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(B)(N) AC.B Air Canada

November 9, 2013

Drama. Does anybody know why the shares of Air Canada that traded for $1 for most of last year closed yesterday at $6? Neither do we. But the stock price is also up +230% this year and the increase eclipses everything else in the S&P TSX that has any market value at all; its “market value” is now $1.5 billion and up from $250 million in 2009 and again $250 million in 2012 and the company doesn’t even pay a dividend on earnings that have been negative for four of the last five years but might be $120 million per month from here on out, possibly.

Air Canada Courtesy: CBC News 2012

Air Canada
Courtesy: CBC News 2012

One would think that a company with 26,000 employees and over 350 jets would be worth more than $1.5 billion (let alone $250 million) except that most of its gear hasn’t been paid for and its current total liabilities of $13 billion (before pension considerations) exceed its net worth or shareholders equity by $16 billion.

Nevertheless, the investment management firm, Letko, Brosseau & Associates Incorporated of Montreal, apparently owns 16.5% of the stock (Morningstar AC.B) or about 45 million shares which is up nearly 100% from 22 million shares earlier this year. That’s interesting.

But what’s a girl to do? We have to play the field and we’re willing – and even conscripted – to buy and hold anything and everything that’s trading above the price of risk, depending on our budget, and for no other reason. Please see Exhibit 1 below.

Moreover, “risk” has nothing to do with it. Our estimate of the downside in the stock price due to the demonstrated volatility of the stock price is as much as minus ($1.60) per share in the next quarter so that it could be trading from the current $6 to between $4.50 and $7.50 without surprise. But we expect surprise – air pockets, for example – and since there are no active options, we’ll just have to keep an eye on our stop/loss which we raised to $5 and hopefully can raise again. Else we might be forced to take profits and have to buy the stock back at lower prices but still above the current Risk Price (SF) of $2.50 and rising. Buckle up!

Exhibit 1: (B)(N) AC.B Air Canada – Risk Price Chart

(B)(N) AC-B Air Canada - November 2013

(B)(N) AC-B Air Canada – November 2013

Air Canada provides scheduled passenger services in the Canadian market, the Canada-US transborder market as well as the international markets to and from Canada.

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

From the Company: Air Canada, a full-service airline, provides scheduled passenger services in the Canadian market, the Canada-U.S. transborder market, and in the international market to and from Canada. The company offers specialty charter service under the AC Jetz brand to professional sports teams, corporate incentive travelers, and executive groups; a range of leisure travel packages, including cruises, tours, car rentals, and excursions to various destinations in the Caribbean, Mexico, North America, Central and South America, South Pacific, Asia, Europe, and the United States; and air cargo services to freight forwarding companies and businesses. As of December 31, 2012, it operated a fleet of 205 aircraft comprised of 89 Airbus narrowbody aircraft, 56 Boeing and Airbus widebody aircraft, and 60 Embraer regional jets. The company was founded in 1937, has 26,000 employees and is headquartered in Saint-Laurent, Canada.

For more information on the Chart elements and additional references, please see our recent Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100.

And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

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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