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Stock Analyst Update

Berkshire Takes to the Skies

The investment managers at Berkshire have made a more than $1 billion bet on the three major domestic airlines.

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While we had expected to talk more heavily about Phillips 66, which  Berkshire Hathaway (BRK.B) continued to add to its position in during the third quarter, or Wells Fargo, which was under pressure over the news of its aggressive and occasionally fraudulent sales practices, the top story out of the company's most recent 13-F filing was the purchase of shares of American Airlines Group, Delta Air Lines, and United Continental Holdings, with the investment managers at Berkshire making a more than $1 billion bet on the three major domestic airlines. On the surface, it looks to have been a good bet, as all three names got dragged down by the volatility created by the Brexit vote at the end of June only to increase in value more than 25% during the past four and a half months. At this point, though, the one name that we do currently cover--United Continental Holdings--looks to be fairly valued, trading at 105% of our analyst's fair value estimate.

Looking more closely at the other third-quarter purchases, Berkshire picked up another 1.9 million shares of Phillips 66, as well as additional shares of Charter Communications, Visa, Wabco Holdings, and Bank of New York Mellon. It looks to us like all of these transactions, including the airlines stock purchases, were initiated by Todd Combs and/or Ted Weschler. CEO Warren Buffett seems to have been more focused on keeping quiet about Berkshire's Wells Fargo stake, as the insurer is right on the cusp on exceeding the 10% non-bank holding company level that has put a ceiling on Berkshire's investment in the bank. On the sales front, Berkshire eliminated its holdings in Sunco Energy and Media General, while trimming positions in Deere, Kinder Morgan and Wal-Mart--using half of the proceeds to fund their purchases during the quarter. And, finally, another recapitalization at Liberty Media resulted in more tracking stocks--namely, Liberty Media SiriusXM--for Berkshire's investment managers to monitor.

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Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.