Warren Buffett announced that Berkshire Hathaway sold its entire position in the U.S. airline industry, amid growing concerns about the coronavirus. CFRA Research Equity Analyst Cathy Seifert joins Yahoo Finance’s Seana Smith to discuss.

Video Transcript

SEANA SMITH: Berkshire Hathaway posting a net loss of close to $50 billion in the first three months of the year as the coronavirus weighed on its business. Now among the big headlines that came out of the shareholders' meeting over the weekend was word about this decision to dump his stakes in the airlines. Let's take a listen to what he had to say about this decision.

WARREN BUFFETT: When we sell something-- when we sell something, very often, it's going to be our entire stake. I mean, we don't trim positions or-- that's just not the way we approach it, anymore than if we buy 100% of a business we're going to sell it down to 90% or 80%. If we like a business, we're going to buy as much of it as we can and keep it as long as we can. But when we change our mind--

BECKY QUICK: All right, the next question.

WARREN BUFFETT: I'm sorry.

BECKY QUICK: No, go ahead. When you change your mind?

WARREN BUFFETT: Well, when we change our mind, we don't take half measures or anything short. So I was amazed at how we frankly, now, we sell-- we were selling them at far lower prices than we paid. But I was amazed at the volume. Now airlines always trade in large volume relatively, but-- but we have sold the entire positions.

SEANA SMITH: Now, for more on this, I want to bring in Cathy Seifert, CFRA Research Equity Analyst. And Cathy, thanks so much for joining the show this afternoon. Let's start with Buffett's assessment of the airlines. What did you think of it, and what did you think of his decision to sell his stakes in them?

CATHY SEIFERT: Sure, it's interesting, and it sort of comes against a backdrop of a quarter that, you know, Berkshire is sort of a microcosm for the broader economy. And I think people who were listening to the annual meeting were maybe a little bit surprised or shocked by the decision to sell the airlines. It sounded like he was almost a little uncomfortable with the decision, or it was just-- it was a bit awkward in terms of how he communicated it. It's also a little unorthodox.

I mean, typically, you'd file an 8-K. You don't just sort of drop that little bombshell, you know, at a shareholder-- at an annual meeting, but that's also the way Berkshire Hathaway operates. But I think it's a function of their looking across the different sectors in the economy where there is going to be pretty permanent demand destruction, and I think they've probably concluded that it's in the airline space. But I also think that it needs to be looked at against the backdrop of all of the Berkshire operating companies that are also going to be exposed to an economic downdraft.

SEANA SMITH: Cathy, you mentioned there that Berkshire is a microcosm for the broader economy. So drilling down into some of its businesses and what we know of the impact that coronavirus has had on some of Berkshire's largest businesses, what do you think we can gather from that, just in terms of what we could expect for the broader economy here going forward?

CATHY SEIFERT: Well, and I think some of the tone of-- you know, some of Buffett's tone at the annual meeting probably reflects what they're expecting, which will be a really weak second quarter in all of those sort of the industrial, the energy, the rail, the consumer oriented names. Their core business is in insurance, and unlike some other commercial lines insurers, I'm not overly concerned about their claims. I think they're going to have some workers compensation claims. Geico could actually benefit from a reduced level of driving activity.

Competitively though, I don't think Geico is in as strong a position as Progressive and Allstate, in terms of usage based insurance, which I think is going to be a fallout, or you know, as a result of all of this, I think that's going to gain in popularity. But I think if you look at some of their industrial, their energy spaces, and their consumer spaces, I think they're heading into a quarter that could be very, very tough, and will likely recover as well. But the tone that I got from listening to his comments at the meeting was one of concern.

SEANA SMITH: I mean, talking about concern, there was a lot of conversation, I think, after the meeting just about some of Buffett's comments, about the broader economy, what we could expect in the short term. But there was also a lot of talk about why he hasn't made any big investments recently, and whether or not Berkshire should have been taking a more aggressive action over the last couple of months. As someone who closely follows Berkshire Hathaway, what do you think about that?

CATHY SEIFERT: Well, I mean, I think you have to look at it against the backdrop of a couple of things. Number one, they have dry powder, but so do a lot of private equity firms. And in this day and age, they're competing with private equity for acquisition targets. So the competition for sort of trophy names, if you will, is a lot more intense than it was 10 to 15 years ago.

The other thing is, Berkshire's recent acquisitions haven't really panned out all that well. I put in my note this morning, I just sort of highlighted to investors that they're carrying their Kraft Heinz investment on their books at over $13 billion, and the fair market value at the end of March for Heinz was $8 billion. Now Kraft Heinz is a food, is a staples company, and they'll probably weather the economy a little better than more cyclical names, but you know, look at the OXY deal.

I mean, they struck a deal, and people were cheering. The strike price of those warrants is $62.50. OXY is trading below $20 a share. So you know, they made a couple of really large deals that are really kind of out of the money, and I think that has also maybe curbed a little of their enthusiasm for another big deal.

And then the final point I would make is that, you know, they still are an insurance company. We're heading into hurricane season. It's expected to be more active than usual. I think they will also keep dry powder for that-- for that reason, which is obviously a prudent thing to do.

SEANA SMITH: Yeah, that's an interesting take there. Cathy Seifert, CFRA Research Equity Analyst. Thanks so much for taking the time.

CATHY SEIFERT: Take care.