Stock market crash: Warren Buffett wouldn’t touch these 3 FTSE 100 stocks, nor would I

Warren Buffett dumped all four of his US airline holdings after the stock market crash and, since then, the news has only got worse for the industry.

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A stock market crash is a fantastic opportunity to buy FTSE 100 companies at reduced prices. You have to exercise caution though. Some embattled sectors will take a long time to recover from the Covid-19 crash, notably the travel sector.

Airlines have been hit hard by the Covid-19 lockdown. Their revenues plunged nearly to zero, as they grounded operations from mid-March to the end of June. At the same time, they still had hefty fixed costs, such as maintaining their fleets.

Billionaire investor Warren Buffett dumped his four holdings in US airlines after the stock market crash, a move that looks increasingly prescient as we face a second wave of quarantines. He said at the time: “We like those airlines. But the world has changed.”

No quick recovery from the stock market crash

Buffett added that he hopes the sector “corrects itself in a reasonably prompt way,” but things seem to be getting worse.

FTSE 100-listed International Consolidated Airlines Group and easyJet are down more than two thirds after the market crash, with the Ryanair Holdings share price down 30%. IAG and easyJet are down 7% this morning, with Ryanair falling nearly 5% after the France 14-day quarantine announcement.

EasyJet still plans to operate its full schedule in the coming days, but many Britons may now be ready to give up on this summer. Only last week, Ryanair said it expected to operate around 60% of its normal August schedule, rising to 70% in September. It won’t be so hopeful now. Airlines also have the cost and effort of compensating those who can’t, or won’t, fly.

Today’s news that easyJet had completed its aircraft sale and leaseback programme did little to improve the mood, even though it raised £608m, at the upper end of forecast guidance. Instead, it was taken as an indication of how bad the things still are, months after the stock market crash.

Buffett isn’t flying

The industry is being turned upside down. Last month, BA forwarded plans to retire its entire 31-strong fleet of 747 ‘jumbo’ jets, after half a century. They were due to be phased out over the next few years, but this still looks symbolic.

FTSE 100 airlines look incredibly cheap, thanks to the stock market crash. IAG trades at just 1.88 times earnings, but don’t be fooled. September’s planned £2.5bn rights issue will dilute existing shareholdings by 50%, inflicting yet more pain.

The industry is in disarray, as is government policy. Yes, I know Buffett’s mantra about “being greedy when others are fearful,” but you can take that principle too far.

As Buffett has also said: “Risk comes from not knowing what you are doing.” The problem with the airline sector is that nobody knows what they’re doing. Foreign travel will remain precarious until we get a Covid-19 vaccine.

No industry goes through this level of chaos without a serious reckoning at the end of it. That’s why I’m looking elsewhere for stock market crash buying opportunities.

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.

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.

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