More Opinion by The Springboard

THE UPRISING OF THE AMERICAN PARTY "Clearly the voters are engaged right now, at least for sure on the republican side, and what they have concluded is that the republican party has not done their job. Thus, Donald Trump gets their vote."

Saturday, May 13, 2017

Can United Airlines Get Any Worse?

As the old saying goes, when it rains, it pours. And for plagued United Airlines it seems the rain may never stop. In some ways United may be experiencing something similar to what Carnival Cruise Lines did not so long ago, and to be sure its reputation will be tarnished for some time to come. Moreover, as the punches keep on coming, this whole string of incidents from beaten down passengers, to dead rabbits and scorpion bites—United Airlines may be an airline company that crashes without a single plane in the air when all is said and done.

You'll remember quite a few years back when PanAm was driven out of business after a series of deadly crashes that made it the butt of more than a few jokes, and left passengers weary to fly the ill-fated airline for fear they might not make it to their destination alive.

It's not just that passengers are bailing on United in droves. The investors are too, and for good reason on both counts.

Perhaps it is nothing that United Airlines is specifically doing wrong that has caused this string of bad press for them. They could well be simply a victim of circumstance. The Dr. David Dao incident just happened to thrust them smack dab into the spotlight. Of course, I do think there are some serious tears in the fabric of their entire operation, and this has led to much of their woes of late. But really, looking at the bigger picture, it might well be that the entire airline industry faces similar problems. We're just not as acutely aware of them since right now United is deeply embedded in bad press to take some of the heat and pressure off of the other airlines.

As one would expect, some of United's competitors are already taking advantage of United's missteps and misfortunes. For example, Southwest Airlines recently announced it would end the age-old practice of overbooking flights. As things tend to go in business, it's sort of a game of copycat if the idea sits well with customers, and it would  not be surprising to see other airlines quickly scrambling to follow suit. All of the airlines are already doing anything they can, of course, to scoop up any foot traffic they can grab from passengers abandoning United.

At this point it seems apparent that apologies from United's CEO, Oscar Munoz, are most definitely going to fall on deaf ears. What that means to me is that the only next step for Oscar Munoz to take is to step down from his top post and leave the clean up of this whole mess to someone else.

Does it mean someone else can fix it? Maybe. Maybe not. Toyota seemed well poised for a rather precarious situation after their Camry's accelerator problem left terrified drivers essentially in the back seat of their own cars while they were helplessly driven into walls, barriers, and other cars on the road. The stock did take a tumble, and certainly Toyota said very openly they made some mistakes, and the stock did recover, and so did the reputation of Camry cars. Carnival has been able to clean up its image a bit as well over time, and the cruise line is actually doing quite well again.

If there is any certainty for United Airlines, it is that it cannot afford an ounce of additional bad press. In fact, one more story of something happening on a United Airlines plane may serve as the final coffin nail.

The whole Twitter, Wendy's, Wilkerson "debacle" is not that story by the way.

At the very least what United Airlines needs is a major overhaul of its business. They need to either fire Munoz, or he needs to step down. That is step one. In addition, a new CEO needs to assure passengers that major changes will be made to the way they book flights, the way they get staff moved around, the way they handle cargo (especially live animals), and what they intend to do to sweep planes better—to keep scorpions from appearing out of the sleeves of sleeping passengers as happened on one recent flight, and passengers actually being stung which happened on yet another flight.

It still may not be enough to quell the looming disaster that is becoming their company. Unlike other businesses, airlines customers are quite a bit more perturbed than they are in other industries. The entire experience of flying has become such an abysmal and irritating experience, by the time passengers are sat in their seats, they are poised like hungry lions waiting for just the right moment and opportunity to strike. In fact, on a recent Southwest flight two passengers took to literal blows after who knows what transpired before the incident.

What that means is that customers are going to be far less forgiving when it comes to United as a whole. Flyers are fed up. And telling United where to go despite any efforts United may try to make to set things straight may be a very strong message to the airlines left standing...

You better get things right and treat flyers like customers, or we will ground your planes next.

Even if United Airlines makes it through the fall-out, their opportunity to have a second chance will require an awful careful approach to every single interaction it has with their customers. Because if they don't, they won't get a third chance.

Saturday, May 6, 2017

Why The Hell Are You Still Long on Ford?

There is panic on The Street—again—when it comes to Ford Motor Company. I suppose there is at least a smidgen of reason for it. The last couple of quarters have shown a rather steep decline in auto sales, and banks continue to tighten sub-prime lending practices making it more difficult for a large segment of the population to buy new cars. But the trend is nowhere near exclusive to Ford. It's happening across the entire auto sector.

So far as I can tell, however, there is nothing that clearly indicates to me that Ford is a bust, nor that it will not pull itself—again—out of the doldrums.

Here are a couple key factors I think well support Ford's share price surviving the sell off, and maintaining itself as a strong long term investment:

  • Ford has more than $28 billion in cash on the books.
  • All data suggests that with an average life expectancy of the average car or truck being roughly 180K miles, support for new replacement vehicle sales remain at an average of 17 million vehicles per year.
  • Ford continues to maintain very good income from sales of its trucks, really the meat of its business, and with Ford trucks being the top selling truck for the past 40+ years, they will continue to reap the rewards of sales of trucks.
Cash on the books.

Right now Ford sports a pretty hefty dividend when compared to its peers in this sector, currently a whopping 5.39%. The actual dividend is actually higher if you consider that two years in a row so far instead of increasing their dividend, Ford has opted to pay out an annual special dividend. With more than $28 billion in cash on the books, Ford is well poised to not only maintain its dividend at current levels, it is also well positioned to weather the current storm, has plenty of money for marketing, research and development, and to maintain its day-to-day operations.

Ford is nowhere near bankruptcy.

Life expectancy of vehicles.

The average service life for all vehicles is somewhere around 11.7 years considering the average mile life of a car or truck being around 180K miles. This data supports roughly 17 million new cars have to be produced each year to replace any cars on the road being tossed into the junkyard. Of course the actual annual sales figures will fluctuate due to a variety of factors. Ability of consumers to by new vehicles is certainly one of them.

And lets face it, consumer confidence data and other economic factors, while improving finally, are still not where they ought to be. Or where they can be quite frankly. This is going to have a short term impact on auto sales figures throughout the world. Although China is still a large area of growth for Ford specifically, especially when it comes to their Lincoln line of cars, it is still not enough to make a dent right now on the numbers.

Ford trucks.

So long as Ford can maintain its leading position in the market when it comes to trucks, and so long as gas remains under $4 per gallon, Ford truck sales will continue to be strong. For one thing, no one is predicting $4 per gallon gas anytime soon. In fact, it is well predicted that the oil sector will remain depressed. Initiatives by the Trump administration actually support this strongly. The more involved the U.S. in oil production, the more pressure it places on OPEC and the oil sector as a whole. That pressure can easily drive down oil prices, and keep them down for the foreseeable future. So long as fuel prices are at a reasonable level, consumers will be more inclined to buy bigger vehicles like SUVs, crossovers, and yes...

Trucks.

Let's not also forget that if there is a boost in construction—which it seems there could be—there will also be a need for more trucks in that sector. Ford will lead the job in fulfilling that demand, and since their trucks are the beef of their income, this only bodes well for Ford. It's no secret that smaller cars have never been the mainstay of Ford's business, and quite frankly, never has been for GM either.

Perhaps if we are talking about Toyota the numbers would be more meaningful if smaller car sales were in decline as they are for Ford. But we're not talking about Toyota. We're talking about Ford. The impact to Ford of even a steeper decline in their smaller car sales will not be enough to offset the revenues derived from their truck sales.

Speaking of trucks, let us not forget that Ford will bring back the Ranger in 2019, and in 2020 will bring back the very popular Ford Bronco. And let me tell you, that Bronco, based on what we know about what it will look like, may even make me—a guy who typically never buys new vehicles—to run out as soon as they come out and trade in our Ford Edge.

I think the Bronco will be a huge seller for Ford Motor Company.

My recommendation.

What I recommend is quite simple. If you are long Ford, buy the dips. If you are not long Ford you may want to wait for the stock to bottom before buying in. I would also put in high dollar amount per share sell orders to make those shares unavailable to short sellers. Short sellers cannot borrow shares that are for sale.

When you look at the balance sheets it seems clear to me that while Ford certainly suffers from, and has for some time admittedly, downward pressure, there is much to be assured that Ford has great potential for some strong upside.

I am long Ford, and continue to be long Ford. And for me, this short term sell off is only a good reason to take advantage of the discounts and add more shares. Played right, the dividends I earn alone while I wait might just be enough to, if not outright buy that Bronco when it comes out, but can at least support a hefty down payment on it.

Mark my words.