I bought 400 shares of American Airlines stock this morning at a price of 50.98 per share. The price of AAL has come down in just the last three days from a recent high of about $56. The stock was driven down due to an earnings release on 1/27/2015 (you can read the full transcript here) and concern over the passenger revenue per available seat miles (PRASM) which fell, along with guidance that said it might fall further in the first half of 2015. Other concerns were increased competition in some of their markets and over 650 million dollars held in Bolivars (Venezuela) – that money needs to find a safe way home which is a problem right now with all the political goings on in that country.
Why I Bought AAL Now – Low Fuel Prices
I’m buying this stock mainly for the estimated 5 billion in savings in 2015 they will have from lower fuel prices. Unlike some of their competitors, they do not hedge fuel expenses and that means they are buying and using fuel right now at the current low price. Some other airlines buy fuel months and years in advance which is called hedging. This benefits them if fuel prices continue going up but hurts them if they go down as we have happening right now.
Five billion dollars is a lot of money that American Airlines will use to continue to upgrade their fleet and facilities on the ground, pay off debt, and return cash to shareholders through a 2 billion share buyback program that they just announced. Now is the time to buy stocks of companies that will directly benefit from such low oil prices and I think AAL is a good one.
Additionally, they have a strong balance sheet that has over $8 billion in cash and being strong in that department always allows me to sleep better at night. AAL could go down more from here as any stock can if the market tanks but I think this is a good enough entry point which is why I bought the stock today. It also pays a .7% dividend which is quite small but better than nothing.