NNN?Business – No New News? – Did Warren Buffett Make A Mistake Selling His Airline Stocks? – 5/31/20

Michael Brush

MarketWatch – May 27, 2020

There’s a big debate now about whether Warren Buffett has “lost his touch.” I’m not sure, but here’s one group of people that has little doubt: airline sector insiders.

While Buffett’s Berkshire Hathaway BRK.A, +0.57% BRK.B, +0.25% booked substantial losses dumping airlines stocks in the late first-quarter weakness in the sector, insiders at close to half a dozen airlines bought lots of their stock — including the airlines Berkshire sold.

Read: Warren Buffett has lost at least $7 billion from his last 3 big investments

In a direct challenge to the Oracle of Omaha, insiders racked up the kind of sector-wide buying I look for to support a bullish industry call in my stock newsletter Brush Up on Stocks.

Money managers invested in airline stocks say that three key factors explain airline insider bullishness:

1. Government to the rescue: Politicians see the airline sector as a cornerstone of U.S. economic security. Moreover, airlines and related businesses employ a lot of people. So the federal government readily approved $50 billion in support. NOW PLAYING: SpaceX Successfully Launches NASA Astronauts into Space

Visit our Video Center

One in 15 jobs is airline-related if you include hospitality, says Frank Holmes, CEO of U.S. Global Investors, which manages the U.S. Global Jets JETS, -1.63% exchange-traded fund. “There is big multiplier effect in the airline industry. That is why politicians supported the package.”

2. Travel is coming back: The number of airline passengers screened per day has risen to around 200,000 from lows of 87,000 in mid-April. This offers “flickers of hope” for the group, says Raymond James airline analyst Savanthi Syth. While still low, travel statistics are heading in the right direction, Syth says.

As travel picks up, the benefits of airline sector consolidation will kick in again, adds Samantha McLemore, a portfolio manager at Miller Opportunity Trust Fund LMNOX, -0.77% . Airlines have inherently higher return on capital and cash flows because of improved cost controls and pricing power. Airlines also have been able to raise capital during this crisis so they will be able to “fund their way through this” as traffic improves, she says. 

3. Airline stocks did well after the last three financial crises: In the six months after the 9/11 terrorist attacks, the 2003 SARS outbreak, and the 2008-09 financial crisis, airline stocks rose 80%-120%, Holmes points out. Insiders buying now are hoping the past will repeat….Read The Rest At MarketWatch.com

Leave a Reply