Swiss cheese for brains, or, holes in whose heads?

The old saying is that you’d have to have at least one hole in the head to invest in airlines, but as smart US institutions are snapping up airline securities, someone has a lot of holes or a whole better idea. Take for instance Fidelity, a Boston-based money manager that has the largest US group of mutual funds and is a trusted name to small investors throughout the nation. Several of Fidelity’s funds have bought into UAL Corp., the parent of United Airlines, and it is now the largest single shareholder, with a stake of 13%, and is also the single largest shareholder in AMR, the parent of American Airlines, with a stake of just under 13% of AMR’s outstanding shares. As a mutual fund family, Fidelity tends to hold on to shares for relatively long periods. UAL has also drawn attention from another well-known mutual funds investment management firm, Charles Schwab. Though a subsidiary called US Trust, the Schwab group has bought a stake of just over 12% in UAL. Both firms, which are big on the nation’s main streets, have told securities regulators that they plan to hold them as a passive investor. Airline shares in the US have run up strongly in past months as the industry’s ability to extract increasingly higher yields has encouraged investors. Although some analysts question the run-up in certain shares – UAL in particular has come under fire as overvalued – most airline observers see a real possibility for profits this year. Merrill Lynch airline guru Mike Linenberg thinks that UAL shares could reach $45, well above the mid-$30s range they were trading in at the time of the fund purchases – even though no one thinks it will make money this year. And most analysts are truly bullish on AMR, with Susan Donofrio of Cathay Financial seeing it as possibly profitable this year.

What’s interesting is that UAL’s other major shareholder is an unwilling one: the federal government, which got an interest in the airline when it left bankruptcy protection in February. Its stake of about 11% through the federally backed Pension Benefit Guaranty Corp. is not an investment that will be cashed out but instead will be used to bolster the retirement scheme.



One Response to Swiss cheese for brains, or, holes in whose heads?

  1. thraxxMovie 21 January, 2010 at 12:38 pm #

    that’s hard to believe

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