I was scanning one of my newspapers today and noticed that American Airlines is down around 30% year to date and is selling for a PE of 6. This got me wondering if the airlines, with the recent run up of oil prices, had dropped to where Buffett had bought them.
According to the 13F reports, Berkshire starting buying American Airlines, Delta, and United Continental in the third quarter of 2016. The prices are up since then for all three. And he started buying Southwest Airlines in the fourth quarter of 2016, and the price of Southwest is up as well.
But since then, Buffett has added to those positions. In Q1 of 2017 he added to the Southwest position with prices during that quarter ranging from $50 to about $59. Today Southwest sells for $53.
In Q1 2017, Buffett also added to the American Airlines total, and the lowest the American Airlines stock price got during that quarter was a little bit under $42 a share. Now it’s selling for $37.
And in Q1 2018, Buffett added just a little bit more Delta. The price of Delta during that quarter had a low of $50.46. Today it sells for $50.77.
So if we bought American and Delta at today’s prices we could be buying them for less than Buffett paid (not overall, but at one of his buying points). And with Southwest, we could get close to what Buffett bought it for when he added to his position in Q1 2017.
The airlines were very cheap when Buffett bought them in Q3 and Q4 2016. And American still looks very cheap with a forward PE of 6. Delta also looks cheap with a forward PE of 7.
Oil was in the mid $50s when Buffett first started buying the airlines, and since then its run up to $70. This will test the airlines profitability, but at the same time, demand for air travel might be strong enough for them to raise prices and maintain profitability.
I’m not sold yet on diving into airline stocks (I’ve never liked the industry as an investment), and I’m very happy to continue loading up on Fiat Chrysler, but when any stock price dips below or is at where Buffett bought some of it, I always pay attention. So these three airlines are on my radar screen, and if they drop even further, maybe we’ll have to go in.