Sunday, November 17, 2013

Profitable Week? Keep the Momentum Going With these Investments!

An end to several weeks of earnings, Janet Yellen’s senate confirmation, the Dow and S&P 500 at record heights, and a profitable week that wiped out all losses from the previous three.

This week had proven exiting to say the least. The future Chairman of the Federal Reserve, Janet Yellen, announced this week during her senate hearings that the Federal Reserve will not be ending its $85 billion bond buying program for at least another few months. This announcement on Thursday sent the Dow up 85 points to end at a new record high, alongside my own portfolio.

Yellen has been a favorite to take Ben Bernanke’s position as the new Chairman of the Federal Reserve. Wall Street believes that she will continue Bernanke’s loose monetary policies and even more importantly keep pumping cash into the U.S economy.

Personally I think Yellen is the perfect women for the job, for two reasons. First she has the experience; she has served as the Vice Chair of the Federal Reserve since 2010, before that she had served as the president and C.E.O of the Federal Reserve Bank of San Francisco. These credentials clearly show that she has the business talent to guide the U.S through an economic recovery, but more importantly she had been Ben Bernanke’s right hand for years. This is a great thing since it is not the time to completely shake up leadership at the Fed, considering the fact that the U.S is in the middle of recovering from the worst economy since the Great Depression.

Janet Yellen’s senate confirmation did send stocks to record highs but to me personally one event more than any other impacted my stock portfolio. That event was the Justice Department reaching a settlement with U.S Airways and American Airlines allowing those companies to merge into the largest Airline in the world.

The decision was announced by the two airlines on Wednesday, and in response sent shares of American Airlines through the roof (stock soared over 25%). Personally I had hoped that the merger would not go through, this would have caused a selloff in American Airline stock which I could have then acquired at cheap prices, allowing me to exploit the Airlines low evaluation, growing profits and resurgence. I also was very surprised that the merger passed since although it is great for the Airline industry as a whole it is terrible for consumers, who are now going to have to deal with rising airfare and expensive fees. But I cannot change the decision, all I could do is accept it, and at the very least it made stock in other Airline companies go up.

Now that American Airlines is merging with U.S Air what’s next for the stock in the bankrupt airline? The answer to that is simple, it will continue going up, currently the company is undervalued, and I had bought shares in American on Thursday (just in time to see the stock fall on Friday). In any case as soon as the news that a settlement was reached allowing the merger to go through I began to look into investing into the New American Airlines (which will be listed on NASDAQ under the symbol AAL).

What I came up with led me to decide to not invest into the new American. There were a few reasons why, the first one was that I saw the struggles United Continental had after its merger. The newly merged Airline had trouble integrating two different fleets into one, and profits suffered as a result. Another reason not to invest into the New American is because traditional carriers such as United and the New American are rapidly losing ground to smaller low budget airlines, like Jet Blue and Southwest. These low budget airlines are cheaper to operate, more attractive to fliers and as a result are gaining a greater share of the airline market.

                These low budget airlines also got a lot more attractive after details of the settlement were released. It appears that the price of the merger between Americana and U.S air came at the cost of selling slots in Reagan National Airport in Washington D.C to low budget competitors, Jet Blue and Southwest. This was one reason the justice department wanted to ground the merger in the first place, the government did not want a single airline controlling almost 70% of the slots in a key airport. But in selling these slots the New American had empowered low budget competitors in Washington D.C.

                The New American Airlines seems to face a number of large problems that in my opinion, will compromise its position on the market. With strong competition from small low budget airlines increasing I would strongly recommend avoiding stock in the New American. A better alternative would be investing into a low budget Airline like Jet Blue, Southwest, or Spirit. But if you are looking to put your money into a large Airline that will compete internationally with the new American, I would recommend investing into Delta (I am currently invested in Delta Airlines myself). Delta Airlines is expanding in all directions, purchasing slots in JFK Airport in N.Y.C, buying a 49% stake of Virgin Atlantic Airlines, and most importantly reorganizing itself as a low budget carrier.

                Low budget airlines are a fantastic investment at the moment but if you are looking for short term investment opportunities I would suggest investing into Entertainment Arts (EA).

                Electronic Arts is a company valued at over $7.2 billion that manufactures games for gaming consoles such as Sony’s Play station and Microsoft’s Xbox. In addition to producing games for PC’s, networking sites (such as Facebook) and mobile devices. What originally attracted me to this company was that its stock had seen a sell off on Friday of over 7.32%, which was another hit in a serious of sell offs that had driven the stock down 10% over the last 3 months. Now I don’t play video games very often so I normally I would avoid buying into the gaming industry but with the new generation consoles coming out, such as the Play station 4 and Xbox 1 I saw an opportunity to exploit the sale of these consoles without betting on which one would sell better.

                Buying into a company that produces games for both consoles opens the door for immense profits over the next few months, since consumers who buy a new console will be forced to buy a whole new set of games to service them. This tied to the recent sell off in the stock seems like a golden opportunity to invest.

                In the end this week was very profitable but over the next few weeks investments in low budget airlines and Entertainment Arts could send your portfolio as well as mine to blistering new heights.



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 I will be posting an article every weekend and looking back at the political and economic events of that week, both personally impacting events and suggestions about my opinions on the future of the market