The Sucker Rally In Airline Stocks (UAUA)(CAL)(AMR)(LCC)

airplaneTry to balance the conventional wisdom about airline stocks. Audit Integrity has AMR (AMR) and Continental (CAL) on its list of large American companies most likely to go bankrupt. UBS upgraded several carriers to “buy” from “neutral”, and that has shares in AMR, Continental, US Air (LCC), United (UAUA), and Alaska Air (ALK) trading up sharply. United is trading up almost 6% to $9.34.

The UBS issued the upgrades because the carriers have shown that they can raise capital and because ticket prices may have stopped falling. Some of the airlines carry so much debt that bringing in money may be critical to their survivals.

Raising money will cause dilution in one form or another, depending on what paper the financiers take. And, the argument about ticket prices is bogus. Ticket sales may have reached a bottom, but they are not likely to go up again soon. Americans are too tight-fisted to travel now, and the same holds true for many businesses.

Airlines also face the threat of rising fuel prices. Oil may be under $70, but a recent a Goldman Sachs report said that the economy needs to brace for a sharp increase in the price of crude next year.

Most of the airline stocks have tripled from their 52-week lows. They may have risen that far because Chapter 11 filings are less likely this year, but the industry is going to post losses in a number of future quarters. Why investors would want to buy into that is a mystery.

Douglas A. McIntyre

Sponsored: Tips for Investing

A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.