What is one of the first things when planning a vacation? Well, you have housing to think about (after selecting the location of course), then transportation, food, weather and so on.
Did I give you the hint already?
Deutsche Lufthansa AG
For the first stock I will put in our PIE I did choose not to search through an ETF or not even browse a list. It is just because it is a ‘guilty pleasure’ and I promise we will be more rigorous with the others.
But why did I choose LHA? One of the reasons is because I have personal experience in using their services. The Lufthansa Group is an aviation group with operations worldwide, that has the headquarter in Germany. They have around 135K employees (or had in 2019) and registered a revenue of 36,424m EUR in 2019.
It is possible not the most profitable company to invest in (at least according to Investopedia) and still has some financial problems (they still need to optimize costs to become profitable with the current restrictions and debt), one of them unfortunately will settle with reducing their personnel, but… it is one the biggest companies in Europe and even with the current lockdown they managed to keep their share price constant (after the fall from February). In my opinion this is one of the good signs regarding a company, finding ways not to get broke and continue to provide services.
Recently they received the green light from the European Commission to buy one third of the accounts of LSG Groups (which include catering services, train business and some food brands). Some news regarding an agreement with the personnel and crisis contribution will help investors to trust again this company. Not to mention the kind gesture they recently did distributing food into a lockdowned UK.
But are these enough motives to invest in this company? Some of them, yes, trust in their leadership and how the executive treats any situation. It is one of the important factors.
What I would like to see now is that they will have room to grow to their previous stock price.
We are talking here of a fall of around 50% from 16EUR to 9.88EUR (which is the current price). If we are thinking about the fact that it can recuperate this difference in 2 years, due to political decisions, cure being available, people start traveling again. I see it as a good investment. A 50% profit it works for me.
LHA symbol is also included in multiple top mutual funds, including Vanguard ( the golden seal).
Their dividend yield for 2019 was 7.87% (.80 cents/share) and it kept rising in the last 5 years. I don’t think we can expect a dividend for 2020 (but I wouldn’t say no). I will not enter in details like market cap, assets and such, because I don’t have a good feeling about this stuff, but I will keep a tab open to do a comparison with the next stock we pick.
What I expect to happen is that LHA will be forced to cut some fat more, even get to the bone, but with Europe going back to normal (in some months) they will have the opportunity to grow again. I am not scared if it’s a bad investment as I will use the Cost Dollar Average to diminish the buying price for the stock and if it goes really bad, we will liquidate the position.
And here we have the first stock in our PIE. It even has a small plane (for now) suggesting we will try to invest more in tourism (or maybe pick a globe? just add your suggestions in the comment).
Southwest Airlines Co
By searching the ETFs for airline business I found that The U.S. Global Jets ETF (JETS) is one of the purest airline ETF existing (or that’s what they say). Normally we start by searching the holdings and the Performance of the ETF. I can’t say I am very impressed by their performance, but maybe last year was a problem also.
Their holdings have multiple USA airlines companies including Delta Air, United Airlines, American Airlines but also include Canada, Turkey, Spain and many other countries.
Regarding the proportions of each company I am inclined to pick the Southwest Airls Co (LUV thicker) and Delta Airlines (but I have some doubts based on some news regarding Delta).
Maybe let’s see if LUV can be a good investment.
LUV has a market cap of about 4 times what LHA had and it’s price is 9 times higher. But what is more interesting to me is that their recovery coefficient looks more linear and more accelerated than LHA.
Till now, we have some good signs. If we look to their top institutional Holder, we see not only Vanguard Group but JP Morgan also.
Southwest Airlines is a company founded more than 50 years ago in Dallas. It has around 60k Employees (half the number of Lufthansa) but it’s the largest domestic air carrier of the U.S.
Regarding News of the company I see that they are also involved in the distribution of the COVID-19 Vaccines and intent to open a new Hub for Fresno and Santa Barbara. Expansion plans are always a good sign of a steady growth and future prospects.
Also this company will receive some stimulus from the government if they recall back previously dismissed employees and in my opinion this can represent a good way to recover and help the economy (the people more by providing jobs). What is unclear for me is why they said it’s only temporary till March. Hope this will change in the future.
Regarding their growth expectation we have something around 9.8% in the next 3-5 years, which is a good bet regarding our portfolio.
Because of the recent laws and stimulus received, LUV will not be able to provide a dividend until the date of 30 September 2021. They were one of the companies that paid a quarterly dividend. Their last quarterly dividend was 1.56%.
Considering this Investors article LUV is not a buy company at the moment because some accumulated debt. But as in the case of LHA, I am not targeting a buy in sell out and take the profit action and I want a middle to long term portfolio. So it is definitely and add in our PIE.
Thanks to our new prospects, we already saw that the ANR went from -1.70% to -0.58%.
My final toughs is that we did a nice job with this two companies and I will definitely want to see how they perform in the next period. Again, I do not exclude that we will do a rebalancing of our portfolio as soon as we hit better news, brake even on bad investments or look for another prospect.
Thank you guys I hope you enjoy the article and I wait all your suggesting regarding how we can analyze a company.
Also I would like to mention that this is just my personal opinion on this stocks and I advise you not to take it for granted.
Disclaimer: I am not a financial consultant! All the information you find here are my decision, I have taken at that moment, on my own analysis. I am open to any type of discussion about money. If you want to replicate my portfolio take into consideration that it is your money and you can have losses.