While looking for a good selection for my Stock Pick of the Week, I contemplated using either or both Delta (DAL) and Northwest Airlines (NWAC). Both filed for Chapter 11 Bankruptcy yesterday, after years of losses and the recent rising gas prices from Hurricane Katrina. If they do, both are likely to suffer large dips in stock prices.

Chapter 11 Bankruptcy, however, has a lot of benefits for the company. Creditors cannot access the company’s assets while the company is in bankruptcy. The creditors are unable to seek repayment until after the company reorganizes. The companies use this reorganization to emerge into a profitable company with a plan to pay all creditors. Just because companies go into Chapter 11, does not mean they are doomed.

One such example is Kmart. In January 2002, Kmart went into Chapter 11. During this two-year process, Kmart closed hundreds of unprofitable stores and also laid off hundreds of employees; they emerged a profitable business and more sound than ever. In fact, when Kmart emerged from bankruptcy in 2004, the stock was trading at less than $40 per share. But before they made the highly-publicized merger with Sears earlier this year, they were trading as high as $132 per share. If you were able to time the trades just right, you could have made a lot of money.

This is not a new strategy. There are traders who specifically acquire corporations in bankruptcy in hopes of getting a bargain. The returns of such a strategy could be high if you can handle the magnitude of the risk. But whether or not these airlines are worth the risk is the real question.

Currently, DAL is down 30 percent from Monday’s opening, and I will all but guarantee that it will go lower since they filed for bankruptcy. They are not alone in the airline industry; they join United Airlines and US Airways already in Chapter 11.

Obviously, the airline industry is in disarray. The first company to emerge with a profitable plan could do really well. You can’t blame high gas prices and terrorism for the losses these airlines have endured for the past few years. I believe that if these companies create a high quality image, they could be very profitable.

Lately consumers are choosing the cheapest possible option when flying. They have no problem choosing a different airline especially when all it takes is an extra click of the mouse. Thus, if one of these companies could actually sell quality instead of being a cheap alternative, then they could stand out among the other competitors. They could target their audience to high-income consumers; they don’t care as much about price and would much rather have an enjoyable experience.

I recommend waiting to buy either of these stocks until after they come out of bankruptcy and develop a good plan. However, that doesn’t mean that there aren’t other ways to make money off the airlines. The smart investor will sell short or buy put options to take advantage of the situation.

Stock Pick of the Week

This week I am interested in General Electric Co. (GE) stock, which yesterday announced that the third quarter and full year earnings will remain as expected, even after Hurricane Katrina. Selling at a relatively cheap price/earnings ratio of 19.75, GE would be a good fit into any long-term portfolio. Add on a reasonable dividend yield of 2.6 percent, and I see no reason why this stock isn’t a good buy. Price: $34.05.