Despite sales of 4%, LUV Stock is still Buffett’s largest airline

<p> On April 3, Berkshire Hathaway (NYSE: BRK.A, NYSE: BRK.B) submitted Form 4 for Southwest Airlines (NYSE: LUV). Berkshire sold 4% of its LUV share between March 16 and April 2 at prices between $ 31.38 and $ 37.52 per share.

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If you own Southwest it could have been worse. Warren Buffett’s holding company sold 18% of its stake in Delta Air Lines (NYSE: DAL) at prices between $ 22.96 and $ 26.04 per share.

Following these transactions, Southwest Berkshire is Hathaway’s 16th largest shareholding worth $ 1.76 billion. That’s $ 393 million more than Delta, $ 1.16 billion more than United Airlines (NASDAQ: UAL) and $ 1.28 billion more than American Airlines (NASDAQ: AAL).

So, Buffett’s belief in the Southwest and to a lesser extent Delta is still much stronger than either United or American.

But if he sells a lot more, it can be worrying. Here’s why.

Buffett rarely leaves positions

Once Berkshire has built a significant position in a stock, it rarely sells for no reason to do so.

During the second quarter of 2017, Buffett sold the entire company’s stake in General Electric (NYSE: GE). Berkshire owned 10.6 million shares before leaving its position in the industrial conglomerate. That’s good he did. GE shares were at the low $ 30s at the time, four times higher than today.

However, he has hung on to his shares in Synchrony Financial (NYSE: SYF), which was distributed by GE in July 2014 at $ 23 per share. At the time, Buffett owned 17.5 million shares in the credit card company. Today, this share has grown to 20.8 million shares, although the share price has decreased by 27% since the IPO in 2014.

It takes a lot to shake Buffett out of position.

In early 2018, Buffett left what many consider to be his poorest investment when Berkshire sold its remaining 2 million shares in IBM (NYSE: IBM). The holding company paid $ 10.7 billion for 64 million shares in the IBM share in 2011 and paid an average of $ 170 per share.

Even if he lost money during the six and a half years that Berkshire owned IBM, it could have been worse. Buffett could have stayed at IBM. It now trades $ 40 below where he sold.

In addition, he took the money from selling IBM and put it in Apple (NASDAQ: AAPL), which has proven to be a much better technical investment.

If you own LUV shares, you may be aware that not even the coronavirus can shake Buffett out of his position in the company.

The conclusion on LUV shares

In mid-March, I suggested that investors might want to forget about investing in the Southwest. Instead, I recommended putting the money in the US Global Jets ETF (NYSEARCA: JETS). Furthermore, by buying JETs shares every week as it drops more than 2% over the next 6-12 months, you will be much further ahead than investing everything in Southwest.

And I like Southwest:

“I have always liked Southwest. The last time I wrote about it in April 2018, I suggested that the LUV shares were cheaper than investors realized. Turnover was about $ 55 and went sideways for the next 24 months before the coronavirus sent it in mid-February. it has decreased by almost 25% in the last month, I wrote on March 12.

At this point, the LUV stock is not that far from its 52-week low of $ 29.15. Although the White House appears to be more optimistic about the day the economy reopens in early May, it will take much longer for the aviation industry to return to normal.

If you own Southwest, as long as Buffett does not sell another large piece of stock, I think you can ride it out.

If you want to invest in the company, you can consider JETS in a “rising tide lifts all boats” game. Alternatively, a smart bet would be to buy Berkshire Hathaway shares, which are cheaper than they have ever been in the last five years.

As for LUV itself, I would not buy it until we know that the economy is back on its feet. It will probably not be until sometime this summer.

Will Ashworth has been writing about full-time investing since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the United States and Canada. He especially likes to create model portfolios that pass the test of time. He lives in Halifax, Nova Scotia. At the time of writing, Will Ashworth had no position in any of the above securities.