We published an update on this Long Idea on July 28, 2021. A copy of the associated Earnings Update report is here.
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3 replies to "Buffett Is Shortsighted on Airlines: LUV Is A Steal at This Price"
Hello
I agree with your assessment on Mr. Buffets opinion. He is wrong this time. Could he possibly be doing some house cleaning? If so, he could have polished his portfolio without trashing the airline stocks and sweeping other long investors into his trash bin.
As for myself, I bought into American, United, Jet Blue, and Delta last week. Why should we care what Buffet does when he is obviously not making the smart call? A long position on these stocks is going to pay off big time, and when it does everyone who stood their ground with these airline stocks will be presented the opportunity to laugh at the old man.
I’m no professional by any means, but you need not be to see the writing on the wall with these airline stocks. Please allow me to break this down into the simplistic scenario in which to me, it is.
As the coronavirus pandemic eases its grip on the nation as time moves along, people who once traveled, went on cruises, vacations, and worked abroad, are not going to walk or ride a bicycle to reach their destination. They are going to fly.
The airline industry, at least in American Airlines case, will evolve into a sleek, more streamlined franchise than it was before this pandemic gripped the nation. President Trump will not allow this industry to go into bankruptcy. The airline industry will be the recipient of a government bailout just like all the other huge industries in the past have been. What’s the old adage? Too Big To Fail? This will ring true as it has in the past with the auto, banking, housing and whatever big time players have mismanaged their business’s. The difference this time is that what has happened to the airlines is of no fault of their own. This pandemic seemed to explode right out of the gate then multiply on a daily basis until recently, at least that’s we are all pinning our hope on.
All we can do in deciding when and what to invest our money into is to study the available data, review the analysts ratings, decide who’s opinion we trust the most, then dive in and hope we don’t make too big of a splash.
This is just an opinion from an every day Joe who’s trying to make some money in a market where many lucrative opportunities are at hand as the result of a very unfortunate set of circumstances.
But is this not how all great opportunities present themselves?
Think about that.
The International Air Transport Association estimates (https://cnb.cx/3dMJo9m) that airline traffic won’t return to pre-crisis levels until 2023, which would actually be much quicker than the expectations baked into LUV’s stock price.
Per our DCF scenario above, the stock holds significant upside even if the such a recovery takes until 2025.
Thanks, Eric.
From the news today, it appears our thesis is coming quite true – not to mention LUV is up to $38/share or nearly 40% since we published the report a month ago.