When you put a large, established business up for sale, immersion buyers naturally get curious. If the COVID-19 pandemic is short-lived, the stock of CA should rebound quickly. At the time of writing, the stock was trading at around three times the final profit, an incredibly cheap valuation.
If that sounds like the kind of value game Warren Buffett would make, that’s fine. In fact, the Oracle made similar parts himself. In February, an SEC file revealed that Berkshire hathaway increased its stake in Delta Airlines (NYSE: DAL) after the fall of its stock.
It was a classic piece from Buffett: buy a battered business at a low price. It also raises the question of whether Air Canada could be a game of similar value. As Canada’s largest airline, it has a chance to get out of the crisis and come back bigger than ever.
But would Buffett buy it himself?
Buffett’s Delta coin
To assess whether Buffett would buy air conditioning, we need to look at his most similar investment: Delta Airlines.
Buffett has long held DAL shares and added $ 45.3 million to his position in February. Buffett has publicly stated that the consolidation trend for airlines is good for investors.
The less competition between airlines, the less they will have to compete on price, which means more money in the pockets of investors.
As to why he likes Delta in particular, there are several possible reasons. First, Delta has little exposure to the 737 Max crisis, which causes problems for other airlines.
Second, it bought out its competition, notably through its 2008 purchase by Northwest Airlines. Finally, it is extremely cheap, trading at three times its profits – and was already cheap before the stock market crash.
Why Air Canada Can Be Similar
Air Canada has certain features that could make it similar to Delta. In particular, it benefited from the consolidation trend of airlines, acquiring its biggest competitor in 2000.
The company’s only major competitor in Canada is WestJet, which gives it a solid market position – something Buffett would certainly endorse. In addition, AC is ridiculously cheap, with a P / E ratio of only 2.67 at the time of writing. Again, something Buffett would like.
On the other hand, Air Canada has many 737 Max aircraft in its fleet – an important responsibility it faced long before the COVID-19 crisis. It is a quagmire that Delta has managed to avoid, which gives it an advantage over AC.
Aside from that one thing, however, Air Canada has many of the same things as Delta. So if you like Buffett’s Delta game and want a TSX-rated equivalent, AC may be one to consider.
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Crazy contributor Andrew Button has no position in any of the titles mentioned. The Motley Fool owns shares and recommends Berkshire Hathaway (B shares) and Delta Air Lines and recommends the following options: long January 2021 $ 200 on Berkshire Hathaway (B shares), short January 2021 $ 200 on Berkshire Hathaway (B shares), and runs June 2020 $ 205 calls on Berkshire Hathaway (B shares).