2 Reasons Why American Airlines Stock Is One to Sell

No deal means no good reason to own AAL stock

At one point in the post-pandemic period, American Airlines (NASDAQ:AAL) and its competitors appeared to offer a solid contrarian case. And while the novel coronavirus was still infecting people, daily cases, hospitalizations and deaths had declined. Subsequently, air traveler confidence improved, based on the dramatic surge in demand from the March and April doldrums. But again, we find ourselves questioning the upside narrative for AAL stock.

American Airlines plane on ramp in Chicago Airport.
Source: GagliardiPhotography / Shutterstock.com

Not surprisingly, the coronavirus is at the center of the current underperformance of the airline industry. And according to several health experts, the U.S. reopened too soon. Curiously, though, more than a few epidemiologists were pounding the table on this argument back in early May. That must have been “fake news,” though.

Unfortunately, this fake news is now all too real for AAL stock. It’s an incredibly frustrating one from all involved — from the executives to the employees to the shareholders.

Overall, while I don’t want to be the bearer of more bad news, I also have to be realistic: This is an ugly situation.

Primarily, I say this because AAL stock responds to discernibly positive headlines. Take a look at these examples:

  • In late March, AAL stock jumped on speculation on the CARES Act.
  • On June 4, American Airlines announced an improvement in domestic capacity, among other news, sending shares higher.
  • One day later, a surprisingly robust May jobs report extended gains in American Airlines stock.
  • On June 16, the government released the May retail sales report, which showed a nearly 18% surge in consumption from the previous month. Subsequently, AAL also jumped.

But since then, the news cycle for encouraging headlines faded. And sadly, I’m not getting a great look as we now turned the page to August.

AAL Stock Likely to Be Stymied by the Economy

In a parallel universe, both Republicans and Democrats will sit down at the table and come to one patently obvious conclusion: if we don’t do something and quick, the U.S. will fail. And Americans of all stripes will recognize that it doesn’t matter who wins the 2020 election if we lose the stability that we have fought for across generations to earn.

However, we don’t live in that universe. So, let the politics begin and let everyone else die, I suppose.

Additionally, as you’ve undoubtedly heard, the eviction moratorium has ended. In turn, this has left 43 million Americans at risk of losing their place of residence. Also, unemployed workers have lost the so-called $600 “plus up” — a federal program designed to bolster state unemployment benefits during this unprecedented crisis. That said, this will probably set off a chain reaction as the economic pain filters out to every sector.

Of course, the airliners are among the most affected. And with a health crisis and an economic calamity to contend with, AAL stock appears too risky. The same goes for the others, whether you’re talking about Delta Air Lines (NYSE:DAL) or discount specialists like Southwest Airlines (NYSE:LUV).

I understand that companies are approaching the disaster differently. For instance, Delta is distinct in that it’s committed to blocking the middle seat through Sept. 30. But when you have such a comprehensive economic tsunami headed your way, these tactical differences have the look of merely rearranging deck chairs on the Titanic.

Dwindling Opportunities for AAL Stock

Despite the gloomy projections, one factor could end up lifting AAL stock? The sudden rise in volume on Wall Street.

Thanks to intuitive platforms like Robinhood, we’ve seen a significant jump in investors since March of this year. In retrospect, this shouldn’t be too surprising. With the lockdowns and stay-at-home orders, people really had nothing to do. So combine that with “free money” from the government, and now you have an incentive to trade stocks.

However, I wonder how long will this catalyst last? Even if you did use your CARES fund to invest, surely, those folks are thinking more existentially now. And unless the government does something, we could be looking at severe social unrest, to say the least.

I hope it doesn’t happen. But wishful thinking hasn’t done much for us this year. Overall, though, only time will tell what he future is for AAL stock and the airline industry overall.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2020/08/2-reasons-why-aal-stock-is-one-to-sell/.

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