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Why Warren Buffet Changed His Mind on Airline Stocks

Recently, Warren Buffet decided announced that he's been buying up airline stocks, contrary to his own advice in the past.  I have yet to see his reasoning behind his decision to invest about $1 Billion in American Airlines alone, along with a few hundred million dollars each in United Airlines and Delta Airlines.  I can see two possible reasons Buffet decided to make such a large investment in these airlines:

1) He thinks airline shares are undervalued
2) Anything else

Hint: The answer is likely #1

Buffet has confirmed what we've been saying at Way Undervalued for a couple of years now: Airlines are way undervalued.  AAL stock is up about 20% since I last recommended it.  Buffet's share purchases have fueled some of the recent growth in share prices.

Also interesting is between the 4 airlines Buffet purchased shares in, he purchased 3 times more AAL than any of the other airlines, further validating my own feelings about AAL.  I've owned shares since it traded under the AAMRQ ticker, before the American/USAir merger took place.

Airplane

How much growth is left in AAL at it's current price of $46/share?  Based on the P/E ratio the stock should be trading, I expect it to double in value somewhere in the $90 to $100 range.  I've waited 2+ years for the stock price to move up past it's previous highs in the mid $50s.  Maybe Buffet jumping in the water will finally make that happen.

United Airlines would be my next airline choice, although I don't own any of those shares.  Currently trading around $68/share, I expect UAL to eventually end up somewhere in the $120 to $130 range.

Hopefully Buffet is right.  Only time will tell.