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Recent Airline Resurgence Shows Potential Profits

As the pandemic took hold of the world and countries shut down, companies that relied on the movement of people saw both their profits and valuations plummet. The travel industry bore the brunt of the impact and media coverage as well due to the liquidation of Warren Buffett (Trades, Portfolio)'s airline holdings.


By the beginning of May, Buffett had sold out of all his major airline holdings. This came as quite a shock to the investment world as he is known for his long-term, if not lifetime, holdings of companies that have value. However, even the Oracle of Omaha was unable to predict the effect of the pandemic.

As the pandemic has begun to slow coming into the beginning of June, many cities around the country are beginning to lighten their restrictions on restaurants and businesses. This has allowed for certain industries to see a resurgence in their profits and valuations.

The four major airlines that Buffet had sold have now seen their share prices go back on the rise. Southwest (NYSE:LUV), United (NASDAQ:UAL), American (NASDAQ:AAL) and Delta (NYSE:DAL) have all seen their prices rise notably above their 52-week lows after watching those prices drop by a minimum of 30%. If an investor chose to buy into these companies when Buffett chose to sell, they could be seeing large gains currently.

Southwest

When Buffett sold out of Southwest, he liquidated the 51.33 million shares that he owned at the time. This constituted a -0.68% impact on the portfolio and GuruFocus estimates that the overall gain on the holding was -32.82%. At the time of the sale, shares were trading at an average price of $30.11 each.

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As of June 9, Southwest shares were trading at $40.59 and seeing a market cap of $23.92 billion. If an investor had bought in at Buffett's average sale price of $30.11, they would be looking at a 34.80% increase in that holding over a period of a few weeks. The Peter Lynch chart suggests the stock would have been undervalued at the time.

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United

Shares of United were trading at an average price of $27.79 when Buffett sold his 22.15 million shares. The sale had an impact of -0.40% overall on the portfolio and GuruFocus estimates the total loss on the investment was -33.44%.

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United was trading at $44.33 per share as of June 9. Buying in directly after Buffett's sale at $27.79 per share would have gained an investor 59.51% over that same timeframe. According to the Peter Lynch chart, the company was trading below its intrinsic value.

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American

Buffett's sale of American saw him dump 41.90 million shares for a total estimated loss of 60.73%. At the time of sale, shares were trading for an average price of $11.33 per share and the sale had a -0.29% impact on the guru's portfolio.

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June 9 saw American shares trading at $18.23 with a market cap of $7.78 billion. An investor would be looking at 60.90% growth in their share values between Buffett's liquidation and current day. The Peter Lynch Chart showed the company trading below fair market value a few months prior to the sale by Buffett.

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Delta

Buffett sold 58.90 million shares of Delta at an average price of $22.25 per share. The sale overall represented a -0.59% impact on the portfolio and saw a total estimate loss of 46.51%.

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Shares traded at $33.79 per share on June 9 with a market cap of $21.68 billion. Between Buffett's sale in April and current day, the price has jumped 51.86%. The Peter Lynch chart suggests the stock was undervalued at that time.

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Overall

When Buffett sold over 174 million shares across the four airlines, he brought back billions of dollars for Berkshire Hathaway. Across those four holdings, he was looking at losses anywhere from 30% to 60%. His biggest overall loss came with the American holding at an estimated 60.73% during the lifetime of the holding.

On the other side of the coin, an investor who jumped on the prices that Buffett sold at would have seen their biggest growth from American. If that investor had the ability to purchase all of the shares that Buffett sold in April, they would be looking at an average growth of 51.76% across all four holdings.

Disclosure: No positions.

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This article first appeared on GuruFocus.