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All Contents © 2017The Kiplinger Washington Editors
By Charles Sizemore
| August 2017
It’s that time of year again. Forty-five days after the end of the quarter, large, institutional money managers like Warren Buffett are required to disclose their portfolio holdings to the SEC via form 13F. This gives ordinary investors like you and me a chance to look over the shoulder of some of the greatest minds in the business.
You shouldn’t view the 13F form as a pre-scrubbed buy list, as you don’t necessarily know a manager’s reasons for investment. Plus, you have no way of knowing whether a stock might be part of a larger strategy or pair trade (short positions and futures positions are not disclosed) or whether the manager still actually owns the stock by the time you read about it. (The data is a good 45 days old by the time we get it.)
This is less of an issue for an investor like Warren Buffett, as he tends to trade relatively infrequently and he doesn’t do a lot of fancy hedging or pair trading.
All the same, I recommend you use this list as a starting point for additional research rather than as “Buffett’s buy list.”
With all of that said, let’s take a look at what the Oracle of Omaha is buying these days.
Prices and data are from the original InvestorPlace story published on August 15, 2017. Click on ticker-symbol links in each slide for current prices and more.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Interestingly, Warren Buffett dumped what was left of his position in General Electric (GE), yet he added a new position in GE’s old consumer finance spin-off Synchrony Financial (SYF).
It’s not unlikely that you’ve never heard of Synchrony, though I’d bet that you or someone you know have used one of their credit cards. Synchrony is the largest issuer of store-branded credit cards in the United States. Wal-Mart Stores Inc. (WMT), Amazon.com, Inc. (AMZN) and Lowe’s Companies, Inc. (LOW) are just a handful of the major U.S. retailers that use Synchrony for their store credit cards.
General Electric spun off Synchrony in 2014 as part of its strategy of scaling back its financial operations and refocusing as a true industrial conglomerate. Berkshire Hathaway bought 17 million shares last quarter, accounting for about 2% of shares outstanding.
Synchrony is still a very small chunk of Buffett’s portfolio, accounting for less than 1% of the total, so it’s important not to draw major conclusions here. But, as you’ll see with the next new addition, it does show a pattern of Buffett betting on American brick-and-mortar retail.
This is now somewhat old news, as Buffett disclosed it weeks before the 13F was filed, but Berkshire Hathaway made a large bet on retail last quarter by loading up on shares of retail REIT Store Capital Corp (STOR).
In the second quarter, Buffett bought nearly 19 million shares of STOR, accounting for just shy of 10% of the company.
Now, a couple points should be made here. To start, while Buffett’s stake in STOR is large relative to the size of that company, it’s really just peanuts for Berkshire Hathaway. The entire stake makes up a measly 0.26% of Berkshire’s portfolio. Even if Buffett were to buy the entire company and take it private, it would still be an insignificant piece of Buffett’s portfolio.
All the same, Buffett isn’t frivolous with his shareholders’ money, and his purchase of STOR should give hope to investors that retail isn’t dead. STOR specializes in service-based properties that are mostly Amazon-proof. Think gyms, preschools, movie theaters, etc.
STOR stock pays an attractive dividend of almost 5%, and I expect respectable dividend growth in the years ahead.
Ever the contrarian, Buffett increased his position in beaten-down American auto giant General Motors Company (GM). Buffett added 10 million shares, boosting his stake by 20%. This was his first major addition since the third quarter of 2015.
Berkshire Hathaway now owns about 4% of General Motors, though it is still a very modest piece of Buffett’s portfolio, accounting for just 1.3% of the total.
Perhaps the additional investment from Warren Buffett will cause investors to reconsider GM. I certainly hope so, as I chose GM as my pick in InvestorPlace’s Best Stocks for 2017 contest. I’m currently sitting in seventh place with a 4% year-to-date return.
General Motors is one of the cheapest stocks on the NYSE these days, trading for just six times earnings. Now, auto profits are notoriously volatile, and apparent value in a stock like GM can evaporate with one lousy sales year. But dividends don’t lie, and GM currently yields a very attractive 4.3%.
And given that GM is only paying out 24% of its profits as dividends, I consider that dividend to be rock-solid for the foreseeable future. I also expect that we’ll see at least modest dividend growth over the next few years, even if auto sales end up being a little disappointing.
Buffett’s track record with technology isn’t the best. His much-publicized investment in International Business Machines (IBM) ended up being a bomb, as more nimble cloud competitors like Amazon continued to erode IBM’s core businesses.
Yet Buffett’s timing in Apple Inc. (AAPL) proved to be quite prescient, as the stock is up by about 50% since he started buying it in early 2016. Buffett boosted his position in Apple last quarter by a modest 834,854 shares, increasing its allocation by a little less than 1%. Apple is now Berkshire Hathaway’s third-largest holding, after Kraft Heinz (KHC) and Wells Fargo & Co. (WFC), making up just shy of 12%. Apple recently pushed long-time Buffett holding The Coca-Cola Co. (KO) to fourth place.
You could argue that Apple is less of a “technology company” and more of a high-end consumer products company. This makes it a more typical “Buffett company,” as the Oracle has always had a preference for companies with regular, consistent consumer demand.
Apple fans might not replace their iPhones as quickly as Gillette users replace their Mach 3 razor blade cartridges (Buffett famously made a large investment in Gillette before its purchase by Procter & Gamble based in part on its steady predictability), but Apple’s upgrade cycle is anything if not predictable.
And as the company continues to build out its services businesses, it’s earnings stream will only become smoother.
Synchrony Financial wasn’t the only banking stock worthy of Buffett’s attention last quarter. Berkshire Hathaway massively increased its stake in Bank of New York Mellon Corp (BK) by a whopping 52%.
Buffett originally started buying BK in the first quarter of 2011, and he’s been slowly building the position ever since. Last quarter, he picked up the pace, adding over 11 million shares. Buffett now owns nearly 5% of the bank, though it only accounts for a modest 1.6% of Berkshire’s portfolio.
This is as good a time as any to point out Warren Buffett’s biggest problem these days: He’s a victim of his own success. Due to his incredible track record over the decades, Berkshire Hathaway has grown so large that it’s almost impossible for him to buy a meaningful position in anything but a megacap stock without effectively owning it.
With the single exception of Apple — the largest company in the world by market cap — all of Buffett’s new buys or additions this past quarter are still very small pieces of his portfolio. Even Bank of New York Mellon — a $54 billion company and one of the largest banks in the world — is difficult for Buffett to buy in large quantities without moving the price.
Symbol: LXSMA, LXSMK
Dividend: N/A, N/A
And finally, Buffett made significant new investments in Liberty SiriusXM Group (LSXMA, LSXMK), raising his positions in the Class A voting shares (LSXMA) and the non-voting Class C shares (LSXMK) by 45% and 39%, respectively. Buffett now owns about 9% of the Class C shares outstanding and 4% of the Class A shares outstanding. Together, the two make up only about 1.2% of Berskshire’s total portfolio.
While Buffett’s stake in Liberty SiriusXM Group is unlikely to move the needle much on Berkshire Hathaway’s returns due to its small size, investors might want to pay attention here. John Malone, who runs the Liberty Media empire, is one of the greatest investors of our time … arguably even better than Buffett himself.
Liberty SiriusXM, which operates satellite radio networks, is one of Malone’s numerous tracking stocks that invest in everything from Formula One racing to the Atlanta Braves baseball team.
It’s an eclectic empire … perhaps even as eclectic as Warren’s Buffett’s, which owns everything from candy stores to cowboy boots.
This article is from Charles Sizemore of InvestorPlace. As of this writing, Charles Sizemore was long AAPL, STOR and GM stock.
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