American Airlines has less Asia revenue than its’ peers UAL and Delta but has sold off even more. Considering that Boeing is reimbursing the airline for lost use of the 737 MAX this provides a built-in buffer. American has been lagging its own projections because of a shortage of planes, not demand. A demand hit caused by the virus is in part paid for by Boeing by virtue of the MAX grounding.
American just reported great earnings even with significant operational challenges. CEO Parker on the recent earnings call said that American would have two year FREE cash flow of $6 Billion. American Airlines currently is valued at less than $12 billion market cap on Friday’s close. Considering Monday’s rout- its even less. Unless the Coronavirus turns into something significantly greater than anything we have seen in this past, this is a buying opportunity.
The virus grabs headlines but let’s consider some other more rational numbers. SARS ( the most directly comparable virus) killed 774 deaths with an eventual 8,098 cases according to the World Health Organization. Another virus MERS, by the end of November 2019, had a total of 2494 confirmed cases with 858 associated deaths. By contrast the CDC estimated that 42.9 million people got sick during the 2019-2020 flue season with 61,200 deaths. The numbers by contrast show how emotional and hysterical people get. That doesn’t say it doesn’t impact real behavior. It does. People will likely travel less, especially to and from Asia. It just happens that American doesn’t have significant Asian operations and comes at a time when they are short of planes to fly.
The market has sold off some on the headlines but airlines have sold off sharply. American Airlines insiders have been buying their stock. I’d expect them to buy more. One way investor can play this is buying long dated in the money or near the money options. The Coronavirus virus will likely be contained and airline travel is on a cyclical upswing with annual growth estimated at 5% by Airbus and others.
Insiders sell stock for many reasons, but they generally buy for just one – to make money. THE INSIDERS FUND invests in companies at or near prices that management has been willing to invest significant amounts of their own money in. After all, who knows a business better than the people running it? You’ve always heard the best information is inside information. This is as close to “insider information” that an ordinary investor is likely to see- and it’s entirely legal. Officers, directors, and 10% owners are required to inform the public through a Form 4 Filing any transaction, buy, sell, exercise, or any other with 48 hours of doing so. This info is available for free from the SEC’s Web site, Edgar, although we subscribe to the Washington Service as they provide a way to manage and make sense of the vast realms of data.
As a rule, we only look at material amounts of money, $200 thousand or more, as anything less could just be window dressing. The bar is different from selling because the natural state of management is to be sellers. This is because most companies provide significant amounts of management compensation packages as stock. Therefore, with selling, we analyze for unusual patterns, such as insiders selling 25 percent or more of their holdings or multiple insiders selling near 52-week lows. Another red flag is large planned sale programs that start without warning. Unfortunately, the public information disclosure requirements about these programs referred to as Rule 10b5-1 is horrendously poor. I also generally ignore 10 percent shareholders as they tend to be OPM (other people’s money) and perhaps not the smart money we are trying to read the tea leaves on.
Of course insiders can also be wrong about their Company’s prospects. They can easily be wrong about how much others will value them, and in many cases, maybe most cases have no more idea what the future may hold than you or I. In short, you can lose money following them. We have and we curse aloud, what were they thinking! Needless to say, past good fortune is no guarantee of future success. We may own positions, long or short, in any of these names and are under no obligation to disclose that. We welcome your comments on our analysis.
This blog is solely for educational purposes and the author’s own amusement. Investing with The Insiders Fund is for qualified investors and by Prospectus only. Nothing herein should be construed otherwise. To learn more about our strategy, visit our website. If you would like to hear more about how you can get involved with the Insiders Fund, please schedule some time on my calendar.
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