Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio) has updated his third-quarter portfolio Monday afternoon, revealing buys of airline companies.
The three airline stocks purchased by him or one of his portfolio managers, Ted Weschler and Todd Combs, were American Airlines (AAL, Financial) and Delta Airlines (DAL, Financial) and United Continental Holdings Inc. (UAL, Financial). Buffett has traditionally detested airline stocks, famously saying in 2002,Ă‚ "If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright."
More recently, when asked at his 2013 shareholder meeting whether he thought the industry's economics were likely to continue improving, he responded, "No."
The airline industry has situation where have very, very, very low incremental cost per seat with enormous fixed costs. The temptation to sell that last seat at a very low price is very high and sometimes it’s very hard to distinguish between that seat and the last seat. It’s labor-intensive and capital-intensive and largely commodity-type business. As Bill Miller points out, it’s been a death trap for business since Orville took off. If it ever gets down to one airline it will be a wonderful business and the question will be if having gotten down to relatively few through bankruptcy the question will be whether it is a good business yet. I don’t know the answer but I’m skeptical.
Charlie Munger, his partner, also said at the same meeting, "You really couldn’t create another railroad. And you could create another airline. And that’s what I don’t like about it."
Buffett’s equity investments collectively have lost $1.4 billion in value as of Sept. 30, led by a $941 million loss in his investment on IBM (IBM, Financial). Buffett said he did not plan to sell any shares of that company, according to a filing. In an interview with CNN Friday, he also said he sold no shares of Wells Fargo (WFC, Financial) following its accounts scandal, remaining its largest shareholder. The long-term investor’s unrealized losses had improved from Dec. 31, when they totaled $3.26 billion.
Shares of Buffett’s company Berkshire Hathaway rose 19.8% year to date, reaching 52-week highs this week driven by a Trump-inspired rally in financials. An A-share of the company traded around $236,650 Monday afternoon.
American Airlines Group Inc. (AAL, Financial)
Berkshire purchased 21,770,555 shares of American Airlines Group,Ă‚ whose shares have gained 2.48% year to date. Their third-quarter average price was $35. The holding reflects 0.62% of the portfolio.
American Airlines Group Inc. has a market cap of $22.49 billion; its shares closed Monday at $43.40 with a P/E ratio of 4.77 and P/S ratio of 0.64. The trailing 12-month dividend yield of American Airlines Group Inc. is 0.92%. The forward dividend yield of American Airlines Group Inc. is 0.93%.
Delta Airlines (DAL, Financial)
Buffett purchased 6,333,923 shares of American Airlines Group, whose shares have declined 6.35% year to date. Their third-quarter average price was $38, and the holding reflects 0.19% of the portfolio.
Delta Air Lines Inc. has a market cap of $34.96 billion; its shares closed Monday at $47.47 with a P/E ratio of 7.65 and P/S ratio of 0.92. The trailing 12-month dividend yield of Delta Air Lines Inc. stock is 1.43%. The forward dividend yield of Delta Air Lines Inc. stock is 1.75%. Delta Air Lines Inc. had annual average earnings growth of 21.8% over the past five years.
United Continental Holdings Inc. (UAL, Financial)
Berkshire purchased 4,533,013 shares of United Continental Holdings Inc., whose price rose 9.8% year to date. Its third-quarter average share price was $48. The holding reflects 0.18% of the portfolio.
United Continental Holdings has a market cap of $19.97 billion; its shares closed Monday at $62.94 with a P/E ratio of 7.87 and P/S ratio of 0.58. United Continental Holdings had annual average earnings growth of 13% over the past five years.
Sells
Buffett also made several notable changes on the negative side. He sold out of two positions, integrated oil and gas company Suncor Energy Inc. (SU, Financial) and entertainment company Media General (MEG, Financial).
After chiseling his Wal-Mart Stores (WMT, Financial) position by 27.2% in the second quarter, he reduced it a further 67.8% to roughly a quarter of its size five years ago.Ă‚
See Warren Buffett (Trades, Portfolio)’s portfolio here. Start a free 7-day trial of Premium Membership to GuruFocus.
Ă‚
