What do you do with a stock that has been grounded during an extraordinary rally in the broader averages? If it’s American Airlines (NASDAQ:AAL) stock, investors should buy is and prepare for a technical-driven takeoff. Let me explain.
Since briefly flying to fresh all-time-highs back in January 2018 after a three-year corrective base, conditions in AAL stock have been anything but pleasant. In fact, it has been downright unprofitable. Shares crashed about 50% into last year’s broad-based corrective bottom. Worse yet, they have largely missed out on 2019’s first-quarter windfall performance, with AAL stock up a scant 12% from its lows.
Not that the period has been an enjoyable journey for other airlines. It hasn’t. But comparatively speaking, AAL is still sitting way back in coach compared to the first-class treatment peers United Continental (NASDAQ:UAL) and Delta Airlines (NYSE:DAL) have endured. So, what gives?
Truthfully, it’s hard to figure out, superficially at least, what Wall Street is thinking or failing to think about when it comes to AAL stock. There’s been no trouble with a scandalous one-off event like the one faced by United last year. And past problems such as AAL’s unhedged fuel risks haven’t been nearly as difficult over the past year.
Of course, there have been those well-publicized and all-too-common computer glitches with their flight cancellations and delays. And that has impacted AAL shares to a degree. Still, those mishaps haven’t been the exclusive ownership of American Airlines by any stretch.
And what about AAL stock earnings and its relative value compared to both its peers and the broader market? With January’s blowout results and upbeat guidance in hand and American Airlines sporting well-below-market-and industry multiples, you’d be hard-pressed to be anything less than bullish on AAL stock. But that’s certainly not how investors are treating shares.
AAL Stock Weekly Chart
Given AAL’s supports off the price chart but with shares still largely grounded, I’m inclined to chalk up the woeful performance to poor sentiment feeding on itself. The good news is extremes in attitude and investor sentiment like those challenging AAL stock on Wall Street do eventually give way to sunnier conditions.
And with shares of American Airlines readying for takeoff (once more) and investors collectively agreeing there must be another inevitable grounding ahead, today’s trip off the tarmac looks like one worth booking. For like-minded contrarian investors agreeable with our bullish outlook, I’d simply recommend buying today’s oversold, confirmed higher-low double-bottom.
At a minimum — and despite continual groundings over the past couple years — AAL stock does maintain a strong history of flying higher out of this pattern over the near-term before turning lower. Those are great odds for nitiating a position, if you don’t overstay your welcome. And bottom line, if our forecast that history is bound not to repeat proves correct, then today’s opportunity will also prove to be highly profitable for buyers of American Airlines shares.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
