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goldminingXpert (99.98)

GMX buys JBLU $7.50 March calls @.40

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January 21, 2009 – Comments (32) | RELATED TICKERS: JBLU , GO , FLY

The airlines have gotten killed due to bad but not terrible news out of AMR. JBLU, on no news of its own, has dumped 13%. This is irrational and ridiculous. JBLU is a far better airline than AMR, its costs are lower, planes are newer, and routes are superior. JBLU was running breakeven at the heights of the outrageous oil prices this summer. Now, JBLU can be expected to make a lot of money with cheap oil (my estimate is about 80 cents a share for FY '09.) For a $6.25 stock, this is very cheap. Long story short, JBLU has gotten whacked on no news and is no less valuable than yesterday, when it closed over $7. By buying $7.50 calls, we only need a return to last week... when the stock traded over $7.70, for the trade to be a big winner. If you aren't in calls, the outright purchase of JBLU shares is also recommended. GMX added 200 shares of JBLU @ 6.35 before his calls purchase finally filled.

32 Comments – Post Your Own

#1) On January 21, 2009 at 1:10 PM, BigFatBEAR (99.27) wrote:

Nice GMX - thanks again for the heads up on your actions.

While I don't doubt your investing acumen for one second, I'm a tad scared of JBLU at current levels. To me, near 52-week highs and a recent run-up from $4s and $5s spells short-term trouble.

In CAPS, I was holding out to green-thumb JBLU until it revisited these levels, which I viewed as fairly likely with Q4 earnings release on 1/29.

Also, the debt seems a tad high, and the price/book seems a tad low, though I remember you said something very confidence-inducing when we spoke about it.

Anyway, just curious as to your thoughts about this. I'll go plug JBLU into the Options Oracle and see what it says.

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#2) On January 21, 2009 at 1:11 PM, abitare (99.61) wrote:

Aligned with this call. I like Southwest also. FYI - Jim Rogers said he was buying airlines (Asian) during the oil bubble

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#3) On January 21, 2009 at 1:12 PM, BigFatBEAR (99.27) wrote:

Erm, price/book ALSO looks a tad high, with a book value per share of 4.725.

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#4) On January 21, 2009 at 1:16 PM, goldminingXpert (99.98) wrote:

the JBLU Feb and March 7.5's are very cheap. The Feb 7.5's are going for 20 cents. For them to work, stock needs to get back to about 7.25 within the next week or two. It traded at 7.29 yesterday and 7.70 within the past two weeks. If you believe this is merely overreaction to unimportant AMR news, then the stock should regain 7 in a hurry, and suddenly a 7.5 call purchased at 40 cents looks really good. The first trade of the March 7.5's was at 80 cents today, so I got them 50% off, and assuming my thesis is correct, the stock should regain all of today's losses very quickly, thus I can sell half the position and let the other half ride for free.

You were reassured about the debt because A) they are cash flow positive, B) they are already paying down the debt, and C) they delayed a bunch of new plane orders to remain as flexible as possible regarding future cash.

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#5) On January 21, 2009 at 1:16 PM, abitare (99.61) wrote:

Actually, I recant my support. JBLU has NA for P/E or 142 according to Fool. Plus Market CAP is way high for an airline.

GL

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#6) On January 21, 2009 at 1:25 PM, goldminingXpert (99.98) wrote:

Yeah, they had to write down a bunch of planes--which is understandable. However, they still trade under industry average book value. During good times for an industry, it generally trades well over book. Book is what it would take to assemble the operation from scratch... you can't exactly put together a new airlines with ease, and so JBLU is worth more as it already is a working entity than the sum of its working parts. As its revenues are growing faster than industry average, it's losses are less than average, and it sells at less than industry average by both P/S and P/B ratios, I'm sticking by calling JBLU cheap and ready to bounce.

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#7) On January 21, 2009 at 1:27 PM, goldminingXpert (99.98) wrote:

abitare, which airline (other than LUV) are you looking at that has profits? That's right, there aren't any. Which came closest to breaking even? Yes, that is JBLU. JBLU lost 11 cents while UAUA lost $32 DOLLARS per share, LCC lost $18.03 a share, AMR lost $7.20 a share and so on. JBLU is near profitable... the Forward P/E is 6-10 depending on what your estimate for '09 earnings is. AMR, UAUA and their ilk are bleeding money.

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#8) On January 21, 2009 at 1:51 PM, herztical (24.66) wrote:

GMX I'm surprised you like an airline given the circumstances; econ stinks, debt is tough to finance, and once JBLU has to overhaul "new" planes for maintanence.  This is the largest cost for a carrier aside from fuel.  I don't think JBLU is immune;  they will be following the legacy carriers.  Yes, oil has come down, but they hedge it anyway. A trade maybe at lower levels.

BTW there are many other profitable airlines...just look outside the US; LH for example who owns 20% of JBLU

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#9) On January 21, 2009 at 2:04 PM, goldminingXpert (99.98) wrote:

Yeah, they're profitable for a reason. They buy 20% of JBLU, not LCC or some other piece of junk. The argument here is comparative advantage (sorry for the misuse of an economic term--I just like how it sounds.) JBLU is in a better flight pattern than most of its competitors. When the consolidation comes, JBLU will be in an advantageous as it is profitable (as you'll see from the earnings release next week) and has better routes and planes. Also doesn't have legacy/union problems--that being the main reason LUV has won so long. LUV however hedged far too much oil near the peak, thus JBLU is now the best positioned airline for the future--and I can assure you the entire airline industry will not stay in the dumps. Someone or a group of lines will emerge from this dark era and rise victoriously, JBLU is currently best of breed and will be among the winners.

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#10) On January 21, 2009 at 2:08 PM, jddubya (60.47) wrote:

GMX - thanks for the detailed explanation of your actions... this is great info for someone like me who's learning the ways of the market... I also appreciate the other comments for their take on your action

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#11) On January 21, 2009 at 2:08 PM, goldminingXpert (99.98) wrote:

By the way, this particular option play is very short-term, like ending by March. The stock will regain $7 shortly. If the stock goes back to $4 again, it should be bought with both hands as a long-term investment. At $6.25 this is a trade--albeit a high-probability one.

I'm off to class and then lunch so see you all later.

By the way, if anybody followed me into the Kinross play yesterday, I'm attempting to sell my March 20's now. I paid 2.95 yesterday and have a sell order out at 4.40, hopefully it will fill while I am away.

 

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#12) On January 21, 2009 at 2:14 PM, FleaBagger (99.16) wrote:

GMX -

You mean mark-to-market write-downs to revenue-generating assets aren't the same as other losses? 

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#13) On January 21, 2009 at 2:20 PM, Schmacko (96.90) wrote:

herztical is right, there are profitable airlines outside the US.  Lan airlines (LFL) comes to mind.

Jet Blue is my favorite airline to fly on though.... but I don't think I'd invest in it at this point.  It was at 52 week highs, what last week.  I wouldn't be suprised to see it come back down to 5.50ish in the near term.  Who knows what it'll look like in Feb or March though.

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#14) On January 21, 2009 at 3:01 PM, BigFatBEAR (99.27) wrote:

Grr...   according to their flight map, I can't fly from Denver to anywhere west of the Mississippi. Know anything about how aggressively they're adding routes? They look like a fine company, just not as inter-connected as I'd like route-wise.

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#15) On January 21, 2009 at 7:33 PM, abitare (99.61) wrote:

gmx,

I still think this market is heading lower across the boards, including airlines. I think cash is just fine.

Americans have just lost their home equity, and illusion of wealth that allows them to travel.

They are going to nationalize some of the biggest banks many which are insolvent. Unemployment will rise, people will not be flying, most Americans are going on a major economic slim fast, getting long a consumer discretiary stock is risky. I think you are early. People will cut spending where they can. Travel and airlines is one spot for certain.

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#16) On January 21, 2009 at 8:03 PM, goldminingXpert (99.98) wrote:

BFB... while I would like them to fly more to Denver, they aren't expanding much at the moment to conserve cash and focus on the cash cow routes.

Abitare, I bought my core JBLU position at $4.15 last spring and have never sold it. You can own a good company through anything. I'm also UP on shares of WNR, USU, and BVF all purchased before the big meltdown of October/November 08. Got to be long something to hedge all my short positions.

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#17) On January 22, 2009 at 12:11 AM, MGDG (98.33) wrote:

GMX

I realize this is a short term option play for you at these price levels and your core position was entered at lower levels, but do you have info on their hedging activity on Fuel? With the higher forward contracts compared to the spot prices, they may not capture all of the savings in Fuel prices.

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#18) On January 22, 2009 at 12:37 AM, goldminingXpert (99.98) wrote:

They hedged almost nothing. <10% of their oil.

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#19) On January 22, 2009 at 1:20 PM, GoodVibe4Ever (99.08) wrote:

To everything (turn, turn, turn)
There is a season (turn, turn, turn)
And a time for every purpose, under heaven

If you don't print $7 and hold it, then $5 will be next. From there, I can see a nice cup and handle formation - target $11

So because you believe JBLU is the least worst of them, it's a buy? Sometimes great companies don't translate to good stocks. I won't touch any US airline but I wish your trade all the best. These guys (airlines collectively) paid the full price for the fuel instead of hedging  @ $30 then came around to pay billions to hedge when oil was $140 all the way down to current low. Guess what they will do now? No hedging again! What that tells you? For long-term investors, which I am not, I stay away. For a trade, there are better opportunities than JBLU.

GoodVibe

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#20) On January 22, 2009 at 1:29 PM, goldminingXpert (99.98) wrote:

Goodvibe, I'll trade anything. Trading is different than investing.

I bought my calls at .4 yesterday. They're now trading .5 by .55 meaning if I hit the bid, I'm up $10 per $40 option. Not many trades make more than 25% in a 24-hour period, so I'm going to respectfully say you're wrong. JBLU is among (or at least it was yesterday--among the best trading opportunities out there.)

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#21) On January 22, 2009 at 1:54 PM, Mary953 (23.42) wrote:

goodvibe - off topic, but thanks for the youtube of the Byrds.  I love that song, even when they are lip-syncing it.

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#22) On January 22, 2009 at 2:20 PM, GoodVibe4Ever (99.08) wrote:

GMX, Let's celebrate instead of debate. It's better for the soul. Brother, we're taking off and both of us will be happy campers. I am near declearing victory @ S&P 854.71. Current 834.35

I've been grounded for more than I liked. :)

 

Mary, I am waiting, hoping but not crying for that person to challenge my imagination and stir my entertaining side. I always excel there and promise nothing less than flawless performance. Do we have a chance here?

GoodVibe

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#23) On January 22, 2009 at 2:32 PM, Mary953 (23.42) wrote:

GoodVibe - Keep hoping. I found my someone 35+ years ago and he's a keeper, my one and only.  Your someone is out there, I'm sure of it.  And thanks for the other video - fantastic! 

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#24) On January 22, 2009 at 2:48 PM, goldminingXpert (99.98) wrote:

What is there to celebrate? The S&P is down significantly today. Oh yeah, that's right, JBLU is up 6% despite the broader market sucking wind.

Sorry, I'm just a bit frustrated. I made a great trade pick here, the stock and the options are up sharply. my .40 option last trade is now .55 so that's +37.5% in one day and yet people are still dogging the JBLU. JBLU up, market down, KGC way down... what more is there to say?

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#25) On January 22, 2009 at 3:01 PM, Technicals (< 20) wrote:

JBLU came down yesterday on huge volume, if it breaks down below yeterday's low and closes under the 50 day moving average which is right at yesterday's low, $5.10 is the next level of support which is the 200 day moving average.

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#26) On January 22, 2009 at 3:02 PM, GoodVibe4Ever (99.08) wrote:

Hey Mary, now you're way off topic. We're just got introduced and you're talking about tying the knots! :) :) I was talking about sharing your music and entertaining side not your bedside. But that was funny. Super funny.

So far I am single and there's a lovely lady in my life. When it comes to dating, I have similar attitude as my trading style. I know I am right in trading and fool regarding the other. Nice meeting you and best to you both, love birds.

GoodVibe

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#27) On January 22, 2009 at 3:08 PM, GoodVibe4Ever (99.08) wrote:

I feel you man. It's frustrating (no one can feel that more than myself and for a good reason). I love listening to others but that doesn't mean following them. Focus on your trade and everything will be fine. You're doing great job. We just like to pull your leg.

GoodVibe

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#28) On January 22, 2009 at 3:34 PM, Tastylunch (99.64) wrote:

goldminingXpert

I feel your frustatrion but I have to ask why do you care if people agree with you ( i do fwiw on the JBLU call)? You are a very good trader from what I have seen, you know this, you don't need me to tell you so. I should note Abitare agreed wiht you and I value his opinion a lot, he's got a lot of street sense when it comes to trading. Anyway the more people that do disgaree  the likely  better chance you'll have of getting a better entry/opportunity anyway.

I think your reasoning here makes for solid trade and it looks like already has. 

If it were me I'd care primarily about the market's validation of my trade, and if the CAPs community agrees it's just a bonus. :-)

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#29) On January 22, 2009 at 5:22 PM, goldminingXpert (99.98) wrote:

good points Tasty. I always like when people make money following me on a trade--and I had conviction this one was going to work. But hey, I made money off the trade, and as a selfish capitalist, that is the important thing, eh?

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#30) On January 22, 2009 at 5:52 PM, Mary953 (23.42) wrote:

GMX  -

I'm holding on to several very good stocks - companies that are solid but have gotten really beaten up by this market.  I know that the managements are sound, capital assets good, products or scheduled work solid, quarterly reports up with each quarter.  I don't know whether to buy more or just sit and watch, but I am not selling at these prices.  Just waiting for the market to turn and collecting dividends.  Of course, I expect that I will be waiting a while (2 years?, 5?, 10?) 

I appreciate any advice you want to share and will most likely follow when I can.  Please keep passing along those stocks and ideas.  You are reaching others (including, I bet, some who would never consider typing in a response)

GoodVibe -

Sorry.  My kids finally educated me about blogs but I still am a bit uncertain as to how to take some comments.  Is it just me or did Morrison always look like he was about to collapse from an overdose of  something?

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#31) On February 03, 2009 at 10:40 AM, thehammer01 (99.57) wrote:

Do you delete all non-positive (not necessarily negative) comments?  I merely asked at what point do you sell?  You have waited too long and I think they will expire out of the money.

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#32) On February 03, 2009 at 1:10 PM, goldminingXpert (99.98) wrote:

I don't delete (I believe this isn't even possible) comments. Thehammer, this play has not worked and, sadly, probably will not work. For reasons unbeknowst to me, the market decided to sell off JBLU on its positive earnings release. I'm still expecting a broad market rally which may lift JBLU back towards 7, but my expectations are low. However, JBLU is one part of a hedged and balanced portfolio; other cogs such as my RPRX puts are paying off nicely.

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