I don't know what to make of the future of my shares of JetBlue Airways Corp. Any suggestions?
- R.M., via the Internet
How was your Valentine's Day? The snarled travel because of winter storms lingers in the minds of JetBlue's passengers and investors.
The discount airline that won acclaim by rarely canceling flights couldn't cope with unavoidable cancellations prompted by the weather. It is estimated that this cost it as much as $30 million in overtime, added crew costs and free flights.
Shares of JetBlue Airways (JBLU) are down 18 percent this year after an 8 percent decline last year and drops in 2005 and 2004. The company, which reduced its net loss to $1 million last year from $20 million in 2005 - it was profitable from 2002 to 2004 - has reduced its pretax profit margin outlook for this year to a range of 2 percent to 4 percent.
Aware of the shock to its customer-first image - exemplified by its name being crossed out on the cover of BusinessWeek in a story on companies with the best customer service - JetBlue is working to make amends.
Russell Chew was hired last month as chief operating officer, a post held by President Dave Barger since 1998, the year the company was incorporated. Chew spent four years as chief operating officer of the Federal Aviation Administration after 17 years with American Airlines.
JetBlue introduced a "customer bill of rights" in which it promises cash or travel vouchers to customers for a "controllable irregularity," better notification about delays and cancellations, and deplaning of passengers if an aircraft is delayed on the ground for an extended period. It has also recently been quicker to cancel flights in bad weather.
Consensus analyst rating of JetBlue shares is between a "buy," and "hold," according to Thomson Financial. That consists of two "strong buys," seven "buys," six "holds" and one "underperform."
Based at New York's Kennedy International Airport, JetBlue continues to aggressively add flights, most recently including Boston to Charlotte and Orlando to Washington Dulles International Airport. It serves short-haul and long-haul routes throughout the United States.
Run efficiently with one of the lowest cost structures in the industry, the airline faces its biggest challenge in volatile fuel prices. Another uncertainty is what will happen when it must compete more directly with Southwest Airlines, the leading low-cost airline. Other carriers have also begun copying JetBlue's on-board amenities and in-flight entertainment.
JetBlue earnings are expected to increase 83 percent in 2008 versus the 16 percent gain predicted for the regional airlines industry. The expected five-year annualized return of 20 percent compares to 13 percent forecast for its peers.
I have retirement money in the T. Rowe Price Capital Appreciation Fund, which seems to keep changing. Is it still a good bet?
- R.P., via the Internet
Changes at this conservative fund that hasn't lost money in years have involved portfolio managers.
Here's what happened:
Veteran manager Steve Boesel was in charge from 2001 until retirement in mid-2006, when he was replaced by analysts Jeff Arricale and David Giroux as co-managers. Now Arricale is leaving to run the T. Rowe Price financial services analyst team, leaving Giroux as sole manager.
The $9.8 billion T. Rowe Price Capital Appreciation Fund (PRWCX) had a 12 percent return for the past 12 months and for the annualized three-year period. Both rank in the top 10 percent of moderate allocation funds.
"This fund would make a good core holding for conservative investors and, while running it is a big job, Giroux has plenty of help in place," said Greg Carlson, analyst with Morningstar Inc. in Chicago. "Typically, it is 60 to 65 percent in equities and the rest bonds and cash."
The fund prefers stocks with high yields and cheap valuations. Although best known for its value emphasis, it also has a contrarian mindset. It likes convertible bonds and generally prefers to hold cash over traditional bonds.
The manager transition shouldn't present a problem. Although Giroux had not managed a retail fund before, he had been an analyst at T. Rowe Price for seven years. In addition, before taking over this fund from Boesel, Giroux worked closely with him for two years.
T. Rowe Price Capital Appreciation Fund currently has 61 percent of its holdings in stocks, 20 percent in cash, 5 percent in bonds and the rest in convertible securities. Top stocks are Microsoft Corp., Tyco International Ltd., Murphy Oil Corp., General Electric Co., American International Group Inc., General Motors Corp. preferred, Wyeth, Pfizer Inc., Coca-Cola Co. and Home Depot Inc.
This "no-load" (no sales charge) fund requires a $2,500 minimum investment and has a low annual expense ratio of 0.73 percent. Neither this fund nor T. Rowe Price has been disciplined by a regulatory body in the past decade.
How are closed-end mutual funds different from regular mutual funds?
- S.E. via the Internet
Both have actively managed portfolios, but a closed-end fund has an initial public offering and then its shares are traded on an exchange like stocks.
By contrast, the typical open-ended mutual fund continually issues shares at net asset value and stands ready to redeem them.
"Closed-end funds tend to trade at a discount to the net asset value of their portfolios," said Thomas Herzfeld of the investment advisory firm in Miami that bears his name. "That's because after the IPO sponsorship stops there isn't the continuous advertising that is the case with an open-ended mutual fund."
He doesn't recommend closed-end funds to investors who aren't willing to do the extra homework to determine likely upward or downward movement in the premium or discount to net asset value. That, along with the portfolio's performance, determines whether money is made or lost.
Another type of fund, the exchange-traded fund, or ETF, also trades on a stock market, but is different from a closed-end fund, Herzfeld said. The ETF generally has a fixed portfolio and, because of its structure, will likely trade at its net asset value.
Andrew Leckey writes for Tribune Media Services.