Is CO is way undervalued?
 

Delta is coming out with their new stock next week. They say it would have a valuation between 9-14 billion. That seems ridiculous it would make them over twice the size of AA, UAL, or CO. AA and CO are performing well financially showing a profit in the 1st quarter while the others are not. CO's market cap is 3.84 billion. Maybe I should go long more CO and short DL. Any thoughts.

Not too many, but bear in mind that DL is significantly larger than CO, so the valuation isn't that surprising, at least vs CO. Personally, I think the whole industry is too messy to really get involved with financially. I mean, CO looks good now, but bear in mind that they are probably the only carrier that sees anything positive from the run-up in oil prices, given their IAH hub. Also, they have been successful building up out of EWR internationally, but will this hold out as DL ramps up and the Open Skies agreement lets everybody in on the game? None of the other majors have any fewer question marks.

Airline investing is dicey and high risk. If demande remains strong and oil prices somewhat stable it seems CO might do OK over the short run but any outside events or economic downturn and the airlines dive deep and fast.

If you have a good position at agood avg price and want ot add a bit OK but don't go over the top. I have to say when it dropped to around $36 the other day I was tempted for maybe a quick opportunity to maybe make 5-8% but I didn't get off the dime fast enough.

"Not too many, but bear in mind that DL is significantly larger than CO, so the valuation isn't that surprising, at least vs CO. "

Yes but AMR has a market cap of 6.8 billion and they are the "worlds largest airline".

Everyone has their own theories about investing. In terms of long-term public equity, I believe the best strategy is investing in the best management teams. In my opinion in the airline industry this means CO, WN and perhaps B6. Regardless of which directions the tides turn, well managed companies tend to outperform poorly managed companies, ex. UA. This is why I am enthusiastically for a CO/UA merger with an IAH HQ and against a UA/CO merger with a ORD HQ.

I have an avg at $24 but I am more interested in shorting DL as somewhat of a hedge. I just can't put DL at 3 times bigger than CO.

The market values the airlines. I wouldnt try to outguess the market. Over or under value doesnt mean very much, except to the gum flappers on CNBC. My guess is that if you go to Yahoo and print up a chart of CO and then print up a chart of crude oil, they will look amazing similar (Maybe I should have looked first?) Crude is $64 now and by Memorial day it will top out for the summer at $70-$75, but it seems the planes are flying full. So, CO will likely probably break even or make a small profit in the 2nd qtr and lose money in the 3rd & 4th quarters unless crude comes back down to $55-$62. (Unless they hedged the hell out of it when crude was $53 a couple months ago)

Can I ask two (maybe dumb) questions?

-I follow CO stock daily and I've noticed that almost EVERY Fri it goes down and every Mon it goes up. Is this typical and wouldn't it be an easy way to make some money every week?

- I've noticed on more than one occasion that when quarterlies are released, with a profit, the stock goes down significantly. Is this because they didn't meet expectations or is this just normal?

Many people sell stock they dont trust on Friday so they dont have to hold it over the weekend and buy it back on Monday. I guess you could buy it at the close Friday which, theoretically would be the low of the day if your theory is right, and sell it on the bump up Monday. But crude oil closes later on Friday and opens on Sunday afternoon, so you have added commodity risk holding stock that is directly effected by the oil futures market.

I dont know about the quarterly deal.

DL has been innovating a bit more than CO -- new interiors, new IFE, more new routes.

International flights seem to be the bigger money makers these days. And while CO has been adding new routes, DL has been adding them faster, and each time DL adds a route, they serve it with a 763, not a 757 like CO.

We have to give credit to CO management for thinking up this strategy (DL is just copying CO), but DL has more planes and is able to execute faster than CO.

Plus with the DL reimaging (new interiors, uniforms, IFE, etc.), DL is attempting to have a "coolness factor" that none of the other majors are trying to emulate.

So when you take all this in consideration, I see how DL's valuation may be higher than CO's, as there really is potential for DL to succeed if their risks pay off.

I think the international market -- primarily TATL -- will see incredible change beginning next year with the advent of the new open skies agreement. The legacy carriers' fat fares across the Atlantic are about to get completely creamed by EasyJet, Ryan Air, and every AirYak that Europe can put in the air. Imagine the potential success of a new airline based in, say, Poland which pays salaries that are half of those in the U.S., and also has no retiree or health care costs.

I wouldn't invest in airline stocks. I'd rather do something safer with my money, like buying lottery tickets...

I wish I had seen this thread before I posted elsewhere. Is anyone holding the DL bonds and if so, which ones? I'm tempted but fear it may be "too late" with the immediate pending of coming out of Chapter 11.

Wait -- is that $9-14 billion in equity value or enterprise (aka "firm") value? You couldn't really compare equity values on this basis, because that's a function of the capitalization structure. I'd imagine DL, through the bankruptcy process, has discharged a lot of its debt obligations, so that more of it's total enterprise value would be comprised of equity, in comparison to say CO or AA, all else equal.

Another thing to think about is supply of similar investments. DL and NW going public at rich valuations is going to create a much larger supply of airline stocks for investors who like those types of risk/reward. Makes the demand for any individual stock within that class of investor lower.

The question is: what do you know about CO that you think most investors don't yet know? If you personally believe in CO and aren't putting more than a small percentage of your portfolio in it, have at it. If your horizon is more than 5-10 years, the real game is just being in the equity markets in as broad a selection of stocks across countries as possible and only trying to play guessing games with a very small percentage of it to satisfy your lottery ticket desires.

I always advise people with long horizons to seek put as much as possible in Exchange traded indexes like the MSCI's that replicate the world's holdings, and leave 5-10% for play money and making 'bets' on what their conviction tells them.

Now that is a factor that Continental will NEVER try to have. Too conservative!