Legendary investor Warren Buffet has just made an unprecedented move by buying massive shares of Delta Air Lines amid the global travel and tourism industry slump. Through his investment firm Berkshire Hathaway, Buffett has invested an additional $45.3 million in the airline.
Buffett bought the shares at one of its lowest points, effectively taking advantage of the dip caused by growing fears over the continued spread of the novel coronavirus. Berkshire Hathaway purchased a total of 976,507 additional shares of the airline on February 27, effectively increasing its standing stake in the company by 1.38 percent. The company officially disclosed the transaction this week.
The additional shares purchased puts Berkshire Hathaway's total Delta Air Lines shares owned at 71,886,963 shares. The company purchased the shares while it was trading at around $46.40 per piece. The purchase was made towards the end of a week-long US stock market slump last week.
During that time, major US stocks had slumped by record numbers. The SPDR S&P 500 ETF Trust, the world's biggest stock fund, saw an over $13 billion in value wiped out. Meanwhile, the S&P 500 dropped by more than 13.9 percent in one week.
Berkshire Hathaway purchase the Delta Air share relatively low, the lowest it has been since January last year. Analysts have pointed out that while the price is relatively the same as it was a year ago, the company has managed to increase its earnings since then, making the stock significantly undervalued.
Stock prices of airlines worldwide have continued to decline since the start of January. The recent outbreak in China has forced governments to impose stick travel restrictions, particularly to and from China, where the virus had originated. Last month, the United States imposed additional travel restrictions for travelers coming from Italy, South Korea, and Iran; places seeing significant outbreaks.
The outbreak and the general drop in demand for travel have wreaked havoc on airline companies. Over the weekend, American Airlines announced that it has suspended a number of its international flights, mainly due to a lack of demand.
The industry may not be doing so great as of the moment but analysts have pointed out that once the panic over the outbreak recedes, airline stock prices and profits will definitely shoot up. Buffett is likely banking on this possibility, buying airline stocks while they are low and possibly selling them once the industry bounces back.
Since the start of the year, Delta Airline shares have dropped by 18.67 percent. Southwest Airlines' shares are currently down by 13.02 percent. American Airlines' shares have also declined by 33.86 percent. Meanwhile, shares of United Airlines have dropped by 30.46 percent. Berkshire Hathaway currently owns stakes in all four airline companies, indicating its confidence in an industry rebound in the short-term.
