What to do with your AMR stock after the bankruptcy

That was the question we were asked by text often the last couple of days. We went to the experts to find out an answer but it's not one stockholders will probably want to hear. "It's very rare that a chapter 11 bankruptcy filing salvages anything for the common shareholder" I was told by Jake Dollarhide of Longbow Asset Management.

During a conversation here at KRMG a question came up about buying AMR stock. We wondered if there was a way to actually make a little money before the company reorganizes? Jake says no, "you would have to buy new shares of the stock and take, most likely a total loss unless you sold out at .24 cents, .30 cents, .10 cents in the next several months."

For my entire conversation with Jake and a lot more in-depth analysis, click here.

So the stock is only good to line bird cages with for now but what about when the company comes out of bankruptcy, will they be a good buy?  "Quite possibly" Jake began. "They'll be playing on a more even playing field, be able to compete more evenly with Southwest and Jet Blue" he noted. But Jake said the bigger deal is how they can slug it out with some of the big players who have already been in bankruptcy multiple times and merged with others. "Frankly it's Continental/United that tookover the #1 spot from American and now the Delta/Northwest merger that's taken the #2 spot" Jake said. After their filings those companies had a lot of advantages "less debt, less historical cost" according to Jake.  And the #1 advantage is "they have better terms with their unions" was his quick response.

When I asked Jake how the new stock might be priced he told me it would be a guess to even comment. He did point out that some of the bigger companies came out of Chapter 11 with some pretty stiff prices. "G.M. priced I think at $34.00 a share, I wouldn't be surprised if they tried to price American similar if not higher, maybe $40.00 a share" Jake conjectured.

The answer is there isn't an easy answer. The best advice from Jake and just about every other financial expert,  just be careful and diversify your portfolio. In these difficult times, this isn't likely to be the last big company to file Chapter 11.