The Misfits: Grupo Aeroportuario del Sureste (ASR) and Grupo Aeroportuario del Pacifico (PAC)
Too many investors have tried to chase alpha in airlines when they probably should have been looking at where those planes land.
Postcard of the Omaha, Nebraska airport. Circa 1930-1945. (Boston Public Library)
Note: Sometimes, life gets in the way of publishing schedules. Since I was a bit slower on this particular subject, this Misfit stock profile is a twofer.
Flight has long been an industry where investors have convinced themselves that the stocks are “too cheap to ignore”, only to watch those companies habitually underperform. Even what is considered the best-performing airline, Southwest Airlines, has underperformed the market over the past 30 years. Forget trying to get the 30-year returns on the rest. They have all gone through bankruptcy restructurings.
Too many factors are working against airlines to make them profitable. It is a capital and labor-intensive business. Their assets depreciate more like machinery than buildings. Travel is economically cyclical and acutely exposed to catastrophic events like 9/11 or pandemics. And, to make things worse, these companies tend to carry high leverage considering the industry's risks. Clearly, airlines aren’t the answer.
What about airports, though? They too benefit from the trend of increased passenger traffic, but owning the building isn’t nearly as labor intense as flying planes and those capital investments have much longer shelf lives.
Unfortunately, airports are mostly owned by municipalities in the U.S. and, as far as I can tell, are not publicly traded entities as they are in other countries.
Look south of the border, though, and you will find two of this century's more impressive wealth compounders: Grupo Aeroportuario del Sureste and Grupo Aeroportuario del Pacífico.
Let’s determine what has made the Mexican airport business a compounding machine.