50% drop in shorted DAL shares in one month:
Settlement Date Short Interest Avg Daily Share Volume Days To Cover
4/15/2013 7,711,832 18,906,101 1.000000
3/28/2013 9,607,494 10,056,989 1.000000
3/15/2013 15,329,743 13,467,623 1.138266
institutions buy 30M more net shares:
Total Number of Holders 466
% of Shares Outstanding 81.12%
Total Shares Held 694,809,294
Total Value of Holdings 12,152,214,552
Net Activity 30,829,286
Reason shorts are shorting is value trap since Forward P/E (fye Dec 31, 2014)1: is 5.37;
PEG Ratio (5 yr expected)1: is 0.24; Price/Sales (ttm): only 0.38 ; etc. are not typical of a healthy industry?
Some of Warren Buffett’s most amusing quotations have all been on the subject of airlines:
“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
“As of 1992, in fact—though the picture would have improved since then—the money that had been made since the dawn of aviation by all of this country’s airline companies was zero. Absolutely zero.”
The airline industry had, at least up to 1990, lost more money than it earned for equity investors. Buffett's remarks underline that the airline industry has an unenviable relationship between risk and return. The reasons are straightforward: airlines have high fixed costs, and when demand falls below break even, it is difficult to lower those costs by selling surplus aeroplanes because of the low demand. High fixed costs are characteristic of several industries but the airline industry is more prone to overcapacity because its air of glamour attracts more capital than justified by pure spreadsheet-based calculations.
In recent years famed investor Warren Buffett has been bold in talking up the prospects of US companies and the country’s economy in general. But even for a man who’s been willing to buys newspaper publishers, there’s one industry which he’s left well alone: Airlines.
In early March, Buffett reiterated his position, telling CNBC that the airline sector has “all the ingredients of a bad business.”
That’s certainly not what investors seem to think. As this Bloomberg story today points out, regardless of what Buffett says, airline stocks have been a pretty good investment
The Bloomberg U.S. Airlines Index of 10 carriers surged 35 percent in the first quarter, the best start to a year since at least 1999. Wall Street projects that gains are just beginning for Delta Air Lines (DAL) and US Airways (LCC), with both rated higher on average by analysts than 92 percent of U.S. companies, according to data compiled by Bloomberg.
After more than $58 billion in losses from 2001 to 2009 amid two recessions and rising fuel bills, carriers are heading for a fourth straight annual profit as they match seat supply to demand and fly planes fuller than any time since 1945. That’s drawing new investors such as Snow Capital Management LP and Leuthold Group while hedge funds are adding to their holdings.
Barron’s scribe and former Stocks to Watch chieftan Avi Salzman has been touting Delta all year, and in a Follow Up in this week’s issue he writes:
Delta Airlines stock, trading at $16.51, has risen a whopping 80% in the past six months and 27% since we pointed out its potential (“Gaining Altitude With Delta,” Jan. 7). Based on history, it would be logical for investors to pocket those gains. But catalysts ahead could keep the shares rising into the clouds for the foreseeable future.
Among other airlines, United Continental Holdings (UAL) stock has risen 60% in the past six months.
April 1, 2013, 11:31 A.M. ET
Buffett’s Missed Airlines Bet