Transportation

Warren Buffett Was Wrong: 3 Airline Stocks to Buy as Americans Fly Again

Warren Buffett is one of the greatest investors in the history of the stock market. There is absolutely no doubting that claim. However, over the bull market that ran from 2009 until earlier this year, the Oracle of Omaha’s flagship investment vehicle Berkshire Hathaway has underperformed the S&P 500 on a total return basis, which includes reinvested dividends.

Buffett stunned the investing community at Berkshire’s May 2 annual meeting, when he said his Omaha, Nebraska-based conglomerate had in April sold its roughly $6 billion of stock in American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.

This is not the same Buffett that scooped up bank shares in 2008 and 2009 as they plunged to the lowest levels in years. For a man that usually maintains that betting against the United States is a lousy trade, he sure strayed from his long-time playbook.

We screened the BofA Securities airline stock universe looking for Buy-rated companies that make sense for investors now. We found three that are solid ideas for long-term growth investors.

Alaska Air

This company has a big west coast exposure and continues to rank high on Wall Street. Alaska Air Group Inc. (NYSE: ALK) is the parent company of Alaska Airlines. The company serves more than 100 cities through an expansive network in Alaska, the Lower 48 states, Hawaii, Canada and Mexico. Despite recent challenges by other carriers for superiority in the Northwest, the company has strong customer loyalty, which has contributed to outstanding earnings and revenue growth.

Alaska Air focuses on point-to-point traffic in the Pacific Northwest. However, about 20% of its traffic connects over its hubs in Anchorage, Seattle and, to a lesser extent, Portland. By developing transcontinental markets, and more recently Hawaii, the company has transformed from a largely north-south directional carrier to one with a more balanced network.

The BofA Securities team just upgraded the shares to a Buy rating and noted this in a report:

Alaska Air is an exceptionally well-run airline, in our view, with strong free cash flow generation and an improving balance sheet. The company is also returning to its low cost roots with solid cost controls, which should help the company in a recovery. Further, we believe Alaska Air is well positioned for a recovery in airline demand as we expect domestic travel and leisure travel to recover first.

The BofA Securities price target for the shares jumped to $53 from $36. That compares with a much lower Wall Street consensus target price of $40.38. Alaska Air Group stock was seen on Monday trading at $50.24 a share, after a stunning 17.6% rise on the day.