Investing

Retail investors bought airline stocks even as travel slowed to a trickle, TD Ameritrade says

Key Points
  • Warren Buffett's Berkshire Hathaway has sold all its airline stocks, but retail investors at TD Ameritrade were buying them in April.  
  • "I think people are buying these and saying, 'OK, this has to be a longer-time-frame investment," chief market strategist JJ Kinahan said Monday on CNBC's "Closing Bell." 
  • "I don't think you're buying these thinking that that business is coming back immediately," he added. 
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JJ Kinahan on buying travel and leisure in the age of coronavirus

Warren Buffett's Berkshire Hathaway has sold all its airline stocks, but retail investors at TD Ameritrade were buying them in April, according to JJ Kinahan, the firm's chief market strategist

"Nobody in their right mind normally fades Mr. Buffett, but with that being said, I think people are buying these and saying, 'OK, this has to be a longer-time-frame investment," Kinahan said Monday on CNBC's "Closing Bell." 

"I don't think you're buying these thinking that that business is coming back immediately," he added. 

Kinahan said AmericanDelta, and United were net buys last month among the brokerage firm's Main Street clients, even as the coronavirus pandemic devastated global travel. 

The legendary investor Buffett announced Saturday that Berkshire had exited its positions in the four largest U.S. carriers: American, Delta, United and Southwest.

"The world has changed for the airlines. And I don't know how it's changed and I hope it corrects itself in a reasonably prompt way," Buffett said Saturday during the conglomerate's annual shareholders meeting.

Shares of those companies all fell more than 5% on Monday, with American's 7.7% decline being the largest, as investors digested the news from the "Oracle of Omaha."  

Planes belonging to Delta Air Lines sit idle at Kansas City International Airport on April 03, 2020 in Kansas City, Missouri.
Jamie Squire | Getty Images

Airlines, and the travel sector writ large, have been hit particularly hard by the Covid-19 outbreak, which has infected more than 3.5 million across the world, according to Johns Hopkins University

Shares of United, Delta and American are down more than 60% this year while Southwest is down 49% in 2020. 

April was a strong month for U.S. stock indexes overall as the S&P 500 rose 12.7%, its third-biggest monthly gain since World War II. 

Boeing and Carnival Corp. were two other popular stocks bought in April, according to TD Ameritrade data

But Kinahan said TD Ameritrade's retail clients actually decreased their exposure to the market last month compared to March activity.

"In March, it seemed as though they were willing take a few more chances, if you will, and buy stocks with less of a correlation to the overall market," he explained.

But in April, outside of airline and cruise companies, TD Ameritrade clients "pretty much stayed ... to those highly correlated stocks," he said. He also noted that clients bought Dow-components Exxon Mobil and Disney, as well as AT&T.  

"Our clients are definitely putting money to work and have come out a bit [from] more of the pure, fixed-income trade into buying some equities," he said. But given the market's overall rally in April, Kinahan said he thought "we would see more diversity in the stocks that were bought."