If you an ardent follower of investment guru Warren Buffett, you might find his latest suggestions intriguing. Normally, Buffett takes interest in companies trading below what he believes is their intrinsic value. He aims for long-term outperformance and apparently ignores short-term downturns.
With coronavirus leaving an adverse impact on the social, economic and investment world this year, many are waiting for the suggestions of the Oracle of Omaha regarding how to sail through the pandemic and remain financially unscathed.
A few days back, Buffett said that Berkshire has offloaded all $4 billion worth of its airline stocks. The “world has changed for airlines” Buffett said because of the effect of coronavirus. Investors should note that airline passenger traffic is not expected to return to pre-crisis levels until 2023 at the earliest, according to the International Air Transport Association (IATA). The recovery in the sector will lag global GDP recovery by two years. Pureplay airlines ETF U.S. Global Jets ETF (JETS - Free Report) is down 61.9% this year (read: 5 ETF Strategies to Follow Warren Buffett's Coronavirus Tips).
How to Trade Banks & Insurance?
According to a regulatory 13-F filing for the quarter ended Mar 31, Berkshire Hathaway cut its stake in Goldman Sachs (GS) , and slightly reduced its position in JPMorgan Chase (JPM). However, Buffett added positions in PNC (PNC), scooping 526,930 shares to hold 9.19 million shares.
Regional bank PNC is heavy on iShares U.S. Regional Banks ETF (IAT - Free Report) with about 12% stake. So, one can find the fund a lucrative bet. This is especially true given that banks are cheap now. On the other hand, Goldman has a solid position in iShares US Broker-Dealers ETF (IAI - Free Report) . So, IAI is at a weak spot.
Berkshire Hathaway withdrew its positions in Travelers Companies Inc (TRV), which has solid positions in Invesco KBW Property & Casualty Insurance ETF (KBWP) and iShares U.S. Insurance ETF (IAK - Free Report) . Notably, the insurance industry is under pressure amid COVID-19.
Are Credit-Cards Companies At Risk?
Warren Buffett suggests against carrying a credit card balance as one “should not go through life borrowing money” at a huge interest rate. With layoffs rising, Americans have been flocking to more credit card debt.About 47% of Americans are carrying credit card debt, according to a survey from CreditCards.com while about 23% took on more card debt amid the COVID-19 crisis.
In any case, credit card companies are feeling the pressure of low Fed interest rates, poor consumer confidence and low discretionary purchases. Buffett’s suggestion may not bode well for credit card companies. So, companies like Mastercard (MA) and Visa (V) as well as various issuing banks could be stressed as may the financial services ETFs like iSharesU.S. Financial Services ETF (IYG - Free Report) .
“Very Good Time to Borrow Money”
Since the Fed cut rates to zero, this is a very good time to borrow money, which means it may not be such a great time to lend money, but it’s good for the country that it’s a good time to borrow money," Buffett told his shareholders.
As a result, new and refinance mortgage rates are at record low levels, which could be a great thing for homebuyers. Additionally, the coronavirus crisis is likely to cause prices to decline 2-3% by the end of 2021, per Zillow Group. But home-buying demand has come back with force, now 5.5% higher than it was pre-pandemic, per Redfin. Home sales volume is expected to experience slightly faster pickup than prices, showing signs of recovery by the end of June 2020, per Zillow.iShares U.S. Home Construction ETF (ITB - Free Report) and SPDR S&P Homebuilders ETF (XHB - Free Report) are two ETFs that should be followed for near-term gains.
Bet on America
Buffett said “American magic” will spur U.S. economic recovery and has faith in long-term fundamentals. So, small-cap ETFs are likely to see recovery as these have greater domestic exposure. Sprott Junior Gold Miners ETF (SGDJ - Free Report) , Invesco Dynamic Building & Construction ETF (PKB - Free Report) and ALPS Medical Breakthroughs ETF (SBIO - Free Report) are some of the picks (read: Bet on "American Magic" With 4 Solid Small-Cap Sector ETFs).
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