Warren Buffett went bargain hunting with both fists in the second quarter, scooping up billions of dollars worth of equities amid the broader market's steep selloff.
Berkshire Hathaway (BRK.B, $292.07) was a net buyer of stocks to the tune of $3.8 billion for the three months ended June 30. For good measure, Buffett, the conglomerate's chairman and CEO, also bought back $1 billion worth of Berkshire Hathaway's own stock.
The S&P 500 lost more than 16% of its value during the second quarter. Suffice to say that Buffett was once again greedy when others were fearful.
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Although Buffett slowed his pace of purchases of shares in both other companies and his own compared with Q1, the buying stands in stark contrast to Q2 2021, when Berkshire was a net seller of equities.
We won't know the full details of which stocks Buffett bought and sold during Q2 until Berkshire releases its Form 13-F on Aug. 15. But we do know that a sizable portion of that $3.8 billion in net purchases went to Occidental Petroleum (OXY, $59.01).
In the latter part of June, Berkshire bought an additional 9.6 million shares – worth about $530 million – in the integrated oil and gas firm. The holding company added to its stake in July, buying another 4.3 million OXY shares worth $250 million.
Including warrants, Berkshire owns nearly a third of OXY's shares outstanding. Naturally, the conglomerate's large and growing position in OXY is fueling speculation that Buffett could be eyeing a buyout of Occidental Petroleum.
Remarkably, as enthusiastically as Buffett went shopping for stocks in Q2, all that spending barely made a dent in Berkshire's cash pile. The company ended the quarter with $105.4 billion in cash, equivalents and short-term investments. That's only $847 million less than what Berkshire held in its coffers at the end of Q1.
Second-quarter insurance-investment income of $1.9 billion helped fatten Berkshire's wallet even as it continued to splurge on stocks.
Berkshire Q2 Earnings Show Big Investing Loss
Although Buffett may have delighted in the market's Q2 swoon for serving up quality stocks on sale, the general drawdown in equities dinged Berkshire's bottom line in a big way.
The company was forced to record an investing loss of $53 billion on its portfolio of securities. It's a paper loss only, and something that no investor in Berkshire Hathaway should lose sleep over.
BRK.B's equity portfolio is highly concentrated, after all. Its top five holdings – Apple (AAPL), Bank of America (BAC), American Express (AXP), Chevron (CVX) and Coca-Cola (KO) – account for about 75% of the entire portfolio value.
AAPL, which alone accounts for more than 40% of Berkshire's portfolio, shed more than a fifth of its price value in Q2. BAC and AXP each fell by about a quarter. Chevron, for its part, lost 11% during the second quarter. Indeed, of BRK.B's top-five holdings, only KO (+1.5%) delivered a Q2 gain.
But these are long-term holdings, at the whim of the accounting rules. Buffett urged investors not to overreact to what is essentially just some short-term bookkeeping.
"The amount of investment gains/losses in any given quarter is usually meaningless and delivers figures for net earnings per share that can be extremely misleading to investors who have little or no knowledge of accounting rules," Buffett said in a statement.
Berkshire Operating Income Tops Estimates in Q2
What should be of importance to holders of Berkshire's Class B shares is that the company's operating income came in at $4.21 per share. That easily topped analysts' average estimate of $3.34 per share, according to S&P Global Market Intelligence.
"The outperformance came from higher dividend and interest income, and stronger results at BH Reinsurance, BNSF and the manufacturing division, partially offset by worse results in Berkshire Energy and Geico," writes UBS Global Research analyst Brian Meredith, who rates the stock at Buy.
Meredith's bullishness is the mainstream view on the Street. Only four analysts cover BRK.B, per S&P Global Market Intelligence, but they give the stock a consensus recommendation of Buy.
Little wonder there. Not only has BRK.B been a strong defensive holding during the current bear market – shares were off 2.3% for the year-to-date ended Aug. 5 to beat the S&P 500 by nearly 11 percentage points – but it remains compellingly priced.
"BRK's shares are currently trading at around a 26% discount to its intrinsic value, which is more than the 22% average discount since BRK resumed share repurchases in the third quarter of 2018," Meredith writes.
If nothing else, the company's second-quarter results prove once again that when it comes to the best stocks to buy for a bear market, Berkshire Hathaway remains tough to beat.
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