MESA

[David Randolph]

Mesa Air Group, Inc. (MESA). The Group's principal activity is to operate as regional air carriers providing scheduled passenger and airfreight services. It also carries freight and express packages and has contract with U.S. Postal Service for carriage of mail. The Group also has code share agreements with America West, Midwest Express Airlines, Frontier Airlines and US Airways. These code-share agreements allow use of the code-share partner's reservation system and flight designator code to identify flights and fares in computer reservation systems, permit use of logos, service marks, aircraft paint schemes and uniforms similar to the code-share partners and provide coordinated schedules and joint advertising. The Group currently operates 182 aircraft with over 1,100 daily system departures to over 165 cities in 44 states, the District of Columbia, Canada and Mexico.

Probably because of the high oil price (I'm bearish on the oil price at this point, and bullish on the airline sector), MESA is extremely undervalued, at least at first sight. I see a market cap of $287.75M, cash in the bank of $258M, a P/E Ratio of 7.71 and a Return on Equity of 41%.

The all history chart is this:



The stock went nowhere for more than a decade ... now it has an established bull trend, with the oil price peaking and the stock being so undervalued, I perfectly understand the rise:



This bull trend probably won't stop south of $16. I'm buying MESA at today's open for the 3 Stocks on Fire Portfolio.

[David Randolph]

Some more information about MESA:

«Mesa currently operates 182 aircraft with over 1,100 daily system departures to over 170 cities, 45 states, the District of Columbia, Canada, and Mexico. Mesa operates as America West Express, Delta Connection, US Airways Express and United Express under contractual agreement with America West, Delta Air Lines, US Airways and United Airlines, respectively, and independently as Mesa Airlines. The Company, founded by Larry and Janie Risley in New Mexico in 1982, has approximately 5,000 employees. Mesa is a member of the Regional Airline Association and Regional Aviation Partners. The Company was named 2005 Regional Airline of the Year by Air Transport World Magazine.»

This is an airline sector stock with a bullish trend, and that's what I want to hold at this moment. I understand that the stock may pullback a little from current levels (I really don't know), but I perceive any pullback as a buying opportunity.

Today oil prices were up sharply and yet MESA held up pretty well. I think it is just a matter of  time for the oil prices to collapse and the airline sector to benefit from it. MESA is well positioned, I believe, so I'll continue holding it.

[David Randolph]

MESA is exactly the kind of stock that I want to hold on the upcoming Bear Market. Not all stocks will go down, and MESA is one of those that will rise, because its sector had a bear market of its own already and the stock is extremely undervalued at this point.

1% rise on a day like today with volume above average sounds fine to me.

[robt]

We came to the same stock independently, it seems, and with different ideas. I'm holding MESA short at this moment, in expectation of a correction after its recent run-up.

Of course, this is a very short-term play for me; I expect to be out of it, win or lose, very soon.

edit: Looks like profit-taking is done with today; not as deep as I'd hoped, and certainly no panic among the longs...luckily, as MESA turned up, so did my long plays, so there's little damage...

looks like long is indeed the right bet.

[Ramsburg]

Good Morning !

David will not be able to post the regular daily updates today. But he gave me instructions to Hold this position on MESA.

I'll just post an updated chart.

[David Randolph]

We came to the same stock independently, it seems, and with different ideas. I'm holding MESA short at this moment, in expectation of a correction after its recent run-up.

Of course, this is a very short-term play for me; I expect to be out of it, win or lose, very soon.

edit: Looks like profit-taking is done with today; not as deep as I'd hoped, and certainly no panic among the longs...luckily, as MESA turned up, so did my long plays, so there's little damage...

looks like long is indeed the right bet.

You may be right in going short MESA on a short term play, betting on a correction, but longer term I don't think that's a good strategy. But I respect others views, the market wouldn't exist if there weren't different views and strategies.

You see, I buy stocks with bullish trends, and if I were to short some stocks, I would look for those with bearish trends, not bullish, because, as you'll probably know through the years, the trend is your best friend in the markets.

MESA clearly is on an ascending trend. The oil price is coming down as I expected and the stock is extremely undervalued.

I acknowledge that MESA may be a bit overbought here and it may have a correction, but over the medium term I can only see higher and higher prices for this stock. Therefore I'm able to see a correction, knowing it is just profit taking, and I'll keep on holding the stock for the foreseeable future.

[David Randolph]

MESA is undervalued at this point. Buying a share of MESA you get almost full value in cash (market cap at current prices is $304M and the company has $258M in cash, so when you buy a share for $10.51, $8.92 is cash). Not to mention it has a P/E of 8 and a Price/Cash Flow of 2.35, while profits grew 169% for the 9 months ended September 2005 when compared with the same period in 2004.

Technically, the stock just can't stop going up. There's no doubt I'll continue holding MESA.

[valueseeker]

Hi David,

I was looking into MESA as well as it showed up on my own screener. Did you notice the $1B debt it has?


-Valueseeker

[David Randolph]

I've been doing well with my airline sector play. Survivors of the storm are gathering steam, as oil prices are set to collapse in my humble opinion.

I want to buy airline sector stocks with bullish trends. AAI is an airline sector stock and it is near a new 52 week high (maybe tomorrow?).

The company is growing fast, at least on capacity: AirTran Airways Becomes Fastest Airline in History to Reach Milestone of 100 Planes

I'll buy AAI for the 3 Stocks on Fire Portfolio.

[Ramsburg]

Bought AAI @ $13.50 for the 3Stocks Portfolio

[David Randolph]

Hi David,

I was looking into MESA as well as it showed up on my own screener. Did you notice the $1B debt it has?

-Valueseeker

You're absolutely right valueseeker, I left debt out of all my fundamental considerations, and obviously that's wrong.

So forget about that cash value thing, we always have to take out debt to that value, and MESA's short and long term debt is $1.29B at this moment.

This explains the undervaluation of the stock, where the P/E Ratio is just 8.34.

It's like the market already knows all available information and it is impossible or really very hard to find anything undervalued. Usually there's a reason, a good reason, for a stock to be undervalued by most common measures, like the P/E Ratio or the Price to Book Value. In MESA's case, it's debt.

The stock came down a bit yesterday, and I think that is a response to yesterday's rise in oil prices. I guess the rise in oil and gold yesterday was due to Bernanke's nomination as FED chairman, because Bernanke isn't so hawkish as Greenspan (the USD also sank against major currencies).

At least over the short term, the market will associate Bernanke to his remarks about the Federal Reserve having a «technology much similar to a printing machine», and that's inflationary. This will make the USD and bonds down, oil, gold and other commodities up.

Until he makes a presentation decoupling from his past, the market will think he will be much less hawkish than Greenspan, and that he will be biased towards promoting economic growth, not fighting inflation.

So I see trouble in the short term for the airline sector and everything with a big portion of costs in oil. So I'll take profits in MESA today. 

[David Randolph]

It looks like oil turned lower again. Maybe the Bernanke effect will last just one or two days. I see AAI in an ascending triangle formation.

I was thinking of selling MESA today, but perhaps not anymore, since I'm bearish on oil going forward and consequently I'm generally bullish on stocks where oil is a high component of costs, like airlines.

If AAI breaksout of this triangle it will have a technical target of $16.40. I'm waiting for this outcome, so I'll keep on holding AAI.

[David Randolph]

Oil turned lower again this morning. Maybe the Bernanke effect will last just one day or two, and without this effect (probably he will soon dismiss the thought that he will be less hawkish on inflation if and when he talks about that inflation target) I'm pretty bearish on the oil price going forward.

So I will hold MESA after all. No reason to sell here, the trend is still very bullish.

[Gu$tavo]

David,,talking about debt, MESA seems to be better than MGI ..I found this

MESA=Debt/Equity Ratio 3.98

MGI=Debt/Equity Ratio 14.13

[David Randolph]

MESA: HOLD