(B)(N) Fly The Friendly Skies

Courtesy: Virgin America Incorporated

Deal Book. In the search for an income, investors have bid-up the NYSE companies to “fantastic” levels, but there are some who are still waiting for a “signal” from the sidelines on Wall Street for a “flight to safety”, and there are others who know what they’re doing (TheStreet, November 18, 2014, Sorry Wall Street, These Airlines Have Growth on Their Minds).

We’ve taken our cue from TheStreet, and will only look at their three featured fliers, Virgin America Incorporated, Spirit Airlines, and Delta Air Lines; for more information on all the Dow Transports, and more, please see our recent Post “(B)(N) What’s A Girl To Do?“.

These investments turned-out to be a “no brainer”, but thinking too much about “volatility” and “bonds” and “risk on/risk off“, can defeat any plan; we were up +212% last year, and another +56% this year, but nothing in 2012 when we didn’t own them, and other investors weren’t buying them, then, at much lower prices.

We don’t know the future, and our estimate of the downside risk in the stock prices is minus (-11%) in the next quarter, but our stop/loss always helps us in all of the times, uncertain or not, clever or not, and we’re convinced (please see below) that there are as many reasons for a “stock price” as there are investors and their money – and we never know where the next “reason” will come from, or how much money there is behind it; please see Exhibit 1 below.

Exhibit 1: (B)(N) Fly The Friendly Skies – Fundamentals

(B)(N) Fly The Friendly Skies – Fundamentals

Figure 1.1: (B)(N) Fly The Friendly Skies – Risk Price Chart

With reference to Exhibit 1 above, the aggregate Enterprise Risk (+0.11) and Debt Risk (+1.03) are positive which just means that they have some work to do to service their debt and produce their assets.

In the last twelve months, they earned $10 billion for an aggregate total return on the shareholders equity of a staggering 75.5% and a return on assets of 18.4%, neither of which have anything to do with the stock price, but the Risk Price Chart (Figure 1.1 on the left) suggests that the investors have lost their taste for these numbers, and whereas Delta is trading at only 3× earnings ([P/E]), Spirit and Virgin are trading at 23× and 14×, respectively, even though they all have similar challenges.

Delta Air Lines is the stand-out in every measure and the only one that pays a dividend, although it’s pretty small – $303 million on earnings of $9.7 billion for a return of earnings of only 3.1% and a dividend yield of 91 basis points (0.91%) at the current prices; nevertheless, investors seem to be excited about that and  bid-up the stock price by almost 40% and $8.8 billion this year to the current market value of $32 billion, and have probably already bought this year’s earnings. What will they think of next?

Courtesy: Spirit Airlines

Virgin America was an IPO last week at $23 and it’s trading today at $37; we’ve raised our stop/loss to $31 which is just over the current risk price of $30; please click on the links “(B)(N) Fly The Friendly Skies – Prices & Portfolio and Cash Flow Summary” for further details.

Spirit Airlines is the hardest worker with an Enterprise Risk of +2.44 and a Fixed Assets Productivity of +1.88, but for us to make money on it, other investors will need to do that job, and they’ve already bid-up the price by +39% this year – Thanks!

Please see Exhibit 1 for further details, and for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, 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 action, La 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 America, Big Oil, Shopping 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*.