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Airline Stocks -- Loved Only by Analysts

Airline Stocks -- Loved Only by Analysts

AMR Corp. is expected by analysts to make huge gains. Here's a closer look at the company and comparable investments.
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AMR Corp. is expected by analysts to make huge gains. Here's a closer look at the company and comparable investments.

BOSTON (TheStreet) -- Airline stocks, which tend to be money losers, are among analysts' favorites as the economy digs itself out of a hole.

AMR Corp.

(AMR) - Get Free Report

, owner of American Airlines, has tumbled 32% in the past six months. Still, the airline receives bullish forecasts from analysts. Of those following AMR, eight, or 57%, rate its stock "buy," five rate it "hold" and one ranks it "sell." A median target of $11.11 implies an 83% return. Several big-name firms, including

UBS

(UBS) - Get Free Report

and

Barclays

(BCS) - Get Free Report

, expect AMR's stock to more than double.

AMR's second-quarter loss narrowed 97% to $11 million, or 3 cents a share, from a loss of $390 million, or $1.39, a year earlier. Revenue grew 16%. The operating margin climbed from negative 2.7% to positive 3.5%. AMR held $5.5 billion of cash at the end of the quarter and $11 billion of debt. It is running a shareholders' deficit of $3.9 billion. Individual investors with a stomach for risk

should consider AMR

, whose stock has delivered annualized declines of 36% since 2007 and now gets little attention.

Barclays is in the bull camp on AMR, calling it in February "the best full-cycle play in airlines." AMR's stock has dropped 17% since that accolade, but Barclays may prove accurate in its praise. Barclays has a $20 price target on AMR, aggressively predicting that the stock will more than triple from its current trading range around $6. Barclays' investment thesis is predicated upon the "market embracing longer-term potential" of airline stocks, a trend that has yet to materialize. UBS is another prominent bull, expecting AMR shares to advance 130% to $14.

AMR is exceptionally cheap, but only if the company is capable of achieving researchers' earnings target. The stock trades at a forward earnings multiple of 7.3, a sales multiple of 0.1 and a cash flow multiple of 2 -- discounts of 70%, 90% and 56% to airline industry averages.

TheStreet's

stock model, which favors less risky companies, rates AMR "sell." Its favorite airline stocks are

Allegiant Travel

(ALGT) - Get Free Report

and

Southwest Airlines

(LUV) - Get Free Report

, which receive "buy" ratings. It rates

JetBlue

(JBLU) - Get Free Report

,

Delta

(DAL) - Get Free Report

and

US Airways

(LCC)

"hold."

Based on aggregate ratings, analysts' favorite airline stock is Delta, with 13, or 93%, rating it "buy," one rating it "hold" and none ranking it "sell." Researchers' next favorite pick is

UAL Corp.

(UAUA)

, owner of United Air Lines, which receives eight "buy"-recommendations and just three "hold" calls. Delta's median price target of $16.68 suggests a return of 56% and UAL's median target of $33.78 implies 53% of upside. Of note: Though both stocks receive a higher proportion of "buy" ratings than AMR does, the predicted upside in AMR is greatest.

Investors looking to mitigate some risk should consider the

Claymore Airline ETF

(FAA)

.

-- Written by Jake Lynch in Boston.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.