As Buffett Considers Owning an Entire Airline, Look to This ETF

This article was originally published on

Airline stocks and sector-related exchange traded funds received a big endorsement from Warren Buffett as the investment guru revealed his optimism over the airline industry's outlook.

"I wouldn't rule out owning an entire airline," the billionaire investor and Berkshire Hathaway CEO told CNBC.

In his annual letter, long-time value investor Buffett remarked that his company is searching for deals but is struggling to find one for a good price. However, there might be value in airline stocks as these companies are trading at lower multiples than the broader S&P 500.

For instance, the U.S. Global Jets ETF (NYSEArca: JETS), the only dedicated airline industry ETF, shows a 10.6 price-to-earnings ratio and a 2.34 price-to-book, compared to the S&P 500's 19.8 P/E and 3.1 P/B.

Buffett previously surprised investors in 2016 after Berkshire took on positions in the largest U.S. airliners, including American Airlines, Delta Air Lines, United Continental Holdings and Southwest Airlines, which were among Berkshire's recently disclosed investments.

The four Berkshire Hathaway airline positions are also the top four component holdings of the JETS ETF.

"It’s clear Buffett wants to put some of his cash to work, and it wouldn’t be surprising if he bought any of those major names. He certainly could afford any of them," Frank Holmes, CEO and CIO of U.S. Global Investors, said in a note.

While the airline industry has been grounded for many years, the industry recently enjoyed a stretch of profitability, fueled by the recent decline in oil prices and record number of travelers in a stronger economic environment.

Nevertheless, Buffett warned that this market segment is still open to risks, especially through internecine strife among competitors.

"The industry was suicidally competitive for decades," Buffett said. Now "it could turn into fierce competitive battles that wipe out earnings or it can be a business that's more decent but still subject to lots of competition. It's really hard to know for sure how it will develop. It's not risk-free."

For more information on the airline ETF, visit our Airline category.

More from ETF Trends Ratings Agency Downgrades Brazil Commodities Could Spark Emerging Markets Bond ETFs Looming Election Could Challenge Italy ETFs Investors Go With The Greece ETF Japan ETFs Lure Investors

Read more at >