EasyJet, IAG, and Ryanair are dirt cheap. What would Warren Buffett do?

Billionaire investor Warren Buffett loves a bargain, but would he touch these three airlines today?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

If you are want to take maximum advantage of the stock market crash by investing in cheap FTSE 100 shares, the airlines will probably have caught your eye.

The share prices of EasyJet (LSE: EZJ), International Consolidated Airlines Group (LSE: IAG), and Ryanair Holdings (LSE: RYA) have all been clattered by the crisis, as air traffic comes to a standstill. If you find this opportunity irresistible, you should heed Warren Buffett first.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

The travel industry was having a tough time even before Covid-19, with Air Berlin, Alitalia, FLYBMI, Monarch and WOW collapsing, while Flybe may be taken over by the UK government.

Stock market crash agony

This morning, easyJet bowed to the inevitable, grounding its entire fleet, and furloughing its cabin crew for two months. This will significantly reduce its costs, while management also confirmed that it has no debt refinancing due until 2022.

The easyJet share price is down more than 6% this morning, and has now lost almost two-thirds of its value since mid-January, collapsing to 556p at time of writing.

The IAG share price has taken similar punishment, falling almost two-thirds to 200p during the stock market crash, while the Ryanair share price has roughly halved to €8.98. These days that counts as a good result.

What would Warren Buffett say?

Nobody can say with any certainty when these companies can hit the runway again, and they won’t generate revenues until they do. Presumably others will follow easyJet’s lead, which should at least give management an idea of forward costs.

Investors don’t know those costs, which means they are flying blind. Nobody knows how long the lockdown will last, or how long airlines can survive on their existing liquidity. Nor do we know how quickly the travel sector will recover after the crisis. There is clearly massive pent-up demand, but many customers will have more pressing financial priorities.

This is a bad place to start investing from. As Warren Buffett has pointed: “Risk comes from not knowing what you’re doing.”

I would say that applies to the airline sector today.

Buffett also said: “The important thing is to know what you know and know what you don’t know.”

Here’s something I do know about buying easyJet, IAG, or Ryanair shares today: it’s a wild, desperate punt, and I don’t want to take that sort of risk right now.

Don’t bank on the bailout

Judging by the noises surrounding Flybe, the government may step in to bail them out. We don’t know on what terms, though, or how this will affect their recovery. 

Analysts at Citi have calculated that only Ryanair and Wizz do not need imminent capital. The other airlines do, and may face punitive terms to secure emergency funds. Investors could pay the price with diluted equity and restricted dividends. Royal Bank of Scotland hasn’t exactly flown under part-state ownership.

There is one thing I do know right now. I’m looking for opportunities elsewhere.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Social media and digital online concept, woman using smartphone
Investing Articles

Will Lloyds shares recover in 2022?

Lloyds shares have struggled this year and the looming recession won't help. But I'd still buy them today.

Read more »

Two hands holding champagne glasses toasting each other with Paris in the background
Investing Articles

Can the stock market make me rich even now?

Here are three ways I'm coping with the stock market's recent bout of weakness and aiming to build wealth in…

Read more »

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »

Tabletop model of a bear sat on desk in front of monitors showing stock charts
Investing Articles

Why a bear market is an investor’s best friend

A bear market can certainly be scary. But any investor tempted to sell might benefit by looking at Warren Buffett's…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price could be stuck below £1 for a while. Should I buy?

The Rolls-Royce share price has been trading at penny stock levels since April. Could the stock be a bargain at…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m aiming to make £45,000 in passive income with UK shares and never work again!

Investing regularly in UK shares can generate a substantial passive income over the long run. Zaven Boyrazian demonstrates how.

Read more »