Who doesn’t want to invest likethe Oracle of Omaha or Warren Buffett? After all, this Wall Street guru has successfully put his money in the right place and continues to reap huge returns. Buffett’s Berkshire Hathaway Inc. (BRK.B - Free Report) is up about 19% so far this year (as of November 16, 2016) and added over 115% in the last five years compared to the S&P 500’s 6.5% gains this year and an 87.9% five-year return.
Following an investor of this aptitude will surely be anybody’s dream. Normally, Buffett takes interest in companies trading below what he believes is their intrinsic value. He aims long-term outperformance and apparently ignores short-term downturns.
Probably this is why this investment veteran recently picked up some airlines stocks that are currently overlooked by investors. The sector is in the bottom 39% of the Zacks Industry Rank at the time of this writing (read: If Oil Continues to Soar, These 7 ETFs May Fall).
The stocks that Buffett bought are American Airlines (AAL - Free Report) , Delta Airlines (DAL - Free Report) and United Continental Holdings Inc. (UAL - Free Report) . As per sources, Buffett also bought Southwest Airlines Co. (LUV - Free Report) recently.
Why Buffett Catches Airlines?
This shows a tectonic shift in preference as Buffet has stayed away from airline stocks for long. But the latest surge in interest can be credited to a decent level of share buybacks by airlines, as per Market Watch. The industry’s profitability and efficiency ratios have also improved in recent times, barring some exceptions.
In the latest reporting cycle too, the beat ratios show that the corporate strength in the airlines industry is not as bleak as the stock trend. Plus, most of the airlines are restraining capacity growth, which should improve unit revenues (read: Brexit or Earnings: What Will Decide the Route Map for Airline ETF?).
Investors should also note that UAL, AAL and DAL carry a Zacks Rank #3 (Hold) each with a VGM score of A, which is a combination of value, growth and momentum characteristics. The trio especially has a Value score of ’A’. Though LUV is not in our favored list with a Zacks Rank #5 (Strong Sell), it still has a VGM score of B with the same value score. Since Buffet is a fan of value investing, his sudden interest in airline stocks is self-explanatory.
Below we elucidate how cheap these four stocks are compared to the air transportation industry and the S&P 500 using various valuation metrics:
If these were not enough, airlines expect a 2.5% surge in travelers in the thanksgiving weekend and accordingly beefed up the number of flights and seats. All in all, investors intending to follow Buffett’s latest move on airlines stocks and having faith in the industry fundamentals may find U.S. Global Jets ETF JETS an intriguing choice (see all industrial ETFs here).
JETS in Focus
The $49.7 million-fund holds over 34 stocks in its portfolio and is concentrated on a few individual securities. United Continental (13.26%), Delta Airlines (13.11%), Southwest Airlines (12.78%) and American Airlines (12.61%) are the top four elements in the basket. The product charges 60 bps in fees. The fund gained about 5.2% in the last five trading sessions (as of November 17, 2016).
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