After years of shunning the entire sector, investor Warren Buffett and his team at Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) are betting on airlines again. According to a recently released Securities and Exchange Commission filing, the company now holds stakes in American Airlines Group (NASDAQ: AAL), Delta Air Lines (NYSE: DAL), and United Continental (NYSE: UAL). CNBC reports that Berkshire has also taken a stake in Southwest Airlines (NYSE: LUV), but that purchase was made after the SEC's Sept. 30 quarterly filing deadline for disclosing positions.
Several factors make the buys unusual, starting with the fact they aren't evenly distributed. Berkshire's interest in American Airlines (21.8 million shares) is more than three times as big as its investments in Delta (6.3 million shares) and United (4.5 million shares). American stock entered the weekend trading for $46.26 a share, while Delta and United were trading for $48.90 and $68.29 a share, respectively. Southwest was trading for $47.06 a share.
Looking only at the three multinational carriers Berkshire bought before Sept. 30, United has the smallest market cap at $21.67 billion, followed closely by American at $23.97 billion. The implication? Buffett and his team believe that American is better positioned than either of its peers, and deserving of a valuation that's closer to the $38 billion market cap Delta has today -- and perhaps much greater.
It'd be sweet redemption if they're right. In 1989, Buffett purchased $358 million worth of preferred stock of US Airways. He wrote down the position several times over the next six years as the stock sank, though he held on long enough to eventually make money on the deal. That profit, however, didn't stop him from publicly referring to his investment in US Air as a mistake. In 2013, the carrier announced plans to merge with American to create the world's largest single carrier. With these latest buys, Berkshire is, in a way, back in US Airways.
And while Berkshire isn't just betting on one airline this time -- it's betting on four -- the comparative size of its investment in American Airlines stock speaks volumes about where the team sees the most value. With the stock trading at 4.8 times trailing earnings -- far below the P/E ratios of its peers -- there's reason to believe it's right.
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Tim Beyers owns shares of Berkshire Hathaway (B shares).