6 Reasons Why Berkshire Hathaway And Buffett May Be Buying Into Boeing

Jan. 07, 2020 6:56 PM ETThe Boeing Company (BA), BRK.A, BRK.B154 Comments


  • There is a rumor that Berkshire Hathaway is building a stake in Boeing.
  • There are six reasons that make me take this rumor seriously.
  • Potentially, this is the first sign of a Berkshire buyout.
  • Looking for more stock ideas like this one? Get them exclusively at Special Situation Report. Get started today »

On the Seeking Alpha wire, I noticed a news piece about Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) building a stake in Boeing (BA). I think there is actually a fairly high likelihood this is the case for these six reasons:

1. Wide moat company in trouble

Warren Buffett likes to buy after a company with a wide moat gets itself into a scandal. The most famous example of that is when he started buying American Express (AXP) after the salad oil scandal.

2. Within the circle of competence

Buffett buys things he knows. Berkshire bought Precision Castparts in January 2016 for $32.3 billion. Precision is a supplier to Boeing and Airbus (OTCPK:EADSF) and other aircraft manufacturers and suppliers. Berkshire also owns major stakes in Delta Airlines (DAL), Southwest Airlines (LUV), United Airlines (UAL), and American Airlines Group (AAL).

At the time of Precision acquisition, Buffett was willing to pay 17.5 times projected 12-month profit. With the current EPS estimates for Boeing, it is trading at around 16x forward earnings. That leaves a little bit of room for a premium even. It would not be surprising if Buffett likes the price.

I was not surprised at all Buffett rebuffed Tiffany (TIF) because he often harps on his retail mistakes, and retail is currently extremely treacherous. There is very little chance of him wading in there, given his historical experiences. Few successes and quite a few failures.

3. Buffett wants to deploy capital (at attractive relative valuations)

Buffett said in his annual letter to shareholders

"In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects,"

With Boeing down quite a bit from early 19 highs, this seems

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This article was written by

Bram de Haas profile picture
Special-Situation And Event-Driven Ideas To Improve Risk Adjusted Returns
15 years of investing and I feel like a rookie in his first year at the academy. My roots are in the value school but over time I've learned to respect different approaches. I'm interested in what quants do, options traders do, and even what WallStreetBets is doing (keep your friends close and...)

I gravitate towards special-situations. That means situations around companies or the market where the price can move in a certain direction based on a specific event or ongoing event. This eclectic and creative style of investing seems to suit my personality and interests most closely.

Since 2020 I host a podcast/videocast where I discuss (special-situation/event-driven) market events and investment ideas with top analysts, portfolio managers, hedge fund managers, experts, and other investment professionals. I highly recommend it (pick episodes around topics that interest you) for the amazing guests that come on with regularity.

I've been writing for Seeking Alpha since 2013 after playing p0ker professionally. In 2018 I founded Starshot Capital B.V. A Dutch AIF manager. Follow me on Twitter @Bramdehaas or email me Dehaas.Bram at Gmail

Disclosure: I am/we are long BA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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