AMR Corporation (AMR). The Group's principal activities are to provide scheduled passenger airline and airfreight carriers throughout the world.
AMR is a classic example of a technical breakout. Demand is stronger than supply and resistance at $11.65 is now support. The price action suggests the bulls are in control of the stock. Buy at the open with no fear at all, stopping the trade if we have a close under $11.65 (that would signal a false breakout, we must always be carefull and consider this possibility).
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Bought AMR @ $12.09
... the news is out, the stock will open gap up to the upside of an uptrending channel, I'll take a quick 5 or 6% profit out of this.
AMR
1. Introduction
I've read on a study that 40% of a stock's price movement is due to the general market trend, 30% to the sector and just 30% to the individual stock. So, we already have 70% pushing AMR higher, as both the general market and the airline sector are bullish.
On this analysis I'll check the 30% missing. If you're new to www.3stocksonfire.org and would like to receive my analysis on your mailbox, please register (http://www.3stocksonfire.org/trading/index.php?action=register).
2. Profile
AMR Corporation (AMR), through its principal subsidiary, American Airlines, Inc., operates as a scheduled passenger airline. (complete profile here (http://finance.yahoo.com/q/pr?s=AMR))
3. Technical Analysis
3.1. All History Chart
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28211;image)
AMR has been around for a very, very long time as you know. As we see on this all history chart (well, my database only goes back to 1980), AMR is now at the same share price it was 20 years ago.
3.2. Medium Term Chart
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28212;image)
Yesterday the stock was able to cross a significant resistance level. This shows me demand is stronger than supply.
3.3. Short Term Chart
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28213;image)
The short term trend is bullish. Since the stock just cross a relevant resistance level, we have the opportunity to establish a low risk/high return trading plan on AMR.
4. Fundamental Analysis
4.1. Number of Shares Outstanding
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28215;image)
The number of shares issued and outstanding has remained more or less stable over the years. Current market cap is 214,415,972*$30.58 = $6.56 B.
4.2. Liquidity
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28216;image)
The current ratio, which is the ratio between total current assets and total current liabilities, has been below 1 forever on AMR. This means working capital is negative, but I guess this is normal for a airline. I've noticed a steep reduction in short term debt this latest quarter.
4.3. Revenues
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28217;image)
Revenues grew over the last 4 years, to $22.67 B expected in 2006. The sales multiple is 0.29. The major airlines industry average sales multiple is exactly 0.29 too.
But earnings are a much more important driving force behind AMR share price:
4.4. Profits
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28220;image)
After 5 years of huge losses that started with the earnings debacle in 2001, analysts now expect AMR to come back to profits in 2006 and certainly in 2007. Estimates for full year 2006 are for $1.89 EPS. The company made $0.71 so far, so the 4th quarter needs to deliver $1.18. Well, the market is saying it will even beat that number, and the market usually knows better.
$4.44 for 2007. This is a great comeback. If analysts are right on this one, the forward earnings multiple is 6.88, which is cheap.
5. General Overview
Just three years ago people thought AMR would file for bankruptcy, as the stock was trading just above $1, at $1.25. Yesterday, just 3 years later, it closed at $30.58, that is, 24 fold more. Well, I wish I had bought AMR back then, but I didn't. The question is, should I buy now?
As I said in the beginning, 40% of a stock price movement is given by the general market trend, 30% is the sector and the 30% left are connected with the intrinsic value of the stock. I already had 70% in favour of the bulls, now I believe I got the 30% left to make me a believer.
If AMR trades at 10 times forward earnings instead of 6.88 times, the stock will be at $44.4. This implies a 45% rise from current levels. I can live with that :)
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Major airlines is one of my favorite sector at this point. Why? Because the general public would never think of buying an airline stock with oil prices this high, so one can get real bargains.
Most of the times, leaders will lead a sector higher, outperforming the sector itself (at least unil a speculative bubble in the sector starts).
I want to add AMR to the 3 Stocks on Fire Portfolio at the open (this stock is so liquid I don't have to bother with any effect we may have).
Here's my technical and fundamental justification for the trade:
1. Introduction
I've read on a study that 40% of a stock's price movement is due to the general market trend, 30% to the sector and just 30% to the individual stock. So, we already have 70% pushing AMR higher, as both the general market and the airline sector are bullish.
On this analysis I'll check the 30% missing.
2. Profile
AMR Corporation (AMR), through its principal subsidiary, American Airlines, Inc., operates as a scheduled passenger airline. (complete profile here (http://finance.yahoo.com/q/pr?s=AMR))
3. Technical Analysis
3.1. All History Chart
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28211;image)
AMR has been around for a very, very long time as you know. As we see on this all history chart (well, my database only goes back to 1980), AMR is now at the same share price it was 20 years ago.
3.2. Medium Term Chart
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28212;image)
Yesterday the stock was able to cross a significant resistance level. This shows me demand is stronger than supply.
3.3. Short Term Chart
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28213;image)
The short term trend is bullish. Since the stock just cross a relevant resistance level, we have the opportunity to establish a low risk/high return trading plan on AMR.
4. Fundamental Analysis
4.1. Number of Shares Outstanding
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28215;image)
The number of shares issued and outstanding has remained more or less stable over the years. Current market cap is 214,415,972*$30.58 = $6.56 B.
4.2. Liquidity
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28216;image)
The current ratio, which is the ratio between total current assets and total current liabilities, has been below 1 forever on AMR. This means working capital is negative, but I guess this is normal for a airline. I've noticed a steep reduction in short term debt this latest quarter.
4.3. Revenues
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28217;image)
Revenues grew over the last 4 years, to $22.67 B expected in 2006. The sales multiple is 0.29. The major airlines industry average sales multiple is exactly 0.29 too.
But earnings are a much more important driving force behind AMR share price:
4.4. Profits
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28220;image)
After 5 years of huge losses that started with the earnings debacle in 2001, analysts now expect AMR to come back to profits in 2006 and certainly in 2007. Estimates for full year 2006 are for $1.89 EPS. The company made $0.71 so far, so the 4th quarter needs to deliver $1.18. Well, the market is saying it will even beat that number, and the market usually knows better.
$4.44 for 2007. This is a great comeback. If analysts are right on this one, the forward earnings multiple is 6.88, which is cheap.
5. General Overview
Just three years ago people thought AMR would file for bankruptcy, as the stock was trading just above $1, at $1.25. Yesterday, just 3 years later, it closed at $30.58, that is, 24 fold more. Well, I wish I had bought AMR back then, but I didn't. The question is, should I buy now?
As I said in the beginning, 40% of a stock price movement is given by the general market trend, 30% is the sector and the 30% left are connected with the intrinsic value of the stock. I already had 70% in favour of the bulls, now I believe I got the 30% left to make me a believer.
If AMR trades at 10 times forward earnings instead of 6.88 times, the stock will be at $44.4. This implies a 45% rise from current levels. I can live with that :)
David, I apologize if I missed something in the post, but are you saying/implying we should buy for the portfolio, at or near that close of 30.58??
regards, mitch
ps... great :D call on NVAX and I'll ask here to save band width, will you be posting when to re-enter?? you mentioned under 4.50 i believe?
QuoteDavid, I apologize if I missed something in the post, but are you saying/implying we should buy for the portfolio, at or near that close of 30.58??
I said buy at the open, the open was $30.30, but I got my shares a few seconds later at $30. It's trading at $29.98 now. It may go down to support at $29.2, I don't know, I just know I need to hold AMR in the portfolio.
Quoteps... great Cheesy call on NVAX and I'll ask here to save band width, will you be posting when to re-enter?? you mentioned under 4.50 i believe?
NVAX was Ramsburg's pick, you should spend just a bit more bandwith and ask him in the proper thread :D
Thanks.
I believe that, because of fear of terrorism on planes and high oil prices, most people are losing one of the most important global trends going on: people and goods travel more.
Example: I never knew about the Guernsey Channel Islands, just between France and England, but a user of 3 Stocks is from there so I google it and suddenly I felt I would like to go there. I always wanted to visit New York, but now, I don't want just New York, I want San Franscisco, Miami, Boston, Atlanta, etc, just because I know people from those places and I want to meet them (you :)). Man, I also want to visit a good friend of mine, Aussietrader, who lives in Perth, Australia (and I'm in Portugal).
Now think of everybody else like me, across the world. Think of the slice of the 3 billion people of the BRIC countries that now have enough money to travel across the globe. Think of all the businesses and business trips that will be made with all these global corporations.
People will have more and more motivation to travel. Airlines are benefiting and will continue to benefit from this surge in demand.
So I tell you to forget about terrorism, forget about oil prices and focus on the big picture of the globalization trends. The next step you need to take is buy airlines.
AMR is just the biggest, but I will probably add at least one more airline to the 3 Stocks on Fire Portfolio. No doubt I'll continue holding AMR going forward.
I just put in a contingency order to buy 20 contracts of the December 30 call option if AMR stock breaks above 30.90.
Leaira
Great find and great analysis David. I applaud you ;)
Quote from: Leaira on November 14, 2006, 11:38:57 PM
I just put in a contingency order to buy 20 contracts of the December 30 call option if AMR stock breaks above 30.90.
Leaira
I hope you bought those options at the open, which was at $31.40. This news U.S. Airways makes $8 billion bid for Delta (http://www.marketwatch.com/news/story/Story.aspx?guid=%7B02894593%2D51C5%2D4A84%2D9E2A%2D81AC4ABE5D8C%7D&siteid=) is putting the airline sector even more on fire 8)
They offered $8 B for a bankrupt company, and AMR, which is getting very profitable, is just a $6.76 B company !
Good luck Leaira :)
Quote from: sebfr on November 15, 2006, 06:42:13 AM
Great find and great analysis David. I applaud you ;)
Thanks sebfr, but I didn't get any applause ;D Or maybe someone smite me :P
Get some more of my thoughts on airlines from the Premium Service:
QuoteI believe that, because of fear of terrorism on planes and high oil prices, most people are losing one of the most important global trends going on: people and goods travel more.
Example: I never knew about the Guernsey Channel Islands, just between France and England, but a user of 3 Stocks is from there so I google it and suddenly I felt I would like to go there. I always wanted to visit New York, but now, I don't want just New York, I want San Franscisco, Miami, Boston, Atlanta, etc, just because I know people from those places and I want to meet them (you :)). Man, I also want to visit a good friend of mine, Aussietrader, who lives in Perth, Australia (and I'm in Portugal).
Now think of everybody else like me, across the world. Think of the slice of the 3 billion people of the BRIC countries that now have enough money to travel across the globe. Think of all the businesses and business trips that will be made with all these global corporations.
People will have more and more motivation to travel. Airlines are benefiting and will continue to benefit from this surge in demand.
So I tell you to forget about terrorism, forget about oil prices and focus on the big picture of the globalization trends. The next step you need to take is buy airlines.
AMR is just the biggest, but I will probably add at least one more airline to the 3 Stocks on Fire Portfolio. No doubt I'll continue holding AMR going forward.
Today we got this news: U.S. Airways makes $8 billion bid for Delta
(http://www.marketwatch.com/news/story/Story.aspx?guid=%7B02894593%2D51C5%2D4A84%2D9E2A%2D81AC4ABE5D8C%7D&siteid=) ;)
Good luck sebfr !
I missed the fill! :(
The stock gapped up and never allowed me to get filled at my limit price of 2.40. I don't really like to buy gaps anymore cuz they often turn around and fill the gap during the day. I'll wait for a retracement and bounce off the 5EMA before getting in.
Leaira
I was reading the Yahoo Message Board of AMR and it's amazing how most people there are shorting this potent bullish breakout. As I said, the heard mentality is: "airlines should go down, because it isn't safe anymore to fly because of terrorists and they have huge costs related to the high oil price".
I believe they're completely missing the picture on airlines, as they don't see the surge in demand from globalization trends. But the numbers are already showing this, since 2006 is on track to be the strongest year ever in terms of revenues for AMR.
Analysts are estimating EPS of $4.44 for fiscal 07. This means the forward multiple is 7.3, and the EPS growth rate from 06 is estimated at 135% :o
Then there was this news that put the entire airline sector on fire: US Airways Makes Hostile Offer for Delta (http://biz.yahoo.com/ap/061115/delta_us_airways.html?.v=45)
Paying $8 B for a bankrupt company. It gives you an idea of the value of the assets. AMR's current market cap is just $6.93 B (yet).
AMR is a medium/long term investment on the 3 Stocks on Fire Portfolio.
Another day, another white candle for AMR.
This news came out just before the close (didn't have any impact on the share price):
Allied Pilots Association Authorizes Immediate Contractual Changes Allowing American Airlines to Operate DFW-Beijing Flights (http://www.marketwatch.com/tools/quotes/newsarticle.asp?siteid=mktw&sid=318&guid=%7B174AB78B%2D68D3%2D4294%2D8409%2DD7AD119E8AF2%7D&symb=)
It's a small step, but one in the right direction, so that AMR fully capitalizes on globalization trend we've been talking about on this thread.
AMR is a long term holding of the 3 Stocks on Fire Portfolio.
There was some natural profit taking on AMR yesterday. There's a gap opened between $30.87 and $31.2. I don't know if it will close this gap or not, I'm not trading sardines here.
Over the long term these things matter:
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28535;image)
Compare AMR's growth rate with its industry and sector.
Now check this:
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=28536;image)
Analysts, on average, are boosting their estimates for AMR. Now they expect $4.44 earnings per share in 2007. So, the current forward multiple is $32.32/$4.44 = 7.3. This is too cheap. It should at least double, considering the growth rate.
AMR is a long term holding of the 3 Stocks on Fire Portfolio. I'll probably add at least one more airline to the portfolio.
There were some news and articles on AMR and airlines in general (the sector is in focus now):
- American Airlines Introduces International Self-Service Check In (http://biz.yahoo.com/prnews/061120/dam017.html?.v=70)
- Sector Snap: Airline Shares Mixed (http://biz.yahoo.com/ap/061120/airlines_sector_snap.html?.v=1)
- Airline Stocks: Continental, American move higher amid broader decline (http://us.rd.yahoo.com/finance/external/cbsm/SIG=11g622ocl/*http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7B1FA53BC8%2D7A86%2D4726%2DB349%2D783FC49F3ACA%7D)
This self service check in is a good way to cut labor costs.
Technically AMR had a slower volume day (volume has been staggering lately) and is in consolidation mode after last week's strong rally. I'll continue holding AMR.
AMR uses its press releases to advertise its services, I think it is a good use for them:
- The Holidays Are Upon Us, But There's Still Time for a Relaxing Getaway With American Airlines Vacations 'Last Call for 2006' (http://biz.yahoo.com/prnews/061121/datu013.html?.v=78)
- Skip the Crowds and Multiply Your Miles on Purchases This Holiday Season (http://biz.yahoo.com/prnews/061121/datu020.html?.v=79)
- Thanksgiving weekend travel fares rise with number of passengers (http://us.rd.yahoo.com/finance/external/cbsm/SIG=11g622ocl/*http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7BF4380CDB%2D6669%2D438D%2DB6E9%2D255E618C0E49%7D)
There was also this news: U.S. Airlines Employ Fewer Workers (http://biz.yahoo.com/ap/061121/airlines_employees.html?.v=3)
And this article from TheStreet.com: Highfliers (http://us.rd.yahoo.com/finance/external/tsmfe/SIG=12397eja6/*http://www.thestreet.com/_yahoo/funds/toponepercent/10320904.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA)
Get this highlight:
QuoteThe ATA said airlines are expecting a 3% increase from 2005 in passengers over the holiday period.
The price travelers are paying is also going up.
The average fare for a domestic round trip traveling the Wednesday before Thanksgiving is $355, a rise of 6% from last year, according to data prepared by Sabre Airline Solutions on Oct. 31. For travel on Sunday, the average round trip fare is $389, a rise of 9%.
I call this pricing power.
The airline sector continues to be hot (for a good reason), and the only question is: «David, what are you doing with just one airline on the 3 Stocks Portfolio?»
And the answer is: «I'm going to recommend another one tomorrow, don't worry».
AMR left a doji candlestick on the chart (a doji occurs when the close equals the open), which means traders were undecided after the open. Often indecision precludes a change in short term trend.
But as said before, I would never be able to catch a meaningfull move on a stock if I gave much credit to the candlesticks theory. It's good for day trading, but not for position trading, much less for long term investing as I'm doing on AMR.
Well, it was a 2.2% advance day, left no gap on the chart, nice :)
There were several news items on Friday for AMR and airlines in general:
AMR Announces Results of Cash Tender Offers for Selected Debt Securities (http://biz.yahoo.com/prnews/061124/nyf005.html?.v=65)
The company is buying back notes from bondholders so they can save on interest expenses.
Sector Snap: Airline Stocks Slip (http://biz.yahoo.com/ap/061124/airlines_sector_snap.html?.v=1)
This article was written just after the open, later airlines rebounded and finished with a gain of 0.29%.
Technically there was nothing new on AMR, I'll keep on holding the stock.
Were you scared by today's sharp drop in airlines? Well, of course I wasn't :D, but not scared either. If you look at many, many charts of stocks that rose a lot (I'm talking about $30 or $40 that go to $100 plus here), you see that they never go up in a straight line.
These corrections are part of the game, and to play it well we need to understand and accept these declines as "normal market behaviour". If we don't we're condemned to be short term traders, with a lot of stress and probably not a whole lot of profits to show after 5 or 10 years trading.
Anyway, as happened with CHINA, AMR's 5.57% decline today didn't change the bullish technical picture. The stock may come down further to touch TL2 at $30.82 or close the gap at $30.87, it doesn't matter, not in my view.
What matters is: the reasoning behind this trade is still valid or not? I think it is, both in fundamental and technical terms, so I'll keep on holding AMR.
AMR almost closed the gap (the gap closes at $30.87, low of the day was $31) and almost touched TL2 ascending support. Perhaps the downside isn't over yet, I don't know.
I don't have a problem with this correction, as I firmly believe, giving the technicals and fundamentals of this stock, it will close 2006 above $35.
AMR wasn't ready for a rally yet. Needs to consolidate recent gains for some more time. TL2 support is coming up at $31.29 today.
I'll keep on holding AMR.
AMR touched the ascending TL2 on the chart and it seems ready to push higher again. As always, some press releases:
American Airlines Celebrates 25 Years of Service to Cancun (http://biz.yahoo.com/prnews/061130/dath007.html?.v=77)
American Airlines Announces New Option to Pre-Order Meal for Flights Between the United States and Japan (http://biz.yahoo.com/prnews/061130/dath015.html?.v=80)
Airlines were mostly down because the oil price rose above $63 a barrel, but as I said, airline ticket prices are rising and have the potential to rise even more than oil. I don't worry all that much about oil prices, as I see much more capacity coming to that market.
I'll continue holding AMR.
I'll listen to this presentation by AMR's CFO on December 7:
AMR CORP Files SEC form 8-K, Regulation FD Disclosure (http://biz.yahoo.com/e/061201/amr8-k.html)
AMR touched the TL2 support and seems ready to push higher. Bears will be surprised and confused, to see airlines up, even with oil rising.
Aircraft fuel represents 32% of AMR's expenses. So, if oil goes up 20% AMR's expenses will rise about 6.4%. I think this is relevant, but not the only factor. Airline ticket prices rose more than that over the last 12 months, yet, nobody is paying attention to this trend.
I'll continue holding AMR.
Wow, spectacular bounce from the TL2 support !
I guess I'm going to be right on the following:
QuoteI don't have a problem with this correction, as I firmly believe, giving the technicals and fundamentals of this stock, it will close 2006 above $35.
Oil went down 1.56% so that helped. But as I said that's not the main issue on airlines, but increasing demand across the board and a strong fundamental turnaround.
I'll keep on holding AMR, up 11% from my buying point now.
AMR released this yesterday after the close: AMR's American Airlines Traffic Falls in November on a Decrease in Capacity; Load Factor Up (http://biz.yahoo.com/ap/061204/amr_sales.html?.v=2)
Nothing unexpected. People sold the stock at the open but it came back late in the day to finish almost unchanged. Either you look at technicals (check the bull trend on the chart below) or fundamentals (check the initial analysis or the average EPS expectation for 2007 (http://finance.yahoo.com/q/ae?s=AMR), of $4.46 a share) the response is the only way is up for AMR.
Nothing new on AMR today, I'll continue holding the stock.
Some minor but positive news on AMR:
American Airlines and Gulf Air Announce Reciprocal Frequent Flyer Agreement (http://biz.yahoo.com/prnews/061207/dath027.html?.v=78)
Oil went up 0.21% to $62.32. I think it can go a bit higher from this level, but it wouldn't surprise me to see it fall $10 either. I'm neutral on oil, I believe supply and demand are balanced at current levels.
AMR had no new technical or fundamental developments, I'll continue holding it, showing a 9.8% profit for the 3 Stocks on Fire Portfolio.
AMR refused to break TL2 support on Friday. I expect it to break $34.40 on the upside before the end of the year.
AMR is acting right, and when a stock is acting right, don't rush to take profits.
Gee, I sure didn't like what came out today on CAL (we'll talk about that on CAL's thread). My airlines bet is founded on the companies delivering fat EPS in 2007, but instead I see them giving the money to the employees pension plan, take a look:
American Airlines Announces Additional $100 Million Pension Contribution (http://biz.yahoo.com/prnews/061212/datu011.html?.v=78)
CAL's estimates for the 4th quarter, released today, we're quite weak, and I worry analysts start cutting their estimates for 2007 (http://biz.yahoo.com/ap/061212/airlines_sector_wrap.html?.v=1). The same thing for AMR.
I see fundamentals weakening, or at least their perception, for the next one or two quarters.
Also, technically, AMR broke down below TL2 on the chart and it looks at least short term bearish now. I'll take my 6 - 7% profit on AMR tomorrow at the open and move on.
So, the condensed trading plan is: SELL AMR at the open.
One that moved today.......
Looking good...watch err..