3 Airline Stocks Benefiting From Buffett's About-Face

Warren Buffett's Berkshire Hathaway has taken a stake in AAL, LUV, and UAL

Nov 15, 2016 at 10:51 AM
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Billionaire investor Warren Buffett is changing his tune on airline stocks, sending a number of names soaring this morning. Among the stocks taking off on investments from the so-called "Oracle of Omaha" are American Airlines Group Inc (NASDAQ:AAL), Southwest Airlines Co (NYSE:LUV), and United Continental Holdings Inc (NYSE:UAL).

According to an SEC filing, Buffett's Berkshire Hathaway Inc. (NYSE:BRK.A) took a stake of nearly 22 million shares in AAL. On the flip side, Soros Fund Management slashed its stake in the airline by 90.8% -- preferring tech stocks instead. Regardless, the stock is 2.2% higher at $44.34, continuing its rapid ascent since its late-June bottom at $24.85.

While the shares have ascended, so too have bearish options bets. AAL sports a 10-day put/call volume ratio of 0.84 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- ranking in the high 90th percentile of its annual range. An unwinding of these positions could potentially result in tailwinds for the stock. That said, while some put buyers may be speculating on technical turbulence for American Airlines Group Inc, others may be shareholders hedging against the same.

BRK.A also took a stake in LUV, according to a CNBC interview with Buffett. This contrasts with Appaloosa LP, which sold 83.4% of its stake in the airline. At last check, the shares were 1.6% higher at $46.06, lifting their fourth-quarter gains beyond 18%.

While hedge funds are split on Southwest Airlines Co, the brokerage bunch is tilted in a bullish direction. Specifically, nine analysts rate the stock a "strong buy," versus five "holds" and not a single "sell." Not to mention, the stock's consensus 12-month price target of $49.11 sits in heights not explored since last December.

Last but not least, UAL jumped to an annual high of $67.70 earlier, and was last seen up 2.3% at $64.40. This follows news of BRK.A's 4.5-million-share stake in the airline, as well as Soros Fund Management's stake of 28,500 shares. Separately, the company announced low-fare flyers will be restricted to one carry-on bag that must fit under a seat, and deferred delivery on 61 planes to reduce capital expenditures.

Technically, UAL stock has been on a tear since its late-June low at $37.41. In less than five months, the shares have surged over 72%, potentially putting bearish options traders on the ropes. United Continental Holdings Inc sports a 10-day ISE/CBOE/PHLX put/call volume ratio of 1.58, ranking in the 86th percentile of its annual range.

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