Berkshire Hathaway Made Some Major Portfolio Moves, but This One Was a Head-Scratcher. How Should Investors Take It?

When Berkshire Hathaway's (NYSE: BRKA)(NYSE: BRKB) 13F filing was released in May, it provided insight into the company's direction following the retirement of its longtime leader, Warren Buffett, at the end of last year.

When Berkshire's stock positions were released, a handful of moves came as a surprise. The company completely exited positions in Visa, Mastercard, UnitedHealth Group, and Amazon, but the real head-scratcher was the stocks Berkshire chose to add.

Berkshire added over 39.8 million shares of Delta Air Lines (NYSE: DAL), worth over $3.28 billion (about 1% of its stock portfolio), a move that surprised many. Let's take a look at why.

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Why was Berkshire adding Delta a head-scratcher?

Delta's stock has been on a good run for the past 12 months, up 70% (as of market open on June 1), so Berkshire's move isn't a head-scratcher because of recent performance. It is, however, confusing given Berkshire's past dabblings in the airline industry.

Berkshire first purchased stock in US Airways (which later merged with American Airlines) in 1989, and that turned out to be a mistake. Here's how Buffett described the airline industry in Berkshire's 2007 annual letter:

Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.

Needless to say, that's not high praise, yet Berkshire made additional purchases in airline stocks (including Delta) in 2016. Then came the COVID-19 pandemic in 2020, which essentially brought the industry to a halt. Berkshire ended up selling its airline stakes at a major loss.

Will this time be different?

In defense of Berkshire and the airline industry, nobody could've predicted a once-in-a-lifetime global pandemic. And after the failed first stint with airline stocks, it's reasonable to see why Buffett panicked and simply wanted no part of it. That said, Buffett is no longer CEO and calling the shots; Greg Abel is.

Berkshire's investment in Delta shows that new management is beginning to implement its own strategies and philosophies. Investing in Delta is betting on the airline industry being stable post-COVID-19 and on Delta thriving as the premium option (with pricing power).

Depending on when the shares were purchased, Berkshire invested in Delta while it traded below 10 times its earnings, much cheaper than both American Airlines and United Airlines. Only time will tell how the investment works out, but that's a good value that likely gives Delta more upside than downside in Berkshire's eyes.

Stefon Walters has positions in Visa. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, Mastercard, and Visa. The Motley Fool recommends Delta Air Lines and UnitedHealth Group. The Motley Fool has a disclosure policy.