American Airlines, trading at just a fraction under $40 per share, is a Big Bet Stock Pick on 6/19/2015. This stock has been beaten down to the point where its P/E is a low 8.7 and the price is down from a 52 week high of $56.20.
AAL doesn’t hedge its fuel like most other airlines so one would think that dramatically lower fuel prices would be helping this airline out. But so far it hasn’t worked out that way as the investment world focuses on the threat of another burgeoning price war between the major airlines just like the olden days.
CEO Doug Parker has made a few recent appearances on television where his message has been that the airline will do what it need to do to keep competitive, which includes lowering prices. This has sent all the airline stocks into a tailspin but has been especially hurtful to AAL stock. Any price war and increased capacity (like Southwest spoke about) would lower profits and thus the stock sell off.
Additionally there is the flap between Southwest and Delta and American Airlines about who can fly out of Love Field. This just adds a little fuel to the fire and gives investors another reason to sell the stock but in reality this is a short term problem that should be resolved and quickly forgotten about.
AAL stock is clearly one for investors with long term horizons. It is unlikely that anything will change right away but this stock looks like it is nearing a bottom where investors will see more value than risk. With the summer travel season upon us and fares going up, the airlines as a whole should do well this year. Baring a steep market sell off or some kind of terrorist attack involving the airlines (a risk that is always present), it is now time for American Airlines stock to slowly start turning around and going back up.
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