Why I sold WestJet

Earlier this year I said goodbye to WestJet (WJA on TSX). I realized a 40% gain on average that essentially matched the market. WJA was cheap and so was the market. I sold because I think the new CEO at Air Canada (WJA biggest competitor) is pretty smart. At the time it seemed that Air Canada’s unions and Air Canada were going to come the a compromise that would close the gap that WJA has over AC.A.

WJA was about 30-40% below my fair value target, but I was also getting nervous about the economy. Not that I have any insight on the macro side, but I noticed that market participants were getting comfortable with some of our large imbalances again. Confidence has returned and it makes me nervous.

WJA is a very well run company in a tough space. The share price may decline in a slower economy, but so will many other company’s. WJA is well followed as well. This makes it tougher for the share price to stray too far from intrinsic value.

In order for me to be interested in WJA again, I would have to see some sort of disaster specific to WJA. This would cause forced selling. I’m not too optimistic that something like that would happen though.

Dean

3 Comments

Filed under Company Updates

3 responses to “Why I sold WestJet

  1. clintc

    Closed at $16.09 today….

  2. Kyle

    I’m no investment expert, but I do understand the aviation industry quite well. I personally believe West Jet is a fantastic company to invest in as they are the most progressive airline in Canada and have plans in the works to make their next major advance against Air Canada. They are beginning their regional airline soon (which will undercut Jazz significantly) and have been signing code share agreements with major airlines such as Korean Air and British Airways. They have fleet commonality and an efficient, non-unionized labour force. Air Canada is struggling on their labour agreements and are only capable of competing with West Jet by operating a new low cost carrier (which they failed at their last attempt; Tango). Since I have followed WJA stock performance at the beginning of the year they have gone from $11.52 to $17.24 over the 9 month timeline. I wont not expect to see a decline in this trend and expect to see the closing value at year end above $20/share due to the progress made this year that is about to see realization.

  3. Kyle

    Just wanted to update that it has hit $20/share today… Next prediction is $25+/share before the end of May 2013…

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