Airlines as penny stocks

Posted Jun 1st 2008 3:40PM by Douglas McIntyre
Filed under: Forecasts, Industry, AMR Corp (AMR), Delta Air Lines (DAL)

Many institutional funds shy away from stocks that sell below the $5 mark. It is assumed that most low-priced shares are a sign of trouble. In many cases that is true.

As some airlines become small caps, driven down as the price of oil comes up, several could drop below the $5 threshold. That may hinder these stocks from rebounding by eliminating them from some fund portfolios.

It is hard to imagine that AMR's (NYSE: AMR) stock trades at $7.19 and has been as low as $6. That puts the company's market cap at $1.8 billion. Some biotech companies with almost no revenue are worth as much. Delta's (NYSE: DAL) are at $6.15 and its market cap is about the same as AMR's.

Airline stocks are now the province of speculators and day traders. Since some may face Chapter 11, the gamble on owning the stocks is high now.

The shares of these companies have been swept into the dustbin.