Short Term Trading vs. Long Term InvestingLots of unfortunate quarrelling on what is supposed to be a forum to trade ideas.
For those vested in Chorus - I found this article interesting -
https://www.theglobeandmail.com/report-on-business/air-canada-opens-up-bidding-for-jazzs-cross-border-routes/article14486312/
AC is bidding existing US routes currently operated by Jazz. The timing of this is very suspect
- As we approach end of September and the close of oral arguments - both sides must have a good idea where they stand with respect to the outcome of the arbitration.
- It seems to me AC is initiating a pre-emptive strike by opening up Jazz routes to RFP - as they probably have ceded the arbitration outcome to Chorus. If they felt they would be able to control the markup - there would not seem to be a compelling need to open the routes to RFP. AC will continue to have sigificant leverage over Chorus and it seems they are using it while staying within the parameters of thier CPA.
- Should the markup remain unchanged at 12.5% through the end of 2014 - I am betting there is a better than 50% chance Chorus management will revisit the dividend (as they have previously stated). Closure on the arbitration process also reduces uncertainty for Chorus - at least through 2014 until the next round of benchmarking in 2015. Where in the past chorus traded at a 15% yield because of this uncertainty - this yield should drop as a result of a positive ruling. Lets assume for argument sake - the yield drops to 10% (still a very healthy dividend yield by most measures despite the reduced short-term uncertainty). 10% also seems appropriate because the share price needs to account for thier long term viability beyond 2015. Using the following sensitivities -
i) Dividend raised by 30% to $0.0975 quarterly. A price of $3.90 per share yields 10%.
ii) Dividend raised by 50% to $0.1125 quarterly. A price of $4.5 yields 10%
iii) Dividend fully reinstated to $0.15 quarterly. A price of $6 per share yields 10%.
Option iii) seems off the table given thier desire to maintain some balance sheet flexibility for upcoming debt obligations and fleet renewal. But option i) or ii) are certainly in the realm of possibility. Setting i) as the lower bound and ii) as the upper bound - you have a $3.90 to $4.5 potential price target.
Conclusion
- There is plenty of upside to be made in the short term assuming these scenarios.
- There is a difference between trading for the short term and investing for the long term. I am doing a bit of both.
- Chorus as a going concern past 2020 remains a question mark given thier relationship with AC - so holding long beyond 2015 may not be the best decision.
Disclosure
- My average cost on chorus is $2.12 - as I stated in a previous post back in late July early August (when it was trading at $2.00) - Chorus was a buy at those prices and I bought up one quarter of one percent of the company. Since them - I have trimmed my position to lock in profits.
- Given the scenarios described above - I am placing another bet on Chorus prevailing in the arbitration and am continuing to put my money where my mouth is. I tend to make these kinds of bets when the rewards far outweigh the risks.
I hope my disclosure helps cut through some of the unfortunate back and forth on this site.
As I have said in previous posts - in the end - you are on one side - or the other - of a position. That is what makes a market. Sure I have stops in place to protect any downside - but leaning towards a Prem Watsa strategy for a near term hold into 2014.
It would be great to hear posts from those who are actually vested - one side - or the other - and why.