Warren Buffett Successor Greg Abel Cut Berkshire's B…

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Image source: The Motley Fool.

Extending Buffett’s selling

The Bank of America sale extends one of Warren Buffett’s last big projects as CEO. Berkshire held just over 1.03 billion s of the bank in the middle of 2024. It has sold in every quarter since, and the position now stands at 483.4 million s — down more than half in about two years. This was the eighth consecutive filing to show a smaller Bank of America stake than the one before it.

The quarter had other cuts, too. Berkshire sold more than half of its Capital One position and reduced its Kroger stake by 22%, or 11 million s. Neither was a continuation of anything. Both stakes had sat unchanged for at least a year before Abel cut them.

I wouldn’t call the selling alarming. Bank of America remains one of Berkshire’s largest holdings, at about $27.5 billion as of June 30. But a stake that has been cut in half over two years, by two different CEOs, says the company would rather own something else.

Bank of America Stock Quote

NYSE: BAC

Bank of America

Today’s Change

(-0.28%) $-0.17

Current Price

$61.69

Key Data Points

Market Cap

$433BMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.

Day’s Range

$61.52 – $62.52

52wk Range

$46.12 – $65.22

Volume

33.4M

Avg Vol

34.2M

Dividend Yield

1.81%

Delta is back

The something else, this quarter, included an airline. And that is the surprising part of the filing.

In the spring of 2020, Buffett sold every airline stock Berkshire owned — positions in Delta, American Airlines, Southwest Airlines, and United Airlines worth north of $4 billion at the time — and called his valuation of the airlines an “understandable mistake.”

“The world has changed for the airlines,” he explained at that year’s annual meeting.

Berkshire owned no airline stock for almost six years afterward.

Delta reentered the portfolio in the first quarter of this year, at 39.8 million s. The second quarter’s purchase brings Berkshire to 57.3 million s, which comes to about 8.8% of the airline (approaching the size of the stake Buffett abandoned). At Delta’s current price, the position is worth about $4.7 billion. And the $1.6 billion Berkshire spent growing it, measured at quarter-end prices, nearly matches the $1.7 billion it pulled out of Bank of America.

A cheap airline, if the growth holds

Delta’s own results give some clues about why. The airline’s June-quarter earnings came to $2.44 per by generally accepted accounting principles (GAAP), on $19.8 billion of operating revenue. Its adjusted earnings of $1.56 per were down 26% from a year earlier — the cost of absorbing the highest quarterly fuel expense in the company’s history.

Management still affirmed full-year guidance calling for adjusted earnings between $6.50 and $7.50 per (about 20% growth at the midpoint) along with free cash flow between $3 billion and $4 billion.

Delta Air Lines Stock Quote

NYSE: DAL

Delta Air Lines

Today’s Change

(1.67%) $1.35

Current Price

$82.41

Key Data Points

Market Cap

$53BMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.

Day’s Range

$82.05 – $83.06

52wk Range

$55.03 – $95.68

Volume

5.1M

Avg Vol

6.9M

Gross Margin

15.96%

Dividend Yield

0.96%

The company also announced a 15% dividend increase, beginning in the September quarter, and kept paying down debt. Adjusted net debt ended June at $13.6 billion.

At about $82 as of this writing, the stock trades at roughly 14 times earnings, and about 12 times the middle of its own guidance range for this year. That looks cheap for a business guiding to 20% earnings growth — if the growth holds. Airlines are cyclical, fuel is volatile, and Buffett’s 2020 exit shows how fast the economics can turn.

As always, the filing shows holdings as of June 30, not when the trades happened, and Berkshire doesn’t explain its reasoning. Even so, this quarter’s pattern is hard to misread, I’d argue. Abel took money out of a bank position Berkshire has been shrinking for two years and put a nearly identical amount into an airline priced at about 12 times this year’s guided earnings, with debt falling and a bigger dividend already being paid. Buffett gave up on this stock. His successor keeps buying it.