American Airlines Will Be Among the U.S. Airline Sector's Survivors

Note of caution: American Airlines is a high-risk stock, not suitable for moderate- or low-risk investors. Don't buy AMR if you can't tolerate losing 50% of your position's value: it could happen.

American Airlines, like the other, major, U.S. carriers, has had been battered by one crisis after another this decade -- a decade they're no doubt glad to see end: a huge increase in security measures, rising jet fuel prices, suddenly frugal consumers reducing travel, and now the second winter season for the H1N1 flu.

Still, assuming recovering U.S. and global economies, AMR is well-positioned to benefit from the eventual resumption of travel growth. AMR has key hubs in Dallas/Ft. Worth, Chicago, Miami, St. Louis, and San Juan, Puerto Rico. Hence, it's in an advantageous position in a key domestic growth zone (Dallas) and internationally (Latin America). Further, given that emerging markets will be a key growth area from the expansion of middle class and disposable income standpoints, the scale is tipped in favor of a buy for AMR.

Other positives: there's also the argument that institutional investors have shunned the major U.S. airlines. If they start to place bets on likely winners/survivors, that will further support share pries. The First Call FY2009/FY2010 EPS estimates for AMR are a loss of $4.56 to a loss of 65 cents.

Technically, AMR Corp.'s stock chart is in an uptrend, but permeated with high volatility, hence the stock's high-risk designation. Currently trading around $8, on any given month the stock can fall to $5, then reverse back up to $7. Without question, the stock is not for the squeamish, but the calculation is that American will be standing -- and prospering -- as the U.S economic expansion gains steam.

Stock Analysis: AMR Corp. is a high-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in AMR now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your AMR position before February 2010. Sell/stop loss if you were to buy shares in this company: $1.50.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Disclosure: Lazzaro has frequent flier miles in American Airlines and in Air France.