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How To Buy A Cheap Airline Ticket

August 5th, 2011 No comments

There’s a lot of sites out there that help you buy airline tickets. Buying an airline ticket can sometimes seem like game of cat and mouse. Behind the marketplace there is a system that is attempting to match supply and demand, by selling tickets for the highest price the consumer is willing to pay.

The seller (the airlines) have the power when it comes to selling “normal” tickets, such as those planned weeks or months in advance. As the schedule tightens, the pricing power of the airline increases because fewer seats are available which causes the remaining demand to pay more.

Then something happens within a week of a flight: the airlines get desperate!

Unfortunately for the consumer these cheap deals are invisible to the main aggregators (such as cheaptickets.com, travelocity.com and expedia.com). These aggregators offer the ability to match your flight with car rentals as well as hotels. However, they offer the ability to get good prices only on tickets outside that last or two week before the flight. The major airlines have controlled these flights so that they are not available at the major flight deal aggregators.

In order to get these cheap deals, you need to go to the airlines directly. I’ve put together some info here for most of the major airlines.

The first thing to do to get cheap flights is to determine which airlines serve your airport. You have a better shot at getting cheap flights if you go to the airline that has a major “hub” at your local airport.

Here’s a list of the major hubs for some of the major airlines:

  • Charlotte/Douglas International Airport – US Airways
  • Washington Dulles International Airport – United Airlines
  • Dallas/Fort Worth International Airport – American Airlines
  • Detroit Metropolitan Wayne County Airport – Delta Air Lines
  • Salt Lake City International Airport – Delta Air Lines
  • Cincinnati/Northern Kentucky International Airport – Delta Air Lines
  • Memphis International Airport – Delta Air Lines
  • Minneapolis-Saint Paul International Airport – Delta Air Lines
  • Newark Liberty International Airport – Continental Airlines
  • Houston George Bush Intercontinental Airport – Continental Airlines
  • Philadelphia International Airport – US Airways

How It Works

The details may differ slightly, but these deals pretty much work the same way:

  • On Monday or Tuesday, the cheap deals are posted by the airline.
  • Buy the tickets up to that Friday or Saturday.
  • Take off on that Saturday.
  • Return flight is Monday-Wednesday of the next week.

To give you an idea of the savings involved here, I bought a Newark (EWR) to Knoxville (TYS) direct round trip flight using continental.com Specials for $130. A similar flight booked, say two weeks in advance, would cost about $650!

Where To Go

Here are the details for these major airlines.

Continental Airlines:

Flights are available for the current week only, Domestic flights only.

PURCHASE: By Friday
DEPART: Saturday
RETURN: Monday or Tuesday

Go to the Specials Here.

Sign up to Get Specials Mailed Each Week Here.

US Airways:

e-Saver Flights are available for the current week only, Domestic/International flights (rules for Domestic flights are given below).

PURCHASE: By Saturday
DEPART: Saturday
RETURN: Monday or Tuesday

Go to Domestic/International Specials Here.

Sign up To Get Specials Mailed Each Week Here

American Airlines:

Net SAAver Flights are available for the current week as well as two weeks in advance. Domestic/International flights (rules for Domestic flights are given below).

PURCHASE: By Friday
DEPART: Friday or Saturday
RETURN: Monday or Tuesday

Go to This Week’s Domestic Specials Here.

Go to Next Week’s Domestic Specials Here.

Go to This Week’s International Specials

Sign up To Get Specials Mailed Each Week Here

Delta Airlines:

Flights are available for the current week only, Domestic flights only.

PURCHASE: By Friday
DEPART: Saturday
RETURN: Monday or Tuesday

Go to the Specials Here.

Sign up to Get Specials Mailed Each Week Here.

United Airlines:

Flights are available for the current week only, Domestic flights only.

PURCHASE: By Friday
DEPART: Saturday
RETURN: Monday or Tuesday

Go to the Specials Here.

Categories: Personal Finance Tags:

Relaunching As SixFigInvestor

August 5th, 2011 No comments

This site will be relaunched as SixFigInvestor.com. There won’t be much change in the content, but the name change emphasizes the focus on investing. There will be more content coming in the future, this is what we will be bringing to our readers.

  • Practical strategies to make money investing, with an emphasis on value investments where returns can be more easily calculated and predicted.
  • Analysis of the latest in economic, policy and financial news that will help you to interpret it to your own financial life.
  • More portfolios that will be tailored for different situations and opportunities. Look for portfolios suitable for taxable, tax deferred accounts as well as ones tailored to the changing interest rate environment.
  • Tracking of a real money portfolio that you can read along with and see how I make money. All the trades and changes to the positions will be published as they occur.
  • Content to assist you in your personal finances, with an emphasis on making the most of your time, money and living standard.

This site can’t be a success without the readers. Please take the time to comment on the articles or send me your ideas or questions about your own situation that you need answers. Here is the link for the contact form.

Thanks!

Categories: Administration Tags:

Energy Efficiency Increases Not Decreases Energy Use

August 1st, 2011 No comments

A recent article in the Economist makes a convincing case that environmentalists have it all wrong about energy efficiency. Energy efficiency promotes higher energy use because the more light created with the same amount of electricity creates demand for more uses of light not less.

This is not the first study I’ve read on this topic. If you think about it, it makes a lot of sense.

Environmentalist think that efficiency will lead to stable or lower energy use over time. Consumers have something different in mind: they want more light and producers are going to want to deliver it. Efficiency will hasten this trend.

You may have read articles about the problems that Google is having keeping up with server demand. Growing so fast, one of the main roadblocks they encountered was server power supplies. The main driver of server costs is not the hardware but the cost of electricity. So, they designed their own equipment that is more efficient.

But in the end, does anyone think that Google is going to use less energy in the future than it does now? Nope. They are getting involved in the energy market big time all to create even more data centers and more services.

There’s only one way to reduce energy use: make energy more expensive. Nobody wants to do that, at least not directly. The cap-and-trade bills in Congress would increase the cost of energy, but only indirectly.

Categories: Business, Economy Tags:

How To Play Lorillard With A Put Option

March 5th, 2011 No comments

In this previous article, I talked about the investment opportunity in the stock, Lorillard, which is a tobacco company based in the U.S. If you are trading the stock, you only have a few options to take your position. You could buy the stock, or sell the stock short (this entails ‘borrowing’ the shares, selling them, then at some future point buying back the shares at a lower price to cover your borrowing).

Another way to play this company is to use options. Options are new for me, so the strategy that I will use is to consider simple one position options. Conceptually, it should be evident enough about what we are trying to do with the option (as I’ll explain), but as I’ve found sometimes the terminology about the transactions gets confusing. So, I will give it my best shot to describe this trade (as I am learning it as well).

The uncertainty in the Lorillard stock manifests itself as higher volatility in the options. Volatility is a typical expected large change in the stock price, or perhaps even the expectation that there could be a big change even if the stock price doesn’t typically have high volatility.

The risk for Lorillard is that the FDA could rule that menthol is to be banned as an additive to cigarettes. As I’ve talked about before, I think this is unlikely, but not out of the realm of possibility. So, the question is, if you are a big shareholder, how do you protect yourself from such a risk? One answer is to buy what’s called a Put Option. A Put Option enables the buyer to sell the stock at a set price (the ‘strike’ price) when the underlying stock price trades below the strike price.

As an example, let’s say Lorillard trades for $80/share. The shareholder wants to protect himself from potential downside by buying a Put Option with a strike price of $65. This means that if Lorillard trades below $65 during the life of the option he can always get $65. If catastrophe strikes he will always be able to sell for $65.

This is where we come in. Wherever there is a seller there must be a buyer. We are that buyer who will pay $65, if it ever came to that point. Here’s where the terminology gets tricky. Since the shareholder bought a Put, we will then become a Put Seller. If the Put goes ‘in the money’ at any point (the underlying stock price is below the strike price) we would be obligated to then buy the shares at the strike price. Yes, that’s right we sold a Put to become a buyer of the stock.

This trade has both downsides and upsides. Let’s consider them.

Downside And Risks

  1. By far the biggest risk is that the FDA rules that menthol should be banned, probably phased out over a time period. The advisory committee will offer a non binding recommendation in March 2011, which the FDA could then use or ignore. I would quantify this risk as 30-40 a share, given that any ruling (if it occurred during the life of the option) wouldn’t wipe out profits immediately but over time. So, we would be out perhaps as much as $20/share since we would be obligated to buy the shares.
  2. Another risk of this trade is opportunity cost of missed dividends. Let’s say nothing happens to impact the company, we would have lost dividend income (which is quite substantial for this company, almost 7%) because we don’t own any shares, just the option. A more complicated option strategy, a covered call, could accomplish the same thing while still collecting dividends.
  3. Finally, there is upside risk. Let’s say that the FDA rules that menthol is OK and no changes are required. The stock may go up $10-15, which we would not participate in since we don’t own any shares by taking this option position.

Upside And Profit

  1. The biggest upside to this trade is that we can earn a substantial option premium that we get to keep no matter what happens. If the likely scenario occurs (the ruling causes no big impact to profitablilty), then the option expires worthless and we keep the money. Because the Put Option buyer is paying a premium to get this protection, we earn money on the option by entering into the transaction. Because of the implied volatility of the option, this premium is substantial.
  2. Another possibility is that the market itself causes a sell off in the stock price unrelated to the issues facing this company. This is the best of all possibilities, because we can then own a great company for less money since the shares would be ‘put’ to us. Income investors get ahead buying cheaper, because investment yields go up.

Take This Put Position

This is the trade that I will be establishing, if I can get it at this price:

Sell Lorillard June 2011 Put, Strike Price: $65, Premium: $4.

This means that for each contract (100 shares), I will collect $400 in premium.

Categories: Investing Tags:

For Lorillard, It’s 2000 All Over Again

February 2nd, 2011 No comments

Newport Menthol accounts for 90% of Lorillard's business

It’s February 2011, and the stocks market is booming. While most stocks are up, Lorillard (LO) is taking a breather. This reminds me of the pricing action for cigarette stocks in 2000. During that time, cigarette companies faced the one-two punch of declining interest against the Internet/Technology boom, plus the threat of litigation from the States and the Federal Government.

How this all played out is instructive for how to play Lorillard today. Lorillard is one of the few bright spots in the tobacco industry because it is growing market share. The reason? Customers are choosing to buy its signature product Newport Menthol Cigarettes. Critics would point out that the reason for most of this success is that menthol cigarettes are attracting newer, younger smokers.

These minty cigarettes are on the target list of the FDA, which has regulatory powers on tobacco. They’ve already eliminated other types of flavored cigarettes (which really had insignificant share anyway). A ruling is expected in March 2011 regarding how the FDA will choose to treat menthols.

Learning From A Previous Lesson

If you bought cigarette stocks in 2000 and held on to them, you would have handily beaten the market, which essentially went nowhere the next 10 years. Part of this was the unwinding of that same Technology boom which helped to depress prices in the first place, but the biggest reason is that the legal issues regarding tobacco were settled. In short, the States and the Federal Government got a whole bunch of money and the cigarette companies were given a more consistent and predictable legal environment to conduct business. So, the legal action against the tobacco companies essentially came down to money, not health issues, not teenage smoking/advertising.

Once this issue was mostly resolved, Wall Street then based its valuation for these companies more on fundamentals. The stocks boomed because the fundamentals of these businesses are quite good, they generate excellent margins and cash flow on their products.

Year 2000, Redo

If you want to invest in cigarettes, your best bet is Phillip Morris (PM), which we own in the Income Portfolio. It’s got international growth built in plus excellent management to go with a signature Marlboro franchise. However, Lorillard (LO) is attractive because it is trading at a discount to the market because of the threat that the FDA will outlaw menthol cigarettes. This depressed valuation plus the growth potential makes for a great potential investment. Here’s LO compared to its major competitors in terms of P/E:

´╗┐Company

LO : 11.4

MO : 13.8

PM : 15.2

RAI: 18.5

Also, below details analyst estimates for earnings and dividends.

Lorillard Actual 2009 Estimate 2010 Estimate 2011 Estimate 2012
EPS $5.76 $6.69* $7.34* $8.1*
Payout Ratio 0.63 0.63 0.63 0.63
Dividend Estimate $3.62 $4.21 $4.62 $5.10
Dividend Actual $3.84 $4.25
Difference 6% 1%

*Mean analyst estimate used

Conclusion

It believe it is unlikely that menthol cigarettes will be outright banned. They are 30% of the total market, which is too large to ignore. If they were banned, the sales would go underground and the states would lose 30% of their tobacco settlement money, plus the associated sales taxes that go along with these products. However, between a ban and no-ban, there might be some room for further regulation. We’ll see.

Buying Lorillard today offers the potential of an investment with a 6% dividend yield with a likely bump up of 10% per year for the next few years at least. If that doesn’t entice you, the fact that you can buy these earnings for just 11X trailing 2010 earnings should convince you.

In my mind it comes down to how cheap can I buy these shares. We may get an opportunity to buy cheaper as time goes on the next month. Lorillard will be added to our Income Portfolio this month.

Here are a few other good articles that talk about Lorillard.
– Lorillard to Benefit From Reduced Risk of a Menthol Ban: Smooth Yield, Smoking Return
– A Nonhazardous Trade on Lorillard

.Lorillard Actual 2009 Estimate 2010 Estimate 2011 Estimate 2012
EPS $5.76 $6.69* $7.34* $8.1*
Payout Ratio 0.63 0.63 0.63 0.63
Dividend Estimate $3.62 $4.21 $4.62 $5.10
Dividend Actual $3.84 $4.25
Difference 6% 1%

*Mean analyst estimate used

Categories: Investing Tags: