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Why AAL is still one of the best stocks to buy now

American Airlines (AAL) has gone through quite a ride the past several months.  Currently trading around $49 per share and a PE ratio in the 12-13 range, this stock has a lot of upside potential left.  

The stock price has been extremely volatile recently, making it very hard to predict what will happen from week to week, but AAL is priced well below it's peers when you look at earnings.  Delta currently trades at a PE of 61.  United Airlines trades at a PE of 24.  AAL is on a fire sale with a 12.5 PE ratio.

If you consider future expected earnings, the argument for AAL gets even stronger.  Trailing EPS is about $4/share.  This year's expected EPS is over $10/share.  This is partially due to lower oil prices, which may not stick around for long.  But - even if oil goes back to where it was in early 2014, AAL would still be Way Undervalued with a price target over $100 per share. 

If oil were to remain low for the long-term (which isn't likely), then my price target for AAL would be nearly quadruple the current stock price.  However, AAL may be wise to hedge their fuel costs this year while oil is low and reap the benefit if/when oil prices rise.

AAL has given very strong returns over the past couple years, but given it's low PE ratio relative to its peers, it still has a long way to go.  In the next year or so, I wouldn't be surprised to see the stock price of AAL fly to $100 this year.

For those of us that owned AAL in October, you saw it sink to $28/share, then quickly double in price to $56/share within only a few months.  We are likely to continue to see price fluctuations like this both up and down.

I've owned AAL for the past 10 months and expect to hold it much longer.  The stock is down 10% over the past week.  The current price would be a great entry point for anyone willing to hold the stock into 2015.