Worthless AMR Shares See Heavy Volume
DALLAS -- (TheStreet) -- A penny stock adviser said he expects active trading in shares of bankrupt AMR (AAMRQ.PK) to continue this week after shares gained nearly 18% on Monday.
"The volume picked up substantially on Monday, and that is likely to continue," said Mark Adams, director of Clubpennystock.com. "The news is positive as well."
Shares in bankrupt AMR, the parent of American Airlines, "are not worth anything," Adams said in an interview on Tuesday. "But I have people who traded that stock for the first time yesterday. They don't care if it's in bankruptcy or not. When it gets under a dollar, for us, it's all about trading. You could own it at 20 cents."
On Monday, the stock traded up 8 cents to close at 53 cents, the highest price since Aug. 13. Volume was 13.8 million shares, compared with average daily volume of 1.7 million during the past three months.
Volume began to pick up last week, increasing from 684,000 on Tuesday to 2.1 million on Wednesday and to 3.5 million on Friday.
It is possible that some traders believe AMR shares may benefit from the possibility that American pilots will approve a tentative contract agreement that has been endorsed by the Allied Pilots Association. That agreement provides AMR stock for pilots. The miscalculation here is that pilots will receive newly issued shares, not the ones that currently trade.
The New York Stock Exchange delisted American, which had traded under the AMR symbol, on Jan. 5. Trading then moved to the OTC Bulletin Board (OTCBB) and Pink Sheets Electronic Quotation Service as early as Jan. 5, 2012. The shares got a new symbol, AAMRQ.PK.
At that time, AMR warned traders that "in most Chapter 11 cases, holders of equity securities receive little or no recovery of value from their investment."
Bankruptcy law is intended to enable companies to shed obligations and to become healthy again. The path to good corporate health includes the right to issue new stock, much of which goes to satisfy creditors. This requires cancellation of pre-bankruptcy stock.
Nevertheless, shares continue to trade until bankruptcy cases end. Traders presumably include both speculators who know the shares will become worthless and innocents who believe the shares continue to provide ownership in the airline. Sometimes, parties from these two groups find one another.
-- Written by Ted Reed in Charlotte, N.C.
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