Category Archives: $NASDAQ:AAL

Post Trump:US Airlines converge to FairValue, one bargain remains…

US Airline stocks have finally started to converge to a more reasonable valuation of around 8 to 9x P/E from 5-6x.

It took a position by Warren Buffett for investors to finally start buying US airlines – the Trump election victory also helped – but it does go to show most highly paid asset managers are just sheep!

See:

http://www.2centview.com/2015/05/25/the-american-airlines-valuation-dilemma-4-4x-2015-eps/

Unfortunately, the only bargain left now is not in the US but Europe – IAG – trading on P/E of 6x and yield of 6%.

IAG FV = 600, yield 6%.

2CentView has held a core position in American Airlines for 3 years and has long term price target of $60.

2CentView also has a trading position in IAG, opened at 421, take profit target 490, long term price target 600.

2CentView Performance in 2015

The 2CentView portfolio was up 1.5% and flat if you exclude dividends for 2015, which matched the S&P500 but above the FTSE100 which was down 5%.

The portfolio was up nearly 10% mid year, but then the Chinese stock market plunged and was followed an amazing drop in commodity and oil prices, the scale of which no one predicted, sees stocks like Anglo American, Glencore and BHP Billiton drop to record lows.

The objective of the 2CentView system is to outperform the index in rising markets and be at least in line when the major index is flat or falls up to 20%, and outperform if the market corrects more than 20%. The portfolio is benchmarked vs. the SP500 (50%, flat ) and FTSE100(50%, down 5%), so the outperformed by 2,5% in a flat year. Overall return since 2013, 74%.

The exposure to USD/GBP exchange rate is also something to keep an eye on – and 2CentView started using the PUS3 3x Leverage ETFS Short USD, Long GBP to hedge foreign exchange risk, locking in at 1.52.

Where it did badly:
2 Core positions were savaged – SAVE (down 60%), $YHOO (down 50%), $TWTR (down 50%) which cost the portfolio nearly 5% – 2CentView exited these positions, when the 50% threshold was hit. $ACA (Acacia Mining – Gold) was also down 40% due to lower gold prices.

Trades in $AMBA (Amberalla), $GNW (Genworth),$KORS (Michael Kors), $BHP (BHP Billiton) and $AAL (Anglo American) were all stopped out. In the case of $GNW, $BHP and $AAL, these stocks continued to fall and the stop loss system saved the portfolio from losing a lot of money.

Trades in $FIT (FITBIT), $HSBC were hit their targets and were profitable.

Core positions which did well: $FB up 40%, $MRKT, $DLG (Direct Line, up 30%+dividends),$NFLX (NetFlix), $TWOD (Taylor Wimpey, up 50%), $GOOGL up 60%.

Other core positions in $AAPL, $NASDAQ:AAL (American Airlines), $SWKS, $MS, $CELG and Ionis pharma were fairly flat.

Main lesson learnt from 2015 – STICK to your stops – downward moves can be savage – Analysts forecast can severely LAG the market on the downside as well as the upside, so do not fight the market, exit at your stop, re-evaluate and come back in lower down if you still like the stock.

Happy 2016 from the 2CentView team.

Market sell off Savage – quality stocks at lower prices…UPDATE…

Revisiting some the quality stocks tweeted out at the end of August, following a savage sell off.The market is punishing stocks whose guidance is weak – $SAVE, $GPRO and NXPI…but have rewarded big cap tech stocks like $GOOG, $MSFT.
Can FaceBook join the big tech party or will it sell off following its big run this month?

Here is an update on these great companies mentioned on August 23rd:

Biotech:
$GILD (Gilead) FV = 115 vs 109 – hold out for 115.

Financials:
$MS (Morgan Stanley) FV= 39 vs 34 1.75% 14% Cheap
Reported a terrible quarter, but hold  –  stock is back to 33.4 wait another quarter!

$JPM (JP Morgan) FV=72 vs 64 2.77% 12% Cheap
Prospect for lower rates for longer has not hurt the stock – HOLD.

$HSBC (HSBC) FV=625 vs 533 5.9% 18% Cheap
Weak earnings in Barclays and a potential cash call in Standard Chartered, has not hurt the stock that much at 510. Keep a stop of 470.

Social Media/Internet Retail
$FB FaceBook – look to buy around $80 (30% 5Y Growth)
Results next week – if you got in the low 80’s take profit. 2Centview sold some of the core at 104.

$AAPL (Apple) FV = 120 vs 105
Take profit some profit here above 120.

$TWTR (Twitter) FV=28 vs 26
Terrible quarter – but stock holding up – FV Much lower as company lowers growth expectations. Exit for flat or hold if you believe in Dorsey.

$YHOO (Yahoo FV = 36 vs 33 (vs 68.2 in BABA stock)
Take profit above 36.

$BABA FV= 88 vs 68
Take some profit here at 84.

Chips
$SWKS (Skyworks) FV=92 vs 79 14% Cheap
Stock lower following NXPI results – but FV Unchanged. HOLD.

3D Printing
$HPQ (hewlett packard) FV= 36 vs 27.5 2.56% Yield – Separation could add $5 – look at EBAY/Paypal!
HOLD. FV Unchanged.

$SSYS (stratasys) FV = 25 (if you include $6 of cash) vs 28
FV lower. Exit here at $26 unless you believe 3D printing is potential growth story.

Solar
$SPWR FV=26 vs 21.7
Take some profit here at $26. Keep a core if you believe in Solar Power long term.

Oil
$BP FV=470 vs 357 yield 6.8%
FV= 400 now – lower as oil prices expect to stay lower for longer. Hold for the YIELD or take profit if you got in at 357.
$PFC (PetroFac) FV = 930 vs 789 yield = 5%
Stock did get to 940 – where 2CentView took some profit – holding a core.

Insurance
$AV. (Aviva) FV=580 vs 482 yield = 4.4%
FV Unchanged – hold for the yield.
$AIG FV = 65 vs 60 1.88% Yield
Take profit at $65 (now 63.53)

Airlines:
$EZJ (easyJet) FV= 1950 vs 1624 3.4% Yield
HOLD.
$SAVE FV = $56 vs 55
Terrible run sees the stock trade down to $35. FV $10 LOWER. 2CentView has exited the core position.
$AAL FV=$55 vs 40
HOLD. Nice rally to $46.

The American airlines valuation dilemma …4.4x 2015 EPS..

If someone offered you a business , which in 4.4 years would pay for itself based on current earnings consensus projections – but over that 4 years there is a risk earnings could be slashed by 40% due to an increased supply forcing prices lower as well as higher raw material prices increasing costs – would you buy it?

This is the dilemma facing investors of American Airlines stock.
On the surface of it, at 4.4x 2015 earnings $AAL looks very cheap….there must be a catch when something so cheap … the catch here is that investors are really concerned that Airline Industry will not control supply and their profits will be slashed…

This is the reason British Airways used to try and kill off competition in the 80’s – not always in a legal way – as the only way to be profitable was to keep it is a Monopoly. The loser being the consumer forced to pay higher prices.

So the Industry needs to keep a happy medium – we don’t want Airlines going bankrupt again – yet consumers need prices to stay low in order to be encouraged to travel.

The Airline Industry really need to work together to ensure there is this balance. Lower oil prices should be benefiting the consumer and the industry.

Airline Fair Values:

$AAL = 70
$SAVE = 85
$DAL = 50

The above fair values imply analysts have not yet cut their estimates in line with the market..

US Airlines get whacked on capacity Concerns…

$AAL and $SAVE – along with all other US airlines got whacked when SouthWest was shown no $LUV by investors after it said that unit seat miles (PRASM) would be lower than expected in Q2 – claiming the industry is adding capacity in anticipation of significant demand.

2CentView has been a $AAL and $SAVE bull from 2013 when the stocks were trading at $24 – still think they can go higher as they are cheap on a p/e basis (AAL = 6x 2016 p/e) – but there is a real concern there will be over capacity and Airlines will again go into a downward spiral like they did before…

If you believe Airlines will control supply and costs prudently this time round – BUY, if not Stay away.

FairValues:

$AAL = 70 Yield 1% [weakest balance sheet of the 3]
$SAVE = 85 [ no debt ]
$LUV=45 [  good balance sheet]

$NASDAQ:AAL (American Airlines) to join SP500! Will the stock finally get a market multiple it deserves…

Inclusion in the S&P500 is a sign AirLine stocks – a decade ago not investable – is finally gaining some recognition as stocks that are investable long term.

The strong dollar should help (a tail wind rather than headwind) as more Americans travel to the UK and Europe, low oil prices, and healthy economy in the US should ensure good demand for Air travel – certainly for the next 12-18 months.

FV on American Airlines = $70 , Yield 1%

Stick with American.

2CentView has a core position in American and recently opened a new trading position at $46.

$NASDAQ:AAL (American Airlines) – back to where it was in December 2013….

American and most of the airlines got whacked Friday as oil spiked on Friday.

Effectively it is trading on the same multiple (5x) as it was in December 2013 As sentiment turned positive to the airlines ins 2014, the mutliple traded on an average of 7x …

Earnings projections have doubled (from 5 to 10) since in December 2013 so the stock should be around $70.,.

Why is it back to 5x – is the market now assuming oil will go back to $100 [ one reason why 2CentView is that you should get some exposure to good oil companies now lik e $PFC (petrofac)]

Doug Parker did a smart thing taking off the hedges in August of last year – he could be even smarter now and put at least a 50% hedge on … to guarantee $10 earnings for the company for the next 2 years – buy back a load of of stock and keep the stock going higher.

American: FV=$70

If you want to get involved buy here at 49, TPP = $65, stop 42. You are buying a company trading at just 4.6x 2015 forecast earnings and 5.4 times 2016 forecast earnings according to Yahoo finance.

https://uk.finance.yahoo.com/q/ae?s=AAL

2CentView performance in 2014…

The 2CentView portfolio was up 12% fo the year, which matched the S&P500 but well above the FTSE100 (flat).

The portfolio ended the year 75% US and 25% UK 0% Europe – mainly because the US was the only market showing real jobs growth and a rising stock market – the model also showed many more opportunities in the US than outside the US. The exposure to USD/GBP exchange rate is also something to keep an eye on – sterling strength representing a buying opportunity for US Stocks – but can go the other way!

Where it did badly:
2 Core positions were savaged – Blinkx (down 90%) and $TCG (thomas cook) which cost the portfolio nearly 6% – need to do a better job managing zero cost core positions – where you can take your eye of the ball.

Europe and US House & Autos  continued to underperfrom and took losses in Deutsche Bank, HSBC and $USG and $GM – all go cut on the 25% Stops (they continued to go lower – except $GM which has come back – thanks EBOLA!)

Also took some losses in $FUEL, $GIMO, $ICPT on the rotation out of expensive growth stocks into more low growth stocks – growth positions are the riskiest and hardest to manage as moves can be savage.

Where it did well:
$AAL- American Airlines, $SAVE did very well up nearly 100%
$FB up 37%
$CELG and $ISIS – up nearly 80%
$YHOO – up 40% – easiest trade of the year!
$AAPL – up 50%
$MS – Morgan Stanley up 30%
Rite Aid and Radian also performed well (core positions from 2013)

2014 was in general lot tougher than 2013 as the market experienced volatility throughout the year – Russia/Ukraine, EBOLA, Oil price collapse – all tested the nerves – but also represented buying opportunities.
The 2CentView strategy of taking some profits, setting stops helps build low cost positions and mitigates losses from positions not working – this really helps in managing volatile markets – and helps you sleep at night – we all have day jobs!
Overall the portfolio is up 73% since beginning of 2013 when the model and strategy was first built.
Main lesson learnt from 2014 – be more selective and if a core position drops more than 30% – start to exit – even if it is because of a malicous blog!

So 50% of the portfolio was up average of 51% =25.5% on the winners
30% portfolio down 25% = -7.5% on the losers

6% loss on core positions in $BLNX and $TCG

Net=12%