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All Contents © 2020The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| November 15, 2019
Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B), oversaw a relatively quiet third quarter of buying and selling stocks. Berkshire made a new investment in the retail sector, pumped up its exposure to the oil patch and pared off a sliver of Apple (AAPL), among other moves.
We know what the greatest long-term investor of all time has been doing because the U.S. Securities and Exchange Commission requires all investment managers with more than $100 million in assets to file a Form 13F quarterly to disclose any changes in share ownership. These filings add an important level of transparency to the stock market and give Buffett-ologists a chance to get a bead on what he's thinking.
When Buffett starts a new stake in some company, or adds to an existing one, investors take that as a vote of confidence. On the other hand, if he pares his holdings in a stock, it can spark investors to rethink their own investments.
Here's the scorecard for what Berkshire Hathaway bought and sold during the three months ended Sept. 30, based on the most recent 13F that the company filed on Nov. 14. (And remember: Not all "Warren Buffett stocks" are actually his picks. Some smaller positions are believed to be handled by lieutenants Ted Weschler and Todd Combs.)
Current price data is as of Nov. 14. Holdings data is as of Sept. 30. Sources: Berkshire Hathaway’s SEC Form 13F filed Nov. 14, 2019, for the reporting period ended Sept. 30, 2019; and WhaleWisdom.
Action: New position
Shares held: 7,467,508
Value of Stake: $332,079,000
Warren Buffett hasn't shown much interest in energy stocks over the past few years. It probably had something to do with the great oil price crash of 2014. Crude prices have stabilized in recent years, however, and perhaps that's what lured the Oracle of Omaha back into the sector.
In late April 2019, Buffett invested $10 billion in integrated oil-and-gas play Occidental Petroleum (OXY, $37.76) to help finance its bid for exploration-and-production firm Anadarko Petroleum. In return, Berkshire received 100,000 preferred shares yielding 8%.
Occidental ended up offering $38 billion to scoop up Anadarko, beating a competing offer from Chevron (CVX) but making one of Buffett's fellow octogenarian billionaires quite upset. Carl Icahn, who owns a 5% stake in OXY, called the deal "hugely overpriced."
Icahn has been working to scuttle the deal, but that will be more difficult now that Buffett has further backed it by sinking more than $330 million into OXY common stock. The stake is tiny compared to other Buffett stocks, however, at just 0.15% of Berkshire Hathaway's total equity portfolio.
Shares held: 1,207,844
Value of Stake: $206,336,000
RH (RH, $175.22), formerly known as Restoration Hardware, operates more than 100 retail and outlet stores across the U.S. and Canada.
RH isn't Berkshire Hathaway's first foray into home furnishings retail. Nebraska Furniture Mart has been a Berkshire Hathaway subsidiary since 1983.
But why Buffett would show further interest in the sector is anyone's guess. He typically doesn't comment on the company's holdings. It's also quite possible that given the tiny stake – RH represents just 0.1% of BRK.B's equity holdings – this was a move made by Buffett lieutenant Ted Weschler or Todd Combs.
The stake does fit broadly with Buffett's worldview, however. A bet on housing and housing-related industries is a bet on America, and Buffett is always bullish on the USA as a long-term holding. RH is growing at a nice clip, too. Management is accelerating its expansion plans to five to seven new stores a year, up from three to five new galleries annually.
Action: Reduced stake
Shares held: 248,838,679 (-0.3% from Q2)
Value of Stake: $55,732,400,000
Warren Buffett did reduce Berkshire Hathaway's enormous stake in Apple (AAPL, $262.64) over the third quarter, but by an immaterial amount.
Apple's shares have been going gangbusters, jumping nearly 70% year-to-date. That includes a 14% performance in Q3, which is why even though Berkshire shed more than 750,000 shares, AAPL grew to account for 25.9% of the total value of BRK.B's holdings, up from 23.7% three months ago. Apple remains Berkshire's single largest equity position by far.
And with 248,838,679 shares, or 5.6% of stock outstanding, BRK.B remains the iPhone maker's third-largest shareholder after Vanguard and BlackRock (BLK).
Warren Buffett has never loved technology stocks much, but he can't get enough of Apple, which he first bought in early 2016. Refreshingly, Buffett has discussed his ardor for Apple on numerous occasions. He has repeatedly lauded the power of Apple's brand as well as its ecosystem of products (such as the iPhone and iPad) and services (such as Apple Pay and iTunes).
Shares held: 136,275,729 (-1% from Q2)
Value of Stake: $852,404,000
Berkshire Hathaway reduced its stake in Sirius XM (SIRI, $6.98) over the past three months. However, the satellite radio company – which reaches more than 100 million listeners via its core satellite radio business and Pandora, which it acquired in 2018 – never has been a particularly important position for the holding company.
Berkshire sold 1,640,000 shares during the third quarter. However, thanks to a 12% run-up in price over that time, SIRI still grew as a percentage of the company's portfolio. Sirius XM accounts for 0.4% of the value of Buffett's holdings, up from 0.37% three months ago. It's a piddling position as far as BRK.B is concerned, though the holding company is Sirius' second-largest shareholder with a 3.1% stake in the firm.
Sirius is just one of several Buffett stocks connected to legendary pay-TV mogul John Malone. Malone is chairman of Liberty Media, which is the top Sirius stakeholder at 71.5% of the company.
As Kiplinger has noted, it's possible that every Berkshire investment in companies somehow tied to Malone's truly Byzantine corporate structure could very well be the responsibility of one of Buffett's portfolio managers. Liberty Media was a large position held by Ted Weschler's Peninsula Capital in his pre-Berkshire days.
Shares held: 5,182,637 (-6% from Q2)
Value of Stake: $530,702,000
Once upon a time, Warren Buffett was strongly bullish on Phillips 66 (PSX, $118.54). He first bought shares in 2012, making the oil-and-gas company a rare Berkshire bet on the energy sector.
That seems like ancient history now.
Buffett has been unloading Phillips in giant chunks for almost two years now. It started with a 35 million-share reduction during the first quarter of 2018 – though there was nothing telling in that. Berkshire made the sale for regulatory reasons, and it sold those shares back to none other than PSX.
"Phillips 66 is a great company with a diversified downstream portfolio and a strong management team," Buffett said at the time. "This transaction was solely motivated by our desire to eliminate the regulatory requirements that come with ownership levels above 10%."
However, Buffett continued to dump PSX shares ever since, including a 6% paring during the most recent quarter. The holding, worth about $530 million, remained steady at 0.25% of BRK.B's total portfolio value.
Berkshire, which Phillips 66's top shareholder as recently as Q2 2018, now is outside the top 10 shareholders at less than 1.2% of PSX shares outstanding. Buffett has been characteristically mum on his reasons for the subsequent sales.
Shares held: 378,369,018 (-7% from Q2)
Value of Stake: $19,084,935,000
Wells Fargo (WFC, $53.49) remains Warren Buffett's favorite stock, even if he did pare Berkshire Hathaway's position by 7% during the third quarter. Berkshire still owns 8.9% of WFC, which is getting close to the 10% threshold in which regulatory requirements kick in – and which Buffett wishes to avoid.
Buffett has stood by WFC throughout its rolling series of scandals dating back to 2016, including opening millions of phony accounts, modifying mortgages without authorization and charging customers for auto insurance they did not need.
However, with Wells Fargo shares rising almost 23% in the past three months, perhaps Buffett's blessing is well-placed. Berkshire remains the largest shareholder in WFC, and Wells remains a top Buffett holding. The nation's fourth-largest bank by assets is also the fourth-largest position in Berkshire's equity portfolio, accounting for 9.3% of total holdings value.
Action: Exited stake
Shares held: 0 (-100% from Q2)
Value of Stake: $0
Berkshire Hathaway sold all its 5,171,890 shares in Red Hat rather than become a shareholder of International Business Machines (IBM) again.
Berkshire first took a stake in Red Hat during the fourth quarter of 2018. It was most likely made by one of Buffett's lieutenants. Buffett himself tends to shy away from technology stocks such as Red Hat, which is an open-source software company. The comparatively small stake of less than $1 billion was another clue.
No sooner did BRK.B get involved with Red Hat than it agreed to be acquired by IBM for $34 billion. The deal – announced in October 2018 and intended to boost Big Blue's cloud-based services business – closed in early July.
Ironically, IBM was one of Warren Buffett's most high-profile bad bets. The usually tech-shy investor surprised Wall Street when Berkshire Hathaway revealed in 2011 that it scooped up nearly $11 billion worth of Big Blue. Buffett added to the stake in the ensuing years before souring on IBM in 2017. Berkshire eventually sold its entire position.
BRK.B did not disclose a position in IBM for the most recent quarter. Apparently it took its proceeds for the acquisition and scrammed.