Warren Buffett (Trades, Portfolio) caused a stir in the past month when he softened his previous negativity about airlines and bought shares of three. Ray Dalio (Trades, Portfolio), founder of the world’s largest hedge fund Bridgewater Associates, went the opposite direction from Buffett and sold out of the entire sector.
Bridgewater oversees about $150 billion in assets and invests according to its understanding of the global economy and financial markets. Dalio is a big proponent of independent thinking and stresses radical transparency among the workers at his firm. An airline stock, Northeast Airlines, was his first security purchase ever, and it tripled, but only out of luck, he says in his book “Principles.”
In the $10.2 billion long stock portfolio Bridgewater reports, Dalio held four airlines at the end of the second quarter: Delta Airlines (DAL, Financial), United Continental Holdings (UAL, Financial) Alaska Air Group (ALK, Financial) and Southwest Airlines (LUV, Financial). Two, Delta and United, are stocks Buffett's Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) purchased, along with American Airlines (AAL, Financial).
Bridgewater has traded in and out of the stocks on a relatively short-term basis over the past five years. Dalio may have missed the largest gains the airlines offered this year. They have each soared by double digits in the past three months, but have more meager returns year to date, with Delta down 2.2%, United Continental up 19.2%, Alaska up 0.07% and Southwest up 9.9%.
Bridgewater sold out of 85,800 shares of Delta in the third quarter, when the price averaged $38. They purchased the stock in the first quarter when the price averaged $47, for an approximate estimated loss of 13%.
Delta has a $37.5 billion market cap, and in the September quarter reported a 5% decrease in operating revenue from the same quarter a year prior to 10.5 billion, due primarily to an outage and a gain from yen hedges the year prior. Unit revenues decreased by 6.8%, as capacity increased 1.5%. Earnings were also down 4% to $1.26 billion, or $1.69. Delta has a dividend yield of 1.39%.
Bridgewater sold 26,900 shares of United Continental Holdings, when the price averaged $48. They purchased in the second quarter, when the price averaged $47, for an estimated gain of 2%.
United Continental has a $23.4 billion market cap, and in the third quarter reported a 3.8% drop in revenue from the previous year to $9.9 billion, with a 5.8% decline in passenger revenue per available seat mile due primarily to a strong dollar, reduced surcharges and others. Net income fell 80% to $965 million or $3.01 per diluted share. United does not pay a dividend.
Bridgewater sold 33,900 shares of Alaska Air Group, when the price averaged $66. They purchased the shares in the second quarter, when the price averaged $70, for an estimated approximate loss of 5%.
Alaska Air Group has a $9.83 billion market cap, and saw a revenue increase of 3% from the prior third quarter, with a 6.6% decline in net income to $256 million, or $2.07 per diluted share. Alaska has a dividend yield of 1.38%.
Bridgewater sold 29,954 shares of Southwest Airlines, when the price averaged $38. They purchased the shares in the third quarter of 2015, for an estimated approximate gain of $38.
Southwest registered a 3.4% drop in revenue from the prior-year third quarter, to $5.1 billion, which excluding a special item would have been nearly flat, including a $55 million charge for a technology outage. Net income dropped 33.6% to $388 million, or 88 cents per share. Southwest pays a dividend yield of 0.74%.
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