 11:49 AM | 2 Likes Like |Link to Comment
  • Retired Or Soon To Be? Here's A Back Test You Need To Review [View article]
    Bob, nice article. I would love to see what this $320K would have been worth in April of 2009. You have shown the effect of Dave staying the course, but selling at the bottom is very tempting, so it helps me to think about what might happen.
    May 29, 2015. 07:00 AM | Likes Like |Link to Comment
  • American Airlines: The Most Undervalued Company Of The Airline Industry And S&P 500 [View article]
    Harm, if AAL had the exact same forward PE as its constituent index, the S&P 500, as of this AM, it would be priced at $175.58 this afternoon. Nobody is saying it shouldn't be discounted; we are saying that maybe half price would be appropriate? Say $80-$85. I just pulled half price out of thin air, so it has no basis, but over time I suspect companies that earn 25% of their market cap in one year, or close to it, tend to outperform the market. Whatever the reason for the crazy discount (and I can't find a good one), it is probably not valid. AAL was higher than this when oil was up close to $100 last year. The market has talked itself into an irrational price.
    May 27, 2015. 03:53 PM | 2 Likes Like |Link to Comment
  • American Airlines: The Most Undervalued Company Of The Airline Industry And S&P 500 [View article]
    Great point--AAL is way less than the airline average, and the airline average is discounted at less than half price! This price is irrational. If oil stays in the 50-70 range, I expect AAL to up the buyback dramatically in the coming years, and it is already large, as the author points out. Earning 25% of your market cap just doesn't work over the long haul, or even the short haul. AAL would be able take the company private if the stock doesn't go up dramatically. The reaction to Parker's comments was insane--LUV said they were going to increase capacity by up to 1% over the previous estimate--1%! The other huge point is that the CASM difference between LUV and AAL mainline is pretty small. I don't think LUV wants a price war. Finally, the planes are so full now, it would take a large increase in capacity to drive prices down hard...ain't on the radar, folks!
    May 27, 2015. 01:36 PM | 3 Likes Like |Link to Comment
  • CBI Gives Investors False Hope [View article]
    Mike, the only people getting "crushed" are the poor shorts, and I do mean poor! This has been one of the most disastrous trades I can remember. Most of the shorts were put on over the last few months near the bottom, and CBI has since rallied almost 100%! They have been selling, while people like Grantham and Einhorn (and many of us bulls) have been buying their shares. CBI just formed a Golden Cross, too, if you like technicals. We will have to wait and see, but we could have gotten a mini-squeeze as CBI rocketed almost 40% in a couple of weeks. Also, I have taken a lot of profits, so it will almost surely rise from here! Once we clear the nuke issues, CBI is ready to run, and that is the big risk, too. I am still comfortable with it as a long term B&H. GLTA.
    May 27, 2015. 06:36 AM | Likes Like |Link to Comment
  • The Airlines Tough Start To The Week [View article]
    I agree that vigilance is good, but 4 X forward earnings? This is the same Mr. Market that ran AAL down to less than 3 X forward earnings last October. Buy and be vigilant, but that is true of most stocks. Disaster can hit any company.
    May 22, 2015. 12:39 PM | Likes Like |Link to Comment
  • The Airlines Tough Start To The Week [View article]
    I added UAL and AAL yesterday, too. The drop is remarkable in my opinion. Jetblue, Southwest, and Spirit are trading around half price, or slightly over on forward estimates compared to the major averages. So, Mr. Market is valuing good airline company earnings at just over half the price of the average US company on the S&P. AAL is trading at less than half the valuation of JBLU, LUV, and SAVE! UAL isn't much higher. These shares are being given away. In fact, the price to earnings ratio for just this quarter is discounted to the major averages. If we take the P/E valuation for the forward estimate yesterday on the S&P 500--17.89, and we multiply that by AAL's estimate for *just this quarter* ($2.92), we get a valuation of $52.94! American Airlines is a bargain even without three out of four quarters being counted. Saying that Mr. Market is giving away shares is an understatement.
    May 22, 2015. 07:17 AM | Likes Like |Link to Comment
  • American Airlines: An Analysis After The Sell-Off [View article]
    What move are you talking about, sam? That they are going to increase capacity by 7-8% instead of 7%?
    May 21, 2015. 04:24 PM | 2 Likes Like |Link to Comment
  • American Airlines: An Analysis After The Sell-Off [View article]
    I was adding both stock and calls before the close. I think they will make 10-11 dollars a share this year, depending on oil, obviously. But, thinking you can grab any stock with a 3 handle on the forward PE is just remarkable! 3.9 X just doesn't work long term. AAL can buy back a ton of stock at this level and they did that when it dropped before. I hope Parker figures out a way to vacuum shares off the market at these ridiculously low levels. AAL should be at 50 with 80-90 dollar oil.
    May 21, 2015. 04:06 PM | 1 Like Like |Link to Comment
  • Why I Bought The Dips In Both Gilead And Achillion Today [View article]
    Doc, what are your thoughts on using a targeted ETF or mutual fund rather than trying to follow the ebb and flow of news and rumors on biotech/pharma names? Any recos?
    May 21, 2015. 09:02 AM | Likes Like |Link to Comment
  • Apple: Carl Icahn Gets It Mostly Right [View article]
    Let me complement your argument and compliment Icahn and Cook. His purchase and presence has helped Apple a lot imo. AAPL, as a traded stock, was a victim when Icahn first bought into it. He had dinners with Cook and, to his credit, Cook listened and that is when the changes began. Remember, he was saying things like, "we really don't care about the stock price so much as we do the quality of the products." I think Cook learned a lot about finances. His ability to listen and make changes helped put >100% in shareholders pockets without affecting quality one iota. Apple is much harder to manipulate now, too, imo. As I said back then, great financial engineering and electrical engineering are not mutually exclusive. Why not be great at both?
    May 20, 2015. 09:41 AM | 29 Likes Like |Link to Comment
  • Chicago Bridge & Iron: More Than Meets The Eye [View article]
    There is a big problem with abnormally low valuations. While I also love getting them at the cash register, and I understand why people try to justify cheap to themselves and others, they usually don't hold up in the free market. If we put roughly the same forward valuation on the S&P 500 as CBI has this morning we are back to early 2010 levels! Remember the panic? I would love to own the S&P 500 index in the 1100s today, but I would also love to be able to buy a new Lexus for $20K, and a beautiful new condo on the beach for 250K. You can argue that it deserves to stay at half price, and you can argue that the major indexes need a huge haircut, but my experience has been that the discount washes out over time. GLTA. BTW, having 15.6 million shares short adds a variable that makes pricing hard to predict.
    May 20, 2015. 09:20 AM | Likes Like |Link to Comment