Air Transport Services: Frantic Travel Disruption Spurs Stock Profit Prospects

Peter F. Way, CFA profile picture
Peter F. Way, CFA
17.62K Followers

Summary

  • As if air travel wasn’t problem free, healthcare concerns have added to Air Transport Services Group’s “opportunities”.
  • 101% of its stock is held by 267 institutions. What may they know that you may not?
  • They know that owning the stock previously when its Reward/Risk ratio was like today’s gained capital at a 129% annual rate, 25 times in the last 5 years.
  • And they know where and when to move on to better investing prospects.
  • But you should learn this one first.

Business on Wall Street in Manhattan

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Investment Thesis

Knowing when and which stocks to own, actively and selectively, provides a continuing series of net capital gain opportunities delivering wealth accumulation or spendable income at rates which are multiples of what market-index ETFs offer.

You can know what winning institutions know about capital-building stock situations by listening to what the markets tell as capital is being invested. Because today’s markets pay active investors for being in the right places at the right times. They feed off the indolence of passive-strategy investing buy&holders who frequently pass up timely points of profitable position liquidation.

Increased information technology, communication capabilities, and rapidly evolving competitive practices make this century’s investing markets far more opportune with pricing activity than the 20th century offered.

But an active investment strategy requires reasonably-accurate forecasts of what to expect. Fortunately, the conditions creating the “hazards” feared by the buy&holders are what provide the needed forecasts. The markets themselves, in their interactions, define what the best-informed professional practitioners see as coming-price limits. In both directions.

Instead of forecasts by analysts of what may be hoped for as price/earnings targets to be sought, the markets define ranges within which prices are reasonably being expected. Ranges which warn of currently unmaintainable excesses, and of price depressions unlikely to present buying bargains for long.

But if this is not a suitable practice for your situation, continue to ignore it. We are pleased to have your persistent support, rather than competition which might erode our wealth-building competitive productivity.

Risk and Reward Balances Among Air Transport Competitors

Let’s look at an “Opportunity Set” of comparable companies ranging from most to least attractive to consider in one particular area of activity today – Entertainment. Our best-buy bet is Air Transport Services Group, Inc. (NASDAQ:ATSG). Here in Figure 1 is how the markets currently appraise their Reward ~ Risk trade-offs.

Figure 1

MM hedging forecasts

blockdesk.com (used with permission)

Upside price rewards are from the behavioral analysis (of what systems require to be done, not of emotional investor errors) by Market-Makers [MMs] as they protect their at-risk capital from possible damaging future price moves. Their potential reward forecasts are measured by the green horizontal scale.

The risk dimension is of actual price drawdowns at their most extreme point while being held in previous pursuit of upside rewards similar to the ones currently being seen. They are measured on the red vertical scale.

Both scales are of percent change from zero to 25%. Any stock or ETF whose present risk exposure exceeds its reward prospect will be above the dotted diagonal line. Capital gain attractive to buy issues are in the directions down and to the right.

Our principal interest is in ATSG at location [2]. A "market index" norm of reward~risk tradeoffs is offered by SPY at [8]. Most appealing by this Figure 1 view is ATSG.

Description of Subject Company

Air Transport Services Group, Inc., together with its subsidiaries, provides aircraft leasing and air cargo transportation and related services in the United States and internationally. The company offers aircraft, flight crews, aircraft maintenance, aircraft hull and liability insurance, and aviation fuel services; and aircraft maintenance and modification services. It provides its services to delivery companies, freight forwarders, airlines, air transportation, e-commerce, package delivery, and logistics industries, as well as government customers. As of December 31, 2021, the company's in-service aircraft fleet consisted of 107 owned aircraft and ten leased aircraft. The company was formerly known as ABX Holdings, Inc. Air Transport Services Group, Inc. was founded in 1980 and is based in Wilmington, Ohio.

Source: Yahoo Finance

Street analyst estimates

Yahoo Finance

These growth estimates have been made by, and are collected from, Wall Street analysts to suggest what conventional methodology currently produces. The typical variations across forecast horizons of different time periods illustrate the difficulty of making value comparisons when the forecast horizon is not clearly defined.

The Figure 1 map provides a good visual comparison of the two most important aspects of every equity investment in the short term. There are other aspects of comparison which this map sometimes does not communicate well, particularly when general market perspectives like those of SPY are involved. Where questions of “how likely” are present, other comparative tables, like Figure 2, may be useful.

Figure 2

detail comparative data

blockdesk.com (used with permission)

Why do all this math?

Figure 2’s purpose is to attempt universally comparable answers, stock by stock, of a) How BIG the prospective price gain payoff may be, b) how LIKELY the payoff will be a profitable experience, c) how SOON it may happen, and d) what price drawdown RISK may be encountered during its holding period.

Readers familiar with our analysis methods after quick examination of Figure 2 may wish to skip to the next section viewing price range forecast trends for ATSG.

Column headers for Figure 2 define investment-choice preference elements for each row stock whose symbol appears at the left in column [A]. The elements are derived or calculated separately for each stock, based on the specifics of its situation and current-day MM price-range forecasts. Data in red numerals are negative, usually undesirable to “long” holding positions. Table cells with yellow fills are of data for the stocks of principal interest and of all issues at the ranking column, [R]. Cells with pink highlights contain values inadequate or undesirable for capital gain prospects.

The price-range forecast limits of columns [B] and [C] get defined by MM hedging actions to protect firm capital required to be put at risk of price changes from volume trade orders placed by big-$ "institutional" clients.

The "insurance" costs most economical are in contracts with shorter lives, which is all the MMs need, as their risk exposures usually are curable by ordinary near-term market activities. But that makes for price-range forecasts only of next weeks or months expectations.

[E] measures potential upside risks for MM short positions created to fill such orders, and reward potentials for the buy-side positions so created. Prior forecasts like the present provide a history of relevant price draw-down risks for buyers. The most severe ones actually encountered are in [F], during holding periods in an effort to reach [E] gains. Those are where buyers are emotionally most likely to accept losses.

The Range Index [G] tells where today’s price lies relative to the MM community’s forecast of upper and lower limits of coming prices. Its numeric is the percentage proportion of the full low to high forecast seen below the current market price.

[H] tells what proportion of the [L] sample of prior like-balance forecasts have earned gains by either having price reach its [B] target or be above its [D] entry cost at the end of a 3-month max-patience holding period limit. [I] gives the net gains-losses of those [L] experiences.

What makes ATSG most attractive in the group at this point in time is its ability to produce earnings most consistently at its present operating balance between share price risk and reward, the Range Index [G]. Credibility of the [E] upside prospect as evidenced in the [I] payoff is shown in [N].

Further Reward~Risk tradeoffs involve using the [H] odds for gains with the 100 - H loss odds as weights for N-conditioned [E] and for [F], for a combined-return score [Q]. The typical position holding period [J] on [Q] provides a figure of merit [fom] ranking measure [R] useful in portfolio position preferencing. Figure 2 is row-ranked on [R] among alternative candidate securities, with ATSG in top rank.

Along with the candidate-specific stocks, these selection considerations are provided for the averages of some 3300 stocks for which MM price-range forecasts are available today, and 20 of the best-ranked (by fom) of those forecasts, as well as the forecast for S&P 500 Index ETF (SPY) as an equity-market proxy. The current market overall still remains unattractive, and the ETF market-index SPY invokes an inadequate reward for its presumed diversification when compared with the best-past-performer candidates.

As shown in column [T] of figure 2, those reward-risk-ratio levels vary significantly between stocks. What matters is the net gain between investment gains and losses actually achieved following the forecasts, shown in column [I]. The Win Odds of [H] tells what proportion of the Sample RIs of each stock were profitable. Odds below 80% often have proven to lack reliability.

Recent Forecast Trends of Primary Subject

Figure 3

Detail daily MM forecasts trend

blockdesk.com (used with permission)

Many investors confuse any picture of time-repeating stock prices with typical "technical analysis charts" of past stock price history. Instead, Figure 3's vertical lines are a daily-updated visual forecast record of price range limits expected in the coming few weeks and months. The heavy dot in each vertical is the stock's closing price on the day the forecast was made.

That market price point makes an explicit definition of the price reward and risk exposure expectations which were held by market participants at the time, with a visual display of the vertical balance between risk and reward.

The measure of that balance is the Range Index (RI). Here, only 9% of the full forecast range of $30.74 to $38.25 lies between the current price of $31.46 and $30.74. With today’s RI only three of 25 prior RI 9s in the past 5 years have failed to be profitable in the next 3 months. And their average net gain of all 25 has been +14.4% on a 41 market day (8 weeks) capital commitment.

Today’s Figure 2 prospect for SPY of 3.0% in 58 days illustrates how strong ATSG compares with the current market index ETF, as well as with other Air Transport industry investment alternatives.

Conclusion

Based on direct comparisons with other Air Transport industry investment alternatives, there are several clear reasons to prefer a capital-gain seeking buy in Air Transport Service Group, Inc.

This article was written by

Peter F. Way, CFA profile picture
17.62K Followers
Peter Way Associates provides daily updated, near-term (3-month) price range forecasts for over 2,500 widely-held and actively-traded stocks, ETFs and market Indexes. Comprehensive results are available on the SA blog of my name.__These forecasts are derived from the way market professionals protect their own capital placed at risk while helping big-money portfolio managers adjust their holdings in multi-million-dollar "block" transactions.__ They cannot be found elsewhere.__Having these price-change prospects available on a continuous basis encourages individual investors to actively and economically build up the values of their own smaller portfolios. PWA only provides information for individual investors; it no longer manages investments for others.__Rates of portfolio capital growth being achieved by subscribers are at MULTIPLES of the growth in market averages, due to the efficient use of holding period time and the compounding of gains a number of times each year.__Risks of capital loss are protected against by insightful selection guidance and holding-period-limit disciplines. The advantages of good selection and careful timing amply cover a much smaller portion of unavoidable losses.__These Market-maker forecasts have several decades of demonstrated productivity. Earlier in the 20th century they were used by large institutional portfolios, and now in the 21st century they are available only to individual investor wealth-building portfolios. Thousands of day-by-day identifications of specific securities having consistent, odds-on profitable results rule out any likelihood of their exceptional outcomes being due to chance. Peter F. Way is a veteran Chartered Financial Analyst, having taken and passed the CFA Institute’s required 3 examinations in the first years they were given, 50+ years ago. Armed with BS in Economics from the Wharton School and an MBA degree from Harvard Business School, he has managed staffs of dozens of Investment Researchers and Quantitative Analysts for the nation’s largest bank, arbitraged index options for NYSE Specialists, and managed portfolios of hundred-million-dollar equity investments for Fortune 100 corporate pension funds and non-profit endowments. He has been elected President of professional Investment Analyst Societies in San Diego and New York City and has served on the editorial boards of the Financial Analysts Journal and the CFA Digest.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in ATSG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Peter Way and generations of the Way Family are long-term providers of perspective information, earlier helping professional investors and now individual investors, discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations.

We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So our information presents for D-I-Y investor guidance what the arguably best-informed professional investors are thinking. Their insights, revealed through their own self-protective hedging actions, tell what they believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided, both on blockdesk.com and on our Seeking Alpha Contributor website.

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