About Gregg Jahnke

JetBlue: A Stock All Value Investors Should Consider

All value investors should pause for a moment and consider an investment in the airline industry. JetBlue Airways (JBLU) has done an outstanding job of building a niche franchise in a miserable industry. Very few investors seem to understand the unique franchise that JBLU has built. Selling for less than a pretty clean book value, and with a balance sheet that is better than it appears, I believe JBLU is a stock that value investors should own.

After a brief review of my sanity, I will explain some of JBLU’s unique characteristics, review its current valuation, and discuss a few miscellaneous topics.


“It just might be a lunatic you’re looking for” – Billy Joel

Let’s answer the most important question first. Would any sane person invest in the airline industry?

-the big airlines have lost roughly $55 billion in the last ten years

-all the big airlines (except for Southwest Air (LUV)) have gone through bankruptcy

-Warren Buffett said, “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” – Warren Buffett, annual letter to Berkshire Hathaway shareholders, February 2008.

As a generalist value analyst for the last 30 years I must admit I seldom wasted a minute looking at this industry. Even though many of the stocks were often statistically very cheap, other than an occasional glance at LUV, I always had better things to do.

What changed? In a desperate search for new ideas, I reviewed the portfolios of professional investors who I have great respect for. One whom I particularly admire is Donald Smith & Co. This firm manages over $3 billion in institutional money using a strict discipline of investing in only the bottom 10% of price/book value stocks. Looking at their portfolio, I think they really understand this unique universe. Smith & Co. has owned JBLU since 2008, and they are now the largest shareholder with just over 10%.

It is also worth noting that the guys at PRIMECAP Management own 8% of JBLU and 11% of LUV. These guys are too growth oriented for me; they own things like Google and Amgen. Even the well respected John Hussman started a small position in the last quarter.

Have these apparently smart investors all gone mad? When I spent some time looking at JBLU, I must admit I was surprised by what I found.

The complete article can be found here on Seeking Alpha.

Please contact us for a copy of our report.

10 Top Value Ideas From The Keeley Small-Cap Value Fund

With the market hitting all-time highs, it is extraordinarily difficult to find new value ideas. At times like this, using typical screens or the 52-week low list is often unproductive. However, the search for new ideas must go on. One of the best methods of finding ideas is to search through the publicly disclosed portfolio of a well respected value mutual fund. In this article, we are going to look at the Keeley Small Cap Value Fund (KSCVX) here.

As Investing 501 begins to build its model portfolio, this will be one of the main methods we will use to find new ideas. If you want to know why we selected this particular fund, look here. If you are interested in our process for conducting these reviews, see the methodology discussion at the end of this article. First, our favorite 10 ideas from the KSCVX portfolio:


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How Safe Is Your Money Market?

For an asset class with almost $3 trillion in assets, you would think that investors would pay more attention to the holdings in their money market fund. We have found little information or analysis on the holdings of money market funds. While your money market mutual fund is certainly safer than it was in 2007-’08, if you think that recent proposals by the Securities and Exchange Commission (SEC) make your fund completely safe, you have not been paying attention.

Since 1999, I have advised friends and family to invest in “treasury-only” money market funds. After reading the following three documents, I find no reason to change that recommendation. While the SEC proposals are carefully crafted and do appear to solve some of the more troubling issues, they remain incomplete. First, let’s discuss the interesting points found in the reports and then consider the unresolved issues.

SEC Money Market Reform Proposed Rules

Response to Questions Posed by Commissioners Aguilar, Paredes and Gallagher

Financial Stability Oversight Council 2013 Annual Report


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The Defense Industry: A First Glance – L-3 Communications Is The Leader In The Clubhouse

This is the first of several reports on the aerospace/defense industry.  Our goal is to find the stock with the most attractive risk/return characteristics. We have begun our review of 5 of the 25 companies in this industry.  There is quite a bit more work to be done, but so far the “leader in the clubhouse”, is L-3 Communications.

The aerospace/defense industry is an ideal place for a value investor to begin searching for inexpensive stocks.  As two wars grind to a conclusion, and the threat of a budget sequester has materialized, it is hard to imagine an industry where expectations could be any lower.  Many of the stocks are selling at low multiples of cash flow and book value.  It is exactly this type of “negative environment” that value investors must relish examining if they want to find real values.

Let’s get started by taking the first steps on a long journey. [Read more…]

Book Review: Abnormal Returns- Winning Strategies From The Frontlines of the Investment Blogosphere – by Tadas Viskanta

Instead of reviewing some of my long-time investment favorites, most of which were published more than 20 years ago, I thought I would take a look something more contemporary.  Since we are just starting an investment blog, Mr. Vinkanta’s title caught my eye.  I was admittedly skeptical, because the title sounds a little too much like a get rich quick book.

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Don’t Wait For The Clouds To Clear – Buy ATI Now

Date: May 1, 2013       Price: 26.02    Mkt. Cap.: 2.8 billion

We recommend purchase of the shares of Allegheny Technologies (ATI).  ATI deserves enormous credit for wisely reinvesting in its basic business despite fluctuating earnings.  Too many U.S. industrial companies have increased dividends, made mistimed stock buybacks, or completed silly acquisitions.  ATI is nearing the end of a long capital investment cycle that will leave it well positioned for future growth and sustained profitability. Highly cyclical companies like ATI are notoriously difficult to understand, value, and predict.  However, it has been our experience that investors with patience and courage can profit from owning the shares of volatile companies that are competently executing a solid long-term strategic plan.

We will give an overview of ATI’s business, make an attempt at valuation, and finally discuss some of the “timing” issues involved in our recommendation


ATI is a difficult company to understand.  It is in part a producer of many highly specialized steel alloys that have very interesting growth prospects, and above average profitability profiles.  These products include titanium alloys that have increasing importance in the manufacturing of commercial jet airframes and jet engines.  However ATI is also a large producer of stainless steel products that are closer to what one could call “commodity” grade and cannot really be considered a specialty product.   Stainless steel adds certain alloys (mainly nickel, but many other are used) to prevent corrosion and rust. Growth in these products in highly dependent on economic growth, and competition is higher, and profitability is lower and much more volatile.

The slide below is borrowed from ATI’s 2012 annual report.

Some important things to note:

  1. 79% of sales are high-vaue products, only 21% is commodity grade

  2. potential growth areas like aerospace and oil/gas are 51% of sales

  3. the remainder is widely diversified, withonly an 8% exposure to the cyclical automotive business

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One-Hour Analysis of Northrup Grumman

From Value Line

  • Stock has consistently underperformed since 2002, stock has been flat for over 10 years
  • Stock is cheap in term of cash flow, not that cheap in terms of book value
  • Took a big charge in 2008, a pretty good size negative
  • Made several large and probably bad acquisitions in 2001-2
  • Have done a spectacular job of deleveraging ever since
  • Balance sheet is almost “too good”, they could certainly afford acquisitions, over $3 billion in cash
  • Margins are at all time highs, this is more a negative than a positive
  • Impressive size of stock buyback, these guys have really “got religion” in terms of really working for shareholder
  • VL shows small pension liability, this needs further investigation
  • Lots of mixed signals here, not quite as clean as LLL

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