​Why Buffett Is the Largest Shareholder in Delta Air Lines

MoneyShow  |

Image via m01229/Flickr CC

The share price of Delta Air Lines (DAL) — a holding in our Growth Portfolio — has been all over the map this year, bottoming out below $45 in April before soaring above $55 only three months later, notes Jim Pearce, editor of Investing Daily's Personal Finance.

At the end of July, before Harvey and Irma began forming in the Atlantic, the price of oil closed at $50.41 a barrel. On October 3, the same day Delta released its earnings revision, oil traded at $50.05/bbl.

However, by late August DAL was once again fighting to maintain altitude above the $45 level as Harvey, and then Irma took dead aim at Delta’s primary market in the southeastern U.S.

The stock jumped more than 6% when the company issued a statement that business disruption from hurricanes Harvey and Irma was less severe than initially feared.

Despite Hurricane Irma, third-quarter revenue rose 5.5% to $11.06 billion, better than analysts anticipated. Although Harvey made a direct hit on Houston’s refineries, the impact on fuel prices was less than feared.

Even longtime airline skeptic Warren Buffett recently jumped on the Delta bandwagon. His Berkshire Hathaway (BRK.A) investment company holds $2.8 billion of DAL, which makes it Delta’s largest institutional shareholder with a 7.3% stake in the company.

Buffett reversed his thinking on airline stocks a year ago, opening similar-sized positions in United Continental Holdings (UAL), American Airlines Group (AAL) and Southwest (LUV).

Buffett’s seal of approval on a stock is helpful, provided he sticks with it. In this case, I think he will. By gaining roughly equal exposure to the aviation and energy sectors, Buffett has neutralized the effect of highly volatile oil prices on his overall portfolio.

Thanks to the world oil supply glut and the rapidly expanding electric vehicle market, the prospect of drastically higher aviation fuel prices anytime soon appears unlikely. And if a corporate tax cut is forthcoming, Delta would benefit more than most given its 34.5% effective tax rate last year.

Reflation or no reflation, there should be nothing but blue skies ahead for Delta that not even the occasional hurricane can ruin. We’ve racked up a total return of 73% in DAL since adding it to our portfolio three years ago. But even after the recent bump, Buy Delta up to $50.

Jim Pearce is director of research at Investing Daily.

Subscribe to Investing Daily’s Personal Finance here…

About MoneyShow.com: Founded in 1981, MoneyShow is a privately held financial media company headquartered in Sarasota, Florida. As a global network of investing and trading education, MoneyShow presents an extensive agenda of live and online events that attract over 75,000 investors, traders and financial advisors around the world.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

Companies

Symbol Name Price Change % Volume
UAL United Airlines Holdings Inc. 92.72 -0.81 -0.87 1,543,614 Trade
DAL Delta Air Lines Inc. 57.22 0.01 0.02 4,424,709 Trade
LUV Southwest Airlines Company 57.85 -0.41 -0.70 1,936,039 Trade
AAL American Airlines Group Inc. 29.52 -1.07 -3.50 8,663,841 Trade
BRK.A Berkshire Hathaway Inc. 331,106.00 120.00 0.04 135 Trade

Comments

Watchlist

Symbol Last Price Change % Change
AAPL

     
AMZN

     
HD

     
JPM

     
IBM

     
BA

     
WMT

     
DIS

     
GOOG

     
XOM

     
BRK.A

     
FB

     
JNJ

     
WFC

     
T

     
NFLX

     
TSLA

     
V

     
UNH

     
PG

     

World Economic Forum at Davos 2019 - Joseph Weinberg CEO PayCase, Chairman Shyft

Matt Bird sits down with Joseph Weinberg CEO PayCase, Chairman Shyft at the World Economic Forum at Davos 2019