So they just had a "faceoff" on CNBC about AAL. It was the S&P analyst Jim Corredore against some technical analyst I've never heard of. Corredore is using facts and logic to explain why he thinks AAL is a buy. The technical analyst obviously knows nothing about the business, but is talking chart trends.
It kind of boggles my mind that you could buy and sell assets and know nothing about them -- and then go on TV to explain your "expertise." Of course, given the irrational way stocks often move -- and AAL is the poster boy for this -- maybe knowledge is overrated.
Woo-hoo! Up 23 cents. Perhaps a better close that I expected. Better up than down. Logic would suggest the selling pressure is waning here.
CNBC just posted a header says 99% of the S&P is negative. Does that mean that the ONLY stocks that are up are airlines? Weird, given how weak they've been this summer. I can't pretend to guess what happens the rest of the day. I don't think lower oil prices "matter" much here: AAL can gotten cheaper on lower oil prices for the past year. Very rarely is a market riskier and more unpredictable than this one (short term, of course).
Green Day: "Wake Me Up When September Ends."
Really, you can't trade this. Logic would suggest high fuel prices are bad for airlines and low fuel prices are good. Logic is not impacting share prices.
I am certain that a less profitable AAL here would have a higher stock price.
As the song goes, wake me up when September ends. This action isn't gameable here. Perhaps the only interesting news will be the monthly traffic reports.
Oil prices are most certainly NOT "transitory" -- the bubble lasted most of 15 years. Longer than anyone's investment horizon.
I'm not sure what "organic growth" is in the airline industry. Growth is generally a 4-letter word among airline investors, unless you're talking a start up. Investors run away if a mature airlines grows too much: it's the least of any airline investor's concerns.
Just more evidence that nobody can predict oil prices. Sadly, that trend seems to be extending into the airline sector.
Give the financial machinations of the past 15 years, I (and everyone else) has no idea of what the true supply/demand price of oil should be. I'm willing to say $40 to $50, but no one really knows. $50 oil is obviously fine for the airlines.
Of course, as we've seen, the price of oil and the resulting profitability of the airlines has not correlated to airline stock prices. So what you do with today's oil drama is beyond my pay grade.
What's starting to worry me about AAL is that it's valuation may have little to do with its actual fundamentals. This isn't entirely crazy to me: long time readers know that I also carefully follow oil prices, and those have -- more times than not in the past 15 years -- had NOTHING to do with real supply/demand.
I do think that AAL will revert to its fundamentals faster than oil did -- with the company able to buy back a remarkable percentage of outstanding stock, it almost has to -- but I will confess that the current action is unnerving to me as a fundamental, value investor. I've always scoffed at the idea that no one can you knowledge and experience to outperform the market, but if current trends continue, I'll have to concede that this is a random walk. That will be the of stock picking for me.
It's true. After posting earlier this afternoon, I bought the shares I wanted to buy on Monday morning that didn't get filled. I did pay more than Monday, but still. The action earlier this afternoon was 100% ridiculous. Buying when things are ridiculous is scary, but necessary.
I use Schwab and they sent me an email with their thoughts on the market meltdown. It's obvious stuff, that I think 95% of investors would believe. Here are the relevantbullet points:
We do not believe the sharp selloff in global stock and commodity markets is a sign of a global recession.
We believe the Fed is less likely to raise short-term interest rates in September as a result of recent events.
China’s currency adjustment should not have a major impact on U.S. economic growth.
The drop in global commodity prices should be positive for consumers, but is a negative for commodity producers in the short term.
With these facts -- especially the sell off in oil, which is AAL's biggest cost (or at least was!), what would motivate anyone to sell AAL stock at less than 4x earnings? It's just bizarre. I can't imagine anyone who knew the facts thinking this was a good time to sell.
This is indeed very bizarre. It's like a bad thing to make money. Logic would suggest that the buybacks would stop this nonsense -- I mean, it's particularly crazy for a company to be able to buy back a material portion of it's own stock at 4x earnings -- but nothing rational seems to matter. I've seen plenty of bizarre things watching these airline stocks for 20 years, but this is probably the strangest.
This is always the catch 22 with value investing. You avoid the hot stocks because of their irrational valuations but then the market corrects and you get hammered anyway (because the same irrational forces that caused those stocks to be overvalued cause other stocks to sell off anyway in a correction). It's just very frustrating that with algorithmic trading and all the other nonsense (carry trade, etc), that individual stock valuation is often irrelevant.
Individual stock picking is the toughest game in the world: I truly wonder why people play.
I'm having some trouble pulling up a real time chart, but Platt's has a article today saying Jet A is at $1.32 which is at least a 6 1/2 year low (back to the financial crisis). This is down a dime in a week, and down 40 cents in 2 months.
Are investors really too stupid to appreciate this windfall? I mean, even if this China thing somehow materially slowed down demand for AAL (improbable), AAL would still be MORE PROFITABLE due to the China slowdown.
It just makes you wonder how screwed up these financial markets are.
Yeah. I don't think I'm smart enough to trade the VXX. I'd need to study it more.
Uncle, I would never buy this stuff on margin. It's a lesson everyone has to learn for themselves. Things always get more irrational than seems possible. And when you're on margin, you ALWAYS tend to be selling when you should be buying.
Not sure if this will post -- yahoo wouldn't post my pre-market comment -- but I repeated my long-held views about buying airline stocks during panics. Basically, it's the ONLY time novices should buy them -- especially when the panic seems to be about nothing. The problem is picking your entry point: it's impossible to predict an irrational market.
I bought less than a minute after open, missed the bottom by almost a dollar (and then had some orders too cheap to execute) and now feel "smart." But I could feel dumb later today. You pretty much have to hold your nose and guess. But it ALWAYS works, if you're patient.
Which, I think is at least a 6 year low. It was $1.75 2 month ago, and $2.80 a year ago.
I think this proves the irrationality of Wall Street, and its complete inability to do basic math.
There's no conspiracy. Just stupidity: an inability to understand the Econ 101 response to a dramatic decline in unit cost (unit revenues don't rise when unit costs collapse -- and this isn't a bad thing). I think the unprecedented level of buybacks prevents much of a fall from here, but that's LOGIC. If logic worked 100% of the time, there's no way this stock would be in the $40s here.
Agree the market looks week, but a July RASM drop of 5.6 is NOT scary. Rather, it is excellent -- even though investors are so far largely clueless to this reality.
The market has so far failed to grasp the reality that no industry -- including an oligopoly -- can capture the ENTIRE windfall from rapidly declining costs. The complete collapse in oil prices is an extraordinary windfall for the airline industry. But the industry is never going to keep 100% of that windfall -- there will be some lower fares since less profitable flying is suddenly VERY profitable. Keeping 94% of the windfall seems fantastic to me. It's doubling profits. If that's not good enough for investors, investors are morons.
I just read a story from today's NYTimes about the "hard times" in rural Texas due to the plunging price of oil. The great irony, of course, is that WE should be the greatest recipients of this bonanza, with AAL's profits doubling. Yet, we haven't made a nickel on the extraordinary profits. It's just bizarre. Given that AAL can buy back ALL its stock with only 4 years of profits, something is going to have to give. Soon.
My fear, of course, is that "something bad" will happen in the world before AAL can buy back all its stock. As the fortunes of West Texas show, nothing good lasts forever. I'd like to have the opportunity to make SOMETHING from this oil bonanza. Nobody should cry for me given the money I've made with Doug Parker as he built his airline empire from nothing in the past 14 years, but still: compared to other insanely great (and profitable) business start-ups, I'm still a pauper due to the market's unwillingness to correctly price AAL stock.
Since JP Morgan's Baker's my favorite airline analyst, I had to watch his CNBC clip today. Nothing too exciting, of course, but Baker laid out all the obvious reasons why AAL is a steal at 40 bucks. But at the end of the interview, he's asked a silly question as to whether he personally pays bag fees when he flies. Baker is initially surprised by this oddball questions, but he doesn't miss a beat. "Of course not," he explains. "I carry the Chase credit cards that provide a free checked bag."
Chase, of course, is a subsidiary of JP Morgan. Just freakin' brilliant, Jamie. You'll never get another softball like that.