Here’s Why Warren Buffett Sold Airline Stocks
Another insightful Berkshire Hathaway shareholders meeting has come and gone. And we got an answer to one big question. Why did Warren Buffett sell airline stocks? Berkshire sold its stakes in the top four U.S. airlines.
That included the sale of Delta Air Lines (NYSE: DAL), American Airlines (Nasdaq: AAL), Southwest Airlines (NYSE: LUV) and United Airlines (Nasdaq: UAL). Beforehand, Warren Buffett’s company had owned roughly 10% of all four airlines’ stocks – so this was a big portfolio move.
Before we jump into why this happened, it might be good to review some of Warren Buffett’s timeless wisdom from over the years. You can check out our list of more than 40 of the Top Warren Buffett Quotes. It’s packed with investing insight from Buffett’s many decades of investing success.
Berkshire Hathaway Bails on Airline Stocks Due to Coronavirus
Over the weekend, we gained some insight into the sale of the big airline stocks. Buffett said the world has changed for airlines. They have huge fixed costs, and due to decreased travel because of the coronavirus, they’re losing a lot of money.
To make ends meet in the short term, they’re taking on debt and issuing more stock at depressed levels. Overall, the future of flight traffic is too uncertain.
Buffett still thinks the airline companies are run well. They have great management teams in place, although there’s less upside potential. Berkshire has come to terms with the new coronavirus market and has unloaded its airline stocks.
In April, total Berkshire sales came in at about $6.5 billion. As a result, the holding company’s total cash pile has climbed even higher. It’s now at more than $130 billion. That’s a lot of cash sitting around, earning little interest. Warren Buffett would much rather invest it in great companies trading at lower valuations.
Warren Buffett isn’t Seeing Any Good Deals
Another statement from the shareholders meeting caught my eye. Warren Buffett said that Berkshire is willing to be a lender of last resort, but he hasn’t seen good enough deals come through.
With the big sale of airline stocks, does Warren Buffett know something about the economy that we don’t know? Consumer spending makes up about 70% of GDP. And a sustained decrease in flying will hurt the economy on many levels.
Warren Buffett is still reluctant to buy in the short term, although he continues to play the long game. Multiple times throughout the shareholder’s meeting, he said he would never bet against America.
Investing Opportunities in America’s Economy
Both Warren Buffett and one of Investment U’s top contributing experts remain optimistic. Alexander Green is the Chief Investment Strategist of The Oxford Club. In the video below he shares some thoughts on Berkshire Hathaway’s shareholders meeting.
The economy will recover from the impact of the coronavirus. And the recent downturn has created better buying opportunities. Although, due to Berkshire Hathaway’s size, it’s limited to only bigger deals.
Smaller investors are less constrained. When they buy into companies, they don’t have to worry about moving share prices as much.
Investors around the world watch Warren Buffett’s every move. As a result, after Berkshire’s shareholders meeting over the weekend, the big airline stocks dropped on Monday. For example, Delta opened down more than 12% from Friday’s closing price. And American Airlines was down close to 12% as well.
There’s been a bit of a recovery, but airline stocks are still down big. The downward pressure from Warren Buffett’s sale has made them trade at even lower valuations. As a result, now might be a better time to buy for individual investors.
Air travel is down, but there are some silver linings. For example, oil prices have come down drastically. That’s usually a big expense for airlines. If oil prices remain low when air travel rebounds, the airline companies might see higher profits.
The coronavirus has created a lot of uncertainty in the markets. And only time will tell when airlines recover. In the meantime, there are plenty of other opportunities, like beaten-down oil stocks. To find more investing opportunities, you can sign up for our free e-letter below.