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Summary

  • American Airlines Group emerged from bankruptcy in December 2013 after joining with US Airways Group.
  • Many hedge fund and institution managers are unable to purchase shares in companies exiting bankruptcy for at least a year.
  • American Airlines Group has the smallest percentage of institutional ownership of the five largest domestic airlines.

The former parent company of American Airlines, AMR Corporation, filed for Chapter 11 bankruptcy protection in November 2011 and in February 2013 announced plans to merge with US Airways Group, creating the largest airline in the world. AMR and US Airways Group completed the merger on December 9, 2013, with the new holding company American Airlines Group, Inc. (NASDAQ:AAL) being listed on NASDAQ that day. Shares opened at $22.27. In a little over six months the stock has soared to $41.06.

The by-laws of many hedge funds, pension funds and institutional funds do not allow the fund managers to purchase shares of companies for at least a year after exiting bankruptcy. In addition, many fund managers are not comfortable investing with a company that does not have a proven track record over a period of time or are lacking financial information that can be poured over by a Fund's army of analysts. This policy has resulted in AAL to have the smallest percentage of shares held by institutional owners to date. See chart below provided by Fidelity Investments:

AAL

UAL

DAL

LUV

JBLU

American Airlines
Group

United
Continental
Holdings

Delta Air
Lines Inc.

Southwest
Airlines Co.

Jetblue
Airways Corp.

Institutional
Ownership

57.60%

98.05%

86.31%

80.27%

99.00%

Share Price
6/17/14

$41.87

$43.92

$39.49

$26.63

$10.53

I'll primarily focus on AAL, United Continental Holdings (NYSE:UAL) and Delta Air Lines Inc (NYSE:DAL) because they are closer in share price to each other as compared to the remaining two. AAL's 57.60% of institutional ownership is below UAL's by 41% and by DAL's by 32%. Placing all other investing and analytical variables aside, there is potential of a moderate to high share price increase in late Q4 2014 or early Q1 2015 when salivating fund managers go on an AAL buying spree spending money like the axiomatic drunken sailors on shore leave. Since a share's price is basically derived from supply and demand you can expect the share price of AAL to increase as fund managers begin to build positions later this year.

AAL volume in the first week of December 2013 hit a daily high of 43M shares trading hands as investors grabbed a stake in the new American Airlines Group. The trading volume since early December has been relatively flat hovering around 10M shares daily until a major spike of 37M shares in mid-June when news of resurgent political strife in Iraq began to agitate the price of oil. If my prediction pans out there should be a slight increase in AAL daily trading volume in late Q4 eventually snowballing into higher daily volume through early Q1 2015 then resulting into the corresponding rise in AAL share price.

Being that one cannot predict the future absolutely I'm not going to posit at what percent AAL's shares will increase with the upsurge of anticipated share buying. I've read several articles from varying sources over the past month commenting on the positive performance and integration thus far and predictions that AAL's share price will rise to $50, $60 or $100 by 2017. I'm not ready at this point to analyze AAL's technical or fundamentals but with what I've read and researched I am excited about AAL's future. Headwinds ahead may include open labor agreements to be resolved, US elections in November or continuing unstable oil prices due to a roiling of mid-east politics. But all else aside, with AAL's performance YTD at 63% it looks like blue skies and clear sailing for AAL for the next few years. AAL will be a first-class addition and performer in a long term investment portfolio.

Disclaimer: I do own shares of AAL long and will continue to buy shares to hold. I do not plan to purchase or sell shares of AAL within the next 72 hours. It is recommended that each investor thoroughly research every investment idea before making a purchase.

Source: Beat The Institutional And Hedge Fund Investors To An American Airlines Group Long