Top small-cap investor sticking by airlines

American Airlines
Scott Mlyn | CNBC

Craig Hodges, chief executive officer of Hodges Capital Management, is sticking by airlines as the group falls from an all-time high.

In the past month, shares of airlines lost nearly 10 percent on concerns over increased capacity, higher fuel costs and fierce competition.

But that may be a buying opportunity, according to Hodges, who holds American Airlines in his portfolio for the "Squawk Box" Portfolio Challenge.

"We think these issues are way overblown, and trading at four times earnings, we feel AAL has limited downside and tremendous upside potential," said the small-cap specialist, who believes shareholders could even get rewarded in the future with a potential dividend.