On April 3, Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) filed a Form 4 for Southwest Airlines (NYSE:LUV). Berkshire sold 4% of its LUV stock between March 16 and April 2 at prices between $31.38 and $37.52 a share.
After these trades, Southwest is Berkshire Hathaway’s 16th-largest equity holding with a value of $1.76 billion. That’s $393 million more than Delta, $1.16 billion greater than United Airlines (NASDAQ:UAL), and $1.28 billion more than American Airlines (NASDAQ:AAL).
So, Buffett’s belief in Southwest, and to a lesser extent, Delta, is still much stronger than either United or American.
However, if he sells a lot more, that might be cause for concern. Here’s why.
Buffett Rarely Exits Positions
Once Berkshire builds a significant position in a stock, it rarely sells without a reason to do so.
In the second quarter of 2017, Buffett sold the company’s entire stake in General Electric (NYSE:GE). Berkshire held 10.6 million shares before it exited its position in the industrial conglomerate. It’s a good thing he did. GE shares were in 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 spun off from GE in July 2014 at $23 a share. At the time, Buffett owned 17.5 million shares of the credit card company. Today, that stake has grown to 20.8 million shares, although its share price is down 27% since its 2014 IPO.
It takes a lot to shake Buffett out of position.
In early 2018, Buffett exited what many consider 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 of IBM stock in 2011, paying an average of $170 a share.
Although he lost money over the six-and-a-half years Berkshire owned IBM it could have been worse. Buffett could have held onto IBM. It’s now trading $40 below where he sold.
Furthermore, he took the funds from selling IBM and put it into Apple (NASDAQ:AAPL), which has turned out to be a much better tech investment.
If you own LUV stock, you can take heart in the fact that not even the coronavirus can shake Buffett out of his position in the company.
The Bottom Line on LUV Stock
In mid-March, I suggested that investors might want to forget about investing in Southwest. Instead, I recommended putting that money into U.S. Global Jets ETF (NYSEARCA:JETS). Further, by buying JETs shares each week that it drops more than 2% over the next 6-12 months, you’ll be much further ahead than betting it all on Southwest.
And I like Southwest:
“I’ve always liked Southwest. The last time I wrote about it in April 2018, I suggested LUV stock was cheaper than investors realized. Trading around $55 at the time, it went sideways for the next 24 months before the coronavirus sent it reeling in mid-February; it’s down almost 25% over the past month,” I wrote on March 12.
At this point, LUV stock isn’t too far off its 52-week low of $29.15. While it appears the White House is getting more optimistic by the day that the economy will reopen by the beginning of May, it’s going to take much longer for the airline industry to get back to normal.
If you own Southwest, as long as Buffett doesn’t sell another big chunk of stock, I think you can ride it out.
If you want to invest in the company, you might consider JETS in a “rising tide lifts all boats” play. Alternatively, a smart play would be to buy Berkshire Hathaway stock, which is cheaper than it’s been at any time in the past five years.
As for LUV itself, I wouldn’t buy it until we know the economy is back on its feet. That likely won’t be until sometime this summer.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.