The $128 Billion Question: What Will Warren Buffett Buy?

Warren Buffett is on the hunt for cheap opportunities. But the 2020 market crash is unprecedented. His stock losses are in the billions, too. The Cargojet stock provides essential services to keep the supply chain moving.

| More on:
question marks written reminders tickets

Image source: Getty Images

Warren Buffett is Wall Street smart when it comes to investing. The billionaire investor buys value stocks during market crashes. Now that the longest-running bull market in history is over, the billion-dollar question is, what companies will the astute investor buy during the coronavirus crisis?

The mantra

Berkshire Hathaway, Buffett’s conglomerate, has US$128 billion spare cash in the war chest. When the investing world is in panic, smart investors will hunt for cheap opportunities. His mantra is to “buy when there’s blood in the streets.” Many industries are in distress and looking for white knights.

Buffett was already expecting a downturn but didn’t expect the magnitude of the market free fall to be this big. The stock market is in a bloody mess due to the COVID-19 pandemic.

The reversal

When the novel coronavirus was not yet declared a pandemic, Warren Buffett remained unfazed. His playbook advises not to be afraid to invest when the market situation is nerve-wracking. However, with the carnage unrelenting, Buffett made an about-face and broke his cardinal rule.

It seems that Buffett lost confidence in the airline industry. His company sold and reduced ownership in Delta Air Lines by 20%. Berkshire also unloaded holdings in Southwest Airlines. He has two airline stocks that are likely to be disposed of soon.

Buffett pushed through with the stock sale, even while the U.S. is preparing a bailout. Airline companies, however, will take a while to recover and will sink deeper, as most are debt-ridden. The problem will compound, as these companies add more leverage.

The indispensable airline

Unlike Air Canada, which has been grounded, CargoJet (TSX:CJT) is still flying. This $1.6 billion integrated freight and logistics company is providing essential air cargo services in Canada.

Amid the pandemic, CargoJet is looking like a winner. Its shares remain up by 0.68% year to date. The business volume is soaring as a result of COVID-19. Demand for its services is rising as supply chains need to move during these critical times.

CargoJet ferries essential e-commerce, health, and other supplies. At the same time, the company is looking after the health and safety of its team. Every team member will receive a temporary daily allowance and additional benefits as support from management.

CargoJet’s fleet of aircraft flying the international and charter routes has been redeployed to serve the needs of its home country. CargoJet needs to maintain the integrated supply chains of Canada-U.S.-Mexico routes.

The company is prepared to add daytime flights in case the capacity in its overnight network exceeds the maximum. There is added pressure in ensuring that the supply chain in hard-to-reach northern communities remains strong.

Financial lifelines

Investors are watching closely to see which industries Warren Buffett will extend help and provide financial lifelines. There are plenty of distressed sectors such as the entertainment (casinos and cinemas) and hotel (lodging). Travel is another, but the sale of his airline stocks shows the appetite in the sector isn’t there anymore.

Even if his cash pile is $128 billion in cash, Buffett wouldn’t want to add more to his conglomerate’s $80 billion portfolio losses as of March 2020.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), CARGOJET INC., Delta Air Lines, and Southwest Airlines and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares).

More on Investing

TIMER SAYING TIME FOR ACTION
Stocks for Beginners

2 High-Growth Stocks to Buy Hand Over Fist This Week

You might not get a better bargain on these two Canadian high-growth stocks if you miss them buying right now.

Read more »

value for money
Tech Stocks

3 Tech Stocks Trading for a Significant Discount

These tech stocks have corrected quite a lot, despite the strength in their business, making them attractive long-term bets.

Read more »

TELECOM TOWERS
Investing

3 Reasons BCE Is 1 of the Best Stocks to Buy Now

In this environment, it's crucial to ensure you own only the very best stocks, which is why BCE is one…

Read more »

Dots over the earth connecting the world
Investing

Global Recession 2022: Hype or Reality?

Whether the current market slump will herald another recession is too soon to tell, but you can still take advantage…

Read more »

ETF chart stocks
Stocks for Beginners

2 Interesting ETFs to Buy for Passive Investing

ETFs are a simple and low-cost way for investors to invest passively for the long haul. Currently, QQQ and XRE…

Read more »

Make a choice, path to success, sign
Investing

1 Defensive Dividend Fund I’d Buy Over Shopify in a Bear Market

BMO Covered Call Utilities ETF (TSX:ZWU) could be one of the best investments you'll make, as the TSX Index risks…

Read more »

edit Safety First illustration
Dividend Stocks

How to Generate Inflation-Proof Passive Income

Inflation-resistant, passive-income stocks like Enbridge (TSX:ENB)(NYSE:ENB) should be on your list.

Read more »

Increasing yield
Dividend Stocks

Dividend Chasers: 3 Stocks With Yields of 8% or More

Three TSX stocks are appetizing for investors whose strategy is to chase after dividend beasts.

Read more »