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Why Shares of Delta Are Higher Today

By Lou Whiteman - Updated Mar 3, 2020 at 9:56AM

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Berkshire Hathaway is greedy when others are fearful.

What happened

Shares of Delta Air Lines (DAL -2.27%) opened more than 5% higher on Tuesday morning following a disclosure that Berkshire Hathaway (BRK.A -0.27%) (BRK.B -0.14%) had raised its stake in the airline during last week's sell-off.

So what

Delta and other airline stocks have been battered during the COVID-19 coronavirus-related sell-off, as investors worry that the virus will eat into travel demand heading into the peak U.S. summer vacation season. Delta and other airlines temporarily suspended flights to China and other regions hit hard by the outbreak, which will cut into results for at least the first half of 2020.

Delta shares lost about 20% of their value during the sell-off.

Delta execs at a ribbon cutting in front of a new aircraft.

Image source: Delta Air Lines.

Berkshire Hathaway was a buyer as the stock fell, disclosing in a regulatory filing Tuesday morning that it bought more than 976,000 shares of Delta last week for about $45.3 million, for an average cost of about $46.40 per share. Berkshire already owned more than 10% of Delta's shares outstanding, so it is required to disclose new purchases before the end of the quarter.

Following the purchase, Berkshire owns more than 71.9 million shares of Delta, or 11.1% of the shares outstanding. Berkshire first bought into the airline sector in 2016, and Delta had been a big winner for Warren Buffett's financial conglomerate prior to the coronavirus sell-off.

Now what

The coronavirus is definitely going to hit the airline industry severely over the coming quarters, but there is nothing to suggest that it will halt the long-term trend toward increasing global travel demand. Buffett and Berkshire Hathaway are famous for ignoring near-term issues and focusing on long-term trends, and buying into the nation's best-run airline during a market decline fits Berkshire's playbook well.

I said last week that the sell-off in Delta appears overdone, paraphrasing Buffett's line that when others are fearful, it is time to be greedy. The stock is up since then, but still well below where it traded a few months ago. For those who can stomach potential near-term volatility as the coronavirus story plays out, there is still time to buy into Delta.

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Stocks Mentioned

Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$29.64 (-2.27%) $0.69
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$411,050.00 (-0.27%) $-1,120.01
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$273.49 (-0.14%) $0.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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