DAL shows promising signs with rising cash flow and a cheap valuation trading 50% below sector average.

We actually have a stock that I myself owned , roughly in the period before the start of the pandemic , but I no longer keep it in my portfolio. It is Delta Air Lines stock , ticker symbol (DAL), into which Berkshire Hathaway has injected nearly $1 billion, significantly increasing its stake by 44% during the quarter.

This stock surprised me a little too, because it is actually a sector that Buffett, as you may recall, had almost completely abandoned when he was around. In fact, you may recall that in the spring of 2020 during the pandemic crash, Buffett famously and unexpectedly divested all of Berkshire's airline stock holdings .

However , looking back today, we find that Berkshire's new CEO, Greg Abel, has been strongly reversing that decision, as he has returned to investing in it again.

In fact, I believe they now own approximately 10% of the total company in " Delta". Frankly, this move looks rather good on their part, as Delta is finally starting to show promising signs with rising cash flow and a valuation that is still very cheap.

This is the result of a structural change in their business model called "leveling up," where instead of engaging in price wars to sell cheap economy seats , Delta has completely repositioned itself to target affluent travelers with higher profit margins who pay more for premium cabins, loyalty benefits, and co-branded credit cards.

In fact, traditional economy class seats accounted for slightly less than 35% of their total operating revenue last quarter.

Their loyalty program has truly become their main profit driver. For example, their credit card with Amex generated $2.4 billion in the last quarter, a 16% increase over the previous year.

Business travel is also rebounding, with corporate sales jumping at double-digit rates in the aviation, automotive, and banking sectors. Looking ahead, analysts expect both their sales and profits to rise by billions of dollars in the coming years.

The result is that although the stock has recovered significantly after the pandemic, the valuation is still very cheap from an earnings perspective.

The stock is trading at about 50% below the sector average. Right now, it's still far from the quality of a stock like Google, but over time it seems to be regaining some of its former glory, and that's why I'll put it third below Google in our rankings.