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Sunday, February 5, 2023

The Party’s Over; Sell American Airlines Stock Now

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The last time I weighed in on American Airlines (NASDAQ:AAL) stock and its peers,  I said, “The party is over for airlines, especially with ‘second wave’ coronavirus fears making the rounds.”

AAL Stock: The Party's Over; Sell American Airlines Now

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That was on June 11. And, unfortunately, I was right.

Most of the top airlines have just begun to fall out of the sky again, including AAL, which just dropped from $22.80 to $13.16. Should the coronavirus ground airlines again, and we begin to see new travel restrictions, AAL stock could easily retest a low of $8.25.

  • Delta Air Lines(NYSE:DAL) ran from $37.24 to $29.07
  • JetBlue Airways(NASDAQ:JBLU) ran from $15.62 to $11.13
  • United Airlines (NASDAQ:UAL) fell from $48.95 to $35.12
  • Southwest Airlines (NYSE:LUV) dropped from $42.35 to $34.32

While I wish it weren’t true, the party is over for airlines – again. All thanks to that pesky coronavirus that just will not go away.

The ‘Second Wave’ of the Virus Could Be Devastating

Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, said parts of the U.S. are seeing a “disturbing surge” in coronavirus infections. In fact, according to CNBC, cases are growing by 5% or more in 26 states, including Arizona, Texas, Florida and Oklahoma. Coronavirus hospitalizations are on the rise as well.

Worse, according to former FDA Commissioner Scott Gottlieb, some states may be “on the cusp of losing control.

As the situation grows dire again, we could see states and countries close up shop again. We may not be left with much choice. After all, the virus is still infecting about 40,000 people in the U.S. every day. At the same time, it could result in decreased air travel, and a decrease in popular travel destinations. Both could give airlines a big black eye.

“There is a new wave coming in parts of the country,” Eric Toner, a senior scholar for Health Security said, as quoted by Bloomberg. “It’s small and it’s distant so far, but it’s coming.”

AAL Stock Isn’t Clear for Takeoff 

While American Airlines did see some upside in recent weeks, as the global economy reopened, the good times are fading fast. For one, the company is scrambling to raise cash again. That’s why it priced new debt and equity offerings, which will raise $2 billion in additional capital.

CEO Doug Parker quelled bankruptcy rumors, noting, “Bankruptcy is failure. We’re not going to do that. I don’t think you’ll see any airline go by the wayside as a result of this crisis.”

Unfortunately, a second round of the coronavirus could force it to file anyway. AAL has a shaky liquidity position, says Daren Fonda, a contributor at Barrons.

“The airline is adding back more capacity than its peers, gambling on demand rebounding sharply. That could pay off if travel recovers through the summer and into the fall, enabling American to capture more share than United and Delta. If demand doesn’t materialize, because of a second virus wave, however, it will pressure American’s already shaky liquidity position.”

The other fear is that recent momentum will quickly fade with new cases of the virus popping up. While I wish I could tell you to back up the truck on airline stocks, I can’t. Airlines could see even more downside in the near term and test recent historic lows.

The Bottom Line on AAL Stock

If you made money on the American Airlines brief recovery, that’s great.

Unfortunately, fear is quickly making a return, and putting a dent in the airline stock. The best course of action right now is to sell the AAL stock and wait for the madness to fade.

Eventually, American Airlines will present itself as another solid “blood in the streets” opportunity. Sell and wait for the fear to die.

Ian Cooper, an InvestorPlace.com contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, he did not hold a position in any of the aforementioned securities.

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