Are Street Analysts Bullish On American Airlines Group Inc. (AAL) Right Now?
We recently compiled a list of the 10 Best Most Active Stocks To Invest In Now. In this article, we are going to take a look at where American Airlines Group Inc. (NASDAQ:AAL) stands against the other active stocks.
Are Additional Rate Cuts a Necessity?
The economic landscape is currently marked by mixed signals. The Fed has indicated the potential for additional rate cuts due to weaknesses in the manufacturing sector, despite signs of recovery. While the overall economy remains strong, currency dynamics have shifted, with the US dollar weakening and the euro strengthening. Interest rate yields have fluctuated, suggesting potential changes in investor sentiment. Amidst this complex environment, the Dow continues to hover near record highs, reflecting cautious optimism among market participants.
As stakeholders navigate these developments, they will need to carefully consider how they may influence investment strategies and market behavior in the coming months. CNBC's Rick Santelli recently covered this situation, which we talked about in our article on the 10 Best Performing Stocks in 2024. Here's an excerpt from it:
“Chicago Fed President Austan Goolsbee has indicated that many more rate cuts may be necessary over the next year due to signs of weakness in the manufacturing sector. CNBC’s Rick Santelli, who was reporting on September 23, noted that while manufacturing has faced challenges, there are indications it might be recovering slightly, as evidenced by a recent production increase of 0.8%.
He referenced comments.... that the economy is experiencing strong growth and robust consumer spending, which he believed contradicted the concerns raised by Goolsbee. Santelli pointed out that the Dow Jones Industrial Average is currently at all-time highs, suggesting that market sentiment remains positive despite underlying economic weaknesses.
Further discussing the economic landscape, he remarked on the currency markets, noting that the US dollar has fallen to its lowest level since March 2022. In contrast, the euro has reached its strongest level since April 2022. This shift in currency dynamics reflects broader economic trends...”
However, a lot of analysts do not have an opinion as nuanced as that of Santelli. For instance, Michael Kantrowitz, Piper Sandler's chief investment strategist joined CNBC's 'Power Lunch' on September 23 to discuss why smaller businesses and consumers need the benefits from more rate cuts.
In a conversation regarding the challenges facing US car manufacturers, it was noted that the biggest threat they encounter is the influx of Chinese automobiles into the US market. This concern contrasted with the insights from the President of the Bank of Chicago, who stated that ongoing rate cuts will continue to benefit smaller businesses and consumers who are currently adjusting to higher interest rates. Kantrowitz emphasized the significant impact that lower interest rates can have on the consumer economy, particularly given the substantial amount of debt tied to credit lines and credit cards. As adjustable-rate mortgages decrease, this easing of financial conditions is expected to be beneficial.
Kantrowitz pointed out that before last week, financial conditions had been easing primarily for larger corporations, as evidenced by the S&P 500, which did not require a rate cut. However, small businesses and consumers, who are more closely tied to the prime rate set by banks, had not experienced similar relief until recently. The last report indicated that small businesses were paying an interest rate of 9.5% for 3-month borrowing. This recent easing represents a crucial first step for Main Street, although the strategist believes further cuts are necessary.
He noted a broadening market trend following the July 11 CPI report, highlighting that commercial real estate has emerged as one of the best-performing sectors this quarter, alongside utilities and regional banks. However, it was emphasized that while rate cuts can benefit certain areas indirectly, such as those affected by lower tenure rates, they do not necessarily provide direct support.
Looking ahead at interest rates, there was speculation about how low they might go in the next year. Kantrowitz suggested that policy rates could indeed fall into the 3% range but cautioned that markets might be overly aggressive in their expectations. The anticipated rise in unemployment will play a critical role in shaping equity and fixed-income markets; however, if unemployment increases at a slow and steady pace, as it has been, it may not pose significant challenges to market stability.
Kantrowitz's opinion reflects a cautious optimism regarding economic conditions as stakeholders face uncertain conditions while keeping an eye on interest rates and their broader implications for various sectors within the economy.
Methodology
We sifted through Yahoo Finance's list of the most active stocks that are experiencing high trading volumes. We looked at the top 15 stocks to find the ones that were the most popular among elite hedge funds. We then narrowed down our list to the 10 stocks with high trading volumes and that were the most popular among hedge funds. The stocks are ranked in ascending order of their trading volumes, as of September 23.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A passenger jet taking off, representing the company's commitment to air transportation services.
American Airlines Group Inc. (NASDAQ:AAL)
Volume: 7.428 million
Average Volume (3-Month): 36.008 million
Number of Hedge Fund Holders: 38
American Airlines Group Inc. (NASDAQ:AAL) is an airline holding company formed on December 9, 2013, by the merger of AMR Corporation (parent company of American Airlines) and US Airways Group (parent company of US Airways). It operates a vast network of domestic and international flights and offers services like scheduled passenger and cargo transportation, aircraft maintenance, and airport services, with 1,000 aircraft, and ~6,700 flights daily to ~350 destinations across 50+ countries.
The company's AAdvantage Business Program (a loyalty initiative), which replaced the previous unmanaged programs, generated more than $2.5 billion in revenue in 2023. It expanded the AAdvantage Business Programs benefits, making it easier for travel managers to use and earn loyalty points for participating companies and end travelers. It also established a dedicated help desk for AAdvantage Business customers.
In the second quarter of 2024, the company made $14.33 billion in revenue, up 1.99% year-over-year. Loyalty revenues were up approximately 8% year-over-year, and AAdvantage members are responsible for 74% of premium cabin revenue. Unit revenue was down 5.6% year-over-year on 8% more capacity.
American Airlines Group Inc. (NASDAQ:AAL) now expects to take delivery of 20 new mainline aircraft this year, down from the previous estimate of 22. The remaining planned deliveries include 11 Boeing 737 MAX 8, 3 787-9, and 3 Airbus A321neo.
As the company remains on track to reduce total debt by $15 billion from peak levels by the end of 2025, it is well-positioned for continued success. It is focused on delivering a reliable operation, maximizing profitability, and re-engineering its business for greater savings and productivity.
McLain Capital stated the following regarding American Airlines Group Inc. (NASDAQ:AAL) in its Q2 2020 investor letter:
“American Airlines (AAL) : With a $6.5bln market cap & adjusting for the current cash burn & incremental net debt, American currently trades at a higher pro-forma enterprise value than it did at the beginning of the year, while revenues are off 80-90%. The two year notes, AAL 5% 6/2022, currently trade 52 cents on the dollar at a yield to maturity of 46%, implying zero equity value for the common stock. At it’s current projected pace of cash burn, the company will expend its current liquidity before year end. American is one of the most popular stocks among retail investors.”
Overall AAL ranks 9th on our list of the most active stocks to buy. While we acknowledge the potential of AAL as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AAL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.