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(B)(N) WJA WestJet Airlines Limited

February 7, 2013

Drama. The back-seat fliers who normally just buy and sell as many stocks as possible but fail to sell as many “seats” as possible, have raised “concerns” that WestJet Airlines might not make as much money this year as last year (Reuters, February 6, 2013, WestJet disappoints with outlook, shares dip). Of course, we don’t know either but WestJet has shared its outlook based on the best available information and has also raised its quarterly dividend by 25 percent to 10 Canadian cents a share or $40 million per year for a current yield of 1.5% and plans to buy back up to 5 percent of its outstanding shares which would cost another $120 million at the current prices of $20 or more per share (please see Exhibit 1 below).

Exhibit 1: (B)(N) WJA WestJet Airlines Limited – Risk Price Chart

(B)(N) WJA WestJet Airlines Limited

WestJet Airlines Limited is a Calgary-based airline operating in North America with a fleet of aircraft notably equipped with more legroom, leather seats and live seat back television. WestJet is the #2 airline in Canada with total assets of about $4 billion and destinations throughout Canada, the United States, Mexico, Central America and the Caribbean.

(Please Click on the Chart to make it larger if required.)

We tend to ignore the news and scuttlebutt and only buy or hold a stock if the ambient stock prices as represented by the Stock Price (SP) (Red Line, a step-function in Exhibit 1) appear to be at or above the “price of risk” or Risk Price (SF) (Black Line) which is also a step-function updated at most quarterly as new balance sheet information becomes generally available (please see our Post, The Price of Risk, August 2012, or almost any of these Posts for more examples).

The price of risk is provably “the least stock price at which a company is likeable” (Goetze 2009) and “likeability” is not just a pretty picture or a good story but the demonstration that investors with a strong sense of risk aversion – we want to keep our money and obtain a hopeful return above the rate of inflation – are committed to buying and holding this stock at those prices, and otherwise not.

The current Risk Price (SF) is only $15 and investors have steadily bid up the stock price from $13 a year ago to the current $20 or more and the difference between the current stock price and price of risk or “risk-adjusted” price can be thought of as an “economic free good” that needs to be earned and the risk averse investors who buy and hold the stock at those prices believe that it will be. (Please see our Post, The Nash Equilibrium & Its Stock Price, October 2012, for more information.) News and information investors, on the other hand, tend to suffer a different fate attending investment angst and really have no idea why that might be the case or why the stock price is what it is. Please see our Post, The Active Investor (DOA), November 2012.

Our estimate of the downside due to price volatility (and nervous fliers) is minus ($3) and we can protect our position using a free stop/loss or spend a few cents per share to securely ride out the current headwinds for the next few months. The July put at $21 costs $1.30 per share today and an offsetting opportunistic sold or short call at $23 sells for $1.30 or less. Please see our Post, The Wall Street Put, August 2012, for more details on this rather simple flight plan for turbulent times and uncertainty that helps to keep us in the market and our money “working” for us, no matter what.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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