AMR Shares Soared: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of AMR (NYSE: AMR  ) , parent of bankrupt American Airlines, soared as much as 28% in early trading but gave up most of that gain by the closing bell. The stock finished up 3%.

So what: While analysts are touting the opportunity AMR's bankruptcy represents for peers US Airways (NYSE: LCC  ) , Delta (NYSE: DAL  ) , and United Continental (NYSE: UAL  ) , investors were encouraged by American's initial cost-saving moves -- including a plan to surrender 24 shorter-haul aircraft to save on leases and storage.

Now what: American also plans to shed leases for space at Chicago's Midway airport and a base station in Kansas City, Mo., Reuters reported. Smart. Both American and United already call Chicago's O'Hare a hub, which makes Midway overflow. Yet I'm also not sure it matters. AMR's bankruptcy is likely to cancel the shares -- any play on them now is a sure loser unless you're buying to flip. Do you agree? Did you buy today? Please weigh in using the comments box below.

Interested in more information about AMR? Add it to your watchlist.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

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Read/Post Comments (6) | Recommend This Article (0)

Comments from our Foolish Readers

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  • Report this Comment On December 01, 2011, at 8:02 PM, Rsnakegt wrote:

    Two words explain the early spike: short-covering. Nothing more than short investors who played the bankruptcy right wanting to cash in. The stock is definitely worthless, just like GM was in the bankruptcy. Buying with the intention of flipping is beyond stupid - buying a worthless piece of paper in the hope that some bigger fool will pay you more for it - a lottery ticket is a better investment.

    I steer clear of airlines other than LUV, they all go bust every 10 years at least.

    Blue Horseshoe hates American Airlines.

  • Report this Comment On December 01, 2011, at 10:19 PM, investspec wrote:

    There could be an interesting story with AMR. 1.AMR will probably re-emerge from bk a leaner airline (in terms of its balance sheet).

    2.Saw some articles that 1 or 2 other airlines may be interested in merging with AMR.

    3. Could be profitable before exiting bk which would drive the stock price up.

    Every bk is different to a certain extent. Remember when Delta and Northwest were in bk. Their stock was transferred to the OTC where they more or less floundered until speculation pushed up the value of both companies shares. The source of the speculation was from both corporations exiting from bk. Between the time the corporate officers go in front of the bk judge (for an exact day of exit from bk) to the IPO on a major exchange sometimes share prices can drop quite a bit. ...and what I mean by quite a bit is that if a person does not monitor their position after the bk judge approves an exit from bk, they can lose $$$$ in a very short period of time from what I can recollect.

    Have to monitor the daily or weekly bk reports for profitability, operations updates, and court info.

    Delta went up something like 700% in a span of 1 week to 2 weeks. Northwest leaped 500% in a short period of time as well. There can be a lot of variation in pricing on a day to day basis.

    The economics were different in 2007 too. The housing market peaked. Obviously, gas prices were high. Airline Labor disputes. The economy was just beginning to sputter. ...and the airline industry was going through a consolidation period. US Airways was trying to take over Delta. Towards the end of Delta's bk, the airline was showing a profit

    Anyways.....on the flip side of coin if American ends operations for some reason while in bk then the investor loses the entire investment (or most of it). Not recommending AMR in anyway. Just trying to describe my experiences with bk'd airlines from 2006-2007. Not a bk professional.

  • Report this Comment On December 02, 2011, at 11:23 AM, joegeorges wrote:

    Which part of "cancelled stock" do you not understand. This happens in 99.9% of cases where a public company files bk. This is a sure bet with AMR since their creditors will have to trade equity for new stock at some point in the bk process. This co. has over $12 billion more debt than cash. Where do you think the money is going to come from to pay off the banks? The old stock is then always cancelled, worthless., Just check out all the airline bks of past years as well as bks of other public traded companies. Fools gold.

  • Report this Comment On December 02, 2011, at 11:28 AM, joegeorges wrote:

    The OTC stocks of other airlines you mention were not the same stocks that were being traded after the bk was filed. Those shares are always cancelled and new shares issued, usually on the OTC. The old stock is always worthless, zero, zippo.

    The new stock comes out at an IPO price, and most of it goes to creditors to try and make them whole for previous debt. The old stock is still worthless, there's no other way for this to go, period.

  • Report this Comment On December 02, 2011, at 2:47 PM, Clint35 wrote:

    Don't invest in airlines!

  • Report this Comment On December 07, 2011, at 11:20 AM, tnvet wrote:

    I didn't take any of the advice posted out here on staying away from airlines and bought AMR at .3884. I didn't break that bank and just bought about 1,000 shares to try and flip a little cash. I just sold enough to cover my initial investment and all the commissions and am sitting on the remaining shares that is all profit. I will hold it out for a little while and see what happens. I won't make a mint but as it stands today I would double my money. I can't argue with a 50% ROI.

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