Buffett’s Latest Trades: Buys 11 Stocks, Sells 7 Stocks

Warren Buffett’s latest trades were just revealed via Berkshire Hathaway Inc.’s (BRK.B) 13F filing, which is a filing that gives us information on all of the transactions that took place over the third quarter of 2016 — the quarter ending September 30 — in the stock portfolio managed by the legendary investor.

This filing can provide some valuable insight into where Warren Buffett thinks the best investments might lie.

Now, it might not make sense to piggyback on his trades and simply buy and/or sell whatever he has because these filings are generally released 45 days after the most recent quarter ended, but it would appear to be an intelligent move to investigate exactly where the most successful investor of all time is (and isn’t) putting his capital to work.

It’s also important to note that Buffett allows two other executives – Todd Combs and Ted Weschler – to authorize smaller transactions, so it’s difficult sometimes to decipher who bought and/or sold what.

Below, I’m going to go over every transaction and give some quick thoughts on each respective company.

I’m going to do my best to infer what each purchase and sale means, but it’s obviously impossible to know exactly what Warren Buffett or his lieutenants were thinking when each transaction was executed.

Let’s take a look!

Please keep in mind this list is for informational purposes only, and is not a recommendation to buy any specific stocks.

Purchases
Purchased 21,770,555 shares of American Airlines Group Inc. (AAL) NEW
Purchased 6,333,923 shares of Delta Air Lines, Inc. (DAL)NEW
Purchased 4,533,013 shares of United Continental Holdings Inc. (UAL)NEW
Purchased 309,500 shares of Bank of New York Mellon Corp. (BK)
Purchased 106,000 shares of Charter Communications, Inc. (CHTR)
Purchased 323,300 shares of Visa Inc. (V)
Purchased 131,300 shares of WABCO Holdings Inc. (WBC)
Purchased 58,800 shares of Liberty Sirius XM Group A (LSXMA)
Purchased 2,236,109 shares of Liberty Sirius XM Group C (LSXMK)
Purchased 814,000 shares of Liberty Global PLC Class A (LBTYA)
Purchased 1,907,892 shares of Phillips 66 (PSX)

Sales
Sold 3,471,309 shares of Media General Inc. (MEG) SOLD OUT
Sold 22,275,381 shares of Suncor Energy Inc. (SU) SOLD OUT
Sold 1,203,985 shares of Liberty Media Group A (LMCA)
Sold 1,810,957 shares of Liberty Media Group C (LMCK)
Sold 27,254,828 shares of Wal-Mart Stores, Inc. (WMT)
Sold 874,185 shares of Deere & Co. (DE)
Sold 6,533,525 shares of Kinder Morgan Inc. (KMI)

Purchases
American Airlines Group Inc. (AAL) – Purchased 21,770,555 shares.

This is a new position for Berkshire’s common stock portfolio.

American Airlines Group Inc. is a holding company that, through its subsidiaries, operates as an airline carrier.

This is super interesting.

Warren Buffett has gone on record multiple times noting his displeasure with the airline industry as it relates to the quality of investment opportunities. After an investment in the industry went sour many years ago, Buffett went on to joke that a farsighted capitalist, if present at the time, would have shot down Orville at Kitty Hawk.

This leads me to strongly believe that Buffett wasn’t at all behind this move (or the other airline investments). More likely, one of his lieutenants initiated the investment.

I do, however, concur with Buffett’s thesis on the industry. It’s tough to make a long-term investment case.

American Airlines Group, for instance, has swung from a loss of $21.85 per share in fiscal year 2008 to a profit of $11.07 per share in FY 2015. In fact, they’ve spent more years registering losses than profit over the last decade.

That said, industry dynamics could be more favorable moving forward, with consolidation, cheap fuel, and greater air traffic. Indeed, the company is even paying a dividend.

And the stock is just plain cheap, at less than five times earnings. Its price/book ratio is also less than half its five-year average.

Delta Air Lines, Inc. (DAL) – Purchased 6,333,923 shares.

This, too, is a new position for Berkshire.

Delta Air Lines, Inc. provides airline transportation services for passengers and cargo globally.

The thoughts I laid out above could be repeated for Delta, for the most part.

However, Delta does seem to operate at a higher level. And the stock does appear to potentially be more attractive.

The balance sheet isn’t as levered, the company stopped generating losses in FY 2009, and the airline’s stock offers a much higher yield.

This probably explains the higher valuation, with the stock trading hands for a P/E ratio of 7.68. More expensive than AAL, but still far cheaper than the broader market. And that’s looking at the valuation now. The stock was even cheaper throughout Q3. Although it’s impossible to know exactly when Berkshire picked up their shares, it appears they already made some money here.

Perhaps Berkshire sees these as strong value plays, considering the aforementioned changing dynamics.

United Continental Holdings Inc. (UAL) – Purchased 4,533,013 shares.

This is another new position for Berkshire’s common stock portfolio, rounding out the trifecta of new investments in airline companies.

United Continental Holdings Inc. is a holding company that, through its subsidiaries, is engaged in the transportation of people and cargo through its mainline operations.

Last but not least, we have United Continental.

It’s interesting that Berkshire decided to open up relatively small positions in a fairly broad basket of major airlines. It seems like Berkshire sees value and opportunity across the entire industry, but also isn’t necessarily in favor of going big on just one name.

This particular airline is perhaps the most volatile of them all, operationally speaking.

The company took a massive loss of more than $42 per share in FY 2008, while they recorded a profit of more than $19 per share in FY 2015. As one might expect, the stock has also rebounded dramatically – it’s up more than 1,500% from its 2009 lows.

These stocks are generally trading near all-time highs. So while they are cheap on a TTM P/E basis, the earnings being posted are also much higher than usual. It’ll be interesting to see if the airlines have finally turned the corner.

Bank of New York Mellon Corp. (BK) – Purchased 309,500 shares.

This purchase brings Berkshire’s stake up to 21,136,712 shares, which is an increase of 1.5%.

Bank of New York Mellon Corp. is a global financial services company, providing investment management and investment services.

This transaction is a reversal of last year, when Berkshire was systematically selling off shares in Bank of New York Mellon. Indeed, this follows a sizable purchase of shares in the bank back in Q1 2016.

I noted in Q1’s update that it was perhaps a valuation call that led to the reversal – the bank had increased its earnings while the stock fell from well over $40 per share to the mid-$30s. Although the stock is now trading for around $47 per share, it was available below $40 for much of Q3.

That said, the stock now appears to be less of a value. Banks are often valued on their P/B ratio, and BK is trading hands for a P/B ratio of 1.4, which is higher than the five-year average P/B ratio of 1.0.

But I do think banks in general are positioned well right now. Rates are starting to rise, banks are well capitalized, and we don’t appear to have the same dynamics in place that led to such pain in the industry at the outset of the financial crisis.

Charter Communications, Inc. (CHTR) – Purchased 106,000 shares.

Berkshire increased their stake in this company by 1.1%, now up to 9,443,491 shares.

Charter Communications, Inc. provides cable services throughout the US, and is the fourth largest such provider.

Berkshire aggressively bought shares in Charter in 2015, but this year has been timid by comparison. Nonetheless, they’re still obviously quite enamored with the cable company, as the position is worth almost $2.5 billion.

I’ve noted before that I’m a bit bewildered by the investment.

Charter isn’t profitable and also lacks clear competitive advantages. Big profit and durable competitive advantages are hallmarks of Buffett investments, but his lieutenants perhaps aren’t as concerned. With the stock up more than 15% over just the last year, they obviously know what they like here.

Looking at the valuation, the stock appears to be expensive. Investors are paying much more for both revenue and cash flow than they have, on average, over the last five years. This is something to be mindful of.

Visa Inc. (V) – Purchased 323,300 shares.

This transaction increased Berkshire’s position in Visa by 3.2%, with the position now up to 10,562,460 shares.

Visa Inc. is a payments technology company that allows consumers, businesses, banks, and governments in more than 200 countries to use and accept electronic payments.

I believe I’ve mentioned this many times, but Visa is one of my favorite businesses.

I mean, the business model is fantastic. Cashless transactions are on the rise globally, as digital payments are faster, easier, more secure, and more beneficial in pretty much every way. Visa is perfectly positioned to capture much of this increased business since they’re the global leader in electronic payments.

The fundamentals and growth reflect this.

Visa sports net margin above 45%, return on equity over 22%, and a solid balance sheet. EPS growth remains well into the double digits, and the company continues to buy back shares and hand out sizable dividend increases.

I’m a very happy (albeit much smaller) shareholder alongside Berkshire.

The stock might not appear cheap, with a P/E ratio over 30. But I think the potential warrants it – and the stock actually appears to be a solid buy right now.

WABCO Holdings Inc. (WBC) – Purchased 131,300 shares.

This purchase brings Berkshire’s stake up to 3,368,394 shares, an increase of 3.9%.

WABCO Holdings Inc. and its subsidiaries is engaged in the manufacture, marketing, and sale of electronic, mechanical, and mechatronic products for the commercial truck, trailer, bus, and passenger car manufacturers.

This is pretty interesting, as we have another reversal. Berkshire has sold shares in WABCO multiple times over the last couple years, with Berkshire last selling off almost 100,000 shares in Q1 2016.

The stock spent much of that time in Q1 below $100 per share, while the stock spent much of Q3 above $100 per share.

Both of these transactions are fairly small, so it’s difficult to glean any insight here. I’m not exactly sure what led to the reversal. I wasn’t able to find any major news about WABCO, although I noted in prior updates that Berkshire’s sales didn’t necessarily make a lot of sense to me only due to the solid fundamentals that WABCO has.

However, I also noted that the valuation wasn’t terribly attractive. That’s still the case even now, though it appears that Berkshire is now more comfortable than before with that scenario.

Liberty Sirius XM Group A (LSXMA) – Purchased 58,800 shares.

This was an increase of 0.6% to this position, with Berkshire now owning 10,058,800 shares.

Liberty Media Corp. is a media, communications, and entertainment company.

Liberty Media and its various offshoots operates as one of the largest media companies in the world. With operations in traditional cable, broadband, telecommunications, sports, satellite radio, and live entertainment, John Malone (chairman of most Liberty businesses) has carefully crafted an envious portfolio of really amazing assets in media and communications.

It’s quite obvious that Buffett likes Malone’s vision of media diversification, as Berkshire has long held fairly large stakes in Liberty’s assorted options. And it’s also quite obvious by now that Buffett is a big fan of media in general. Well, Malone is arguably the best in the business.

I won’t discuss each Liberty transaction individually, as I’ve done that in numerous prior updates. But you can see the specifics for every Liberty purchase/sale by reviewing the Buffett Tracker. The specifics are also laid out above.

Phillips 66 (PSX) – Purchased 1,907,892 shares.

Berkshire now owns 80,689,892 shares, which is an increase of 2.4%.

Phillips 66 is primarily an independent refiner, with assets in midstream and chemicals.

Berkshire has been sporadically adding to his position in Phillips 66 throughout Q3. And due to the size of this position, we can safely draw a conclusion that Buffett is behind this one.

In fact, Berkshire owns more than 15% of Phillips 66, a level of ownership that makes them by far the largest single shareholder. As such, there’s an air of anticipation that Berkshire will eventually make an offer to buy out the entire company. We’ll have to wait and see.

Meanwhile, Phillips 66 continues to operate at a high level. Earnings came in at over $500 million for Q3 2016, 3% higher than Q2 2016. And the company is returning a ton of capital to shareholders via repurchases and dividends. And Buffett has noted in the past that this investment isn’t a play on oil at all; rather, he likes the exposure to chemicals and midstream.

As a dividend growth investor and fellow shareholder, I’m very happy.

The valuation looks roughly fair right now. So this might be a case where Berkshire is trying to load up on shares on the open market before they make an offer, as a buyout would likely incur a healthy premium. Then again, Berkshire might be happy just to own a rather substantial stake in a great business.

Sales
Media General Inc. (MEG) – Sold 3,471,309 shares.

Berkshire sold out of Media General.

Media General Inc. is a media company that primarily owns a number of smaller television stations in diversified markets around the US.

Berkshire acquired its stock in MEG through penny warrants that were issued after Buffett announced that he was going to buy most of Media General’s newspaper assets back in 2012.

While some derided Buffett’s decision to buy newspaper assets a few years ago, I don’t think anyone can deride the idea of penny warrants. This obviously turned out to be a very profitable investment for Berkshire.

Although Buffett loves his media assets, I can see why Berkshire is moving on from Media General.

The company has really struggled over the last decade, with net income and free cash flow both down significantly from where they were back in 2006.

Suncor Energy Inc. (SU) – Sold 22,275,381 shares.

Berkshire sold all of its shares in Suncor.

Suncor Energy is an integrated energy company based out of Canada.

This move follows up the sale of more than 7.7 million shares last quarter, so it’s obvious now that Berkshire was just moving out of this name completely.

As I noted with the last sale, it makes sense to me.

When Berkshire was busy buying up shares in Suncor, the future prospects looked a little brighter with higher oil prices and a seemingly better dynamic between supply and demand. That dynamic has apparently changed.

Moreover, Suncor is heavily exposed to Canadian oil sands, which feature some of the most expensive production costs. On the cost curve, Suncor appears to me to be quite disadvantaged.

Buffett has never been a big fan of oil companies, and this seems to be more of that thesis playing out.
Interestingly enough, Suncor’s stock has moved up nicely since the end of Q3. So Berkshire may not have moved out of this name at the right time. That said, most valuation metrics are now above their respective recent historical averages.

Wal-Mart Stores, Inc. (WMT) – Sold 27,254,828 shares.

This sale reduced Berkshire’s stake in Wal-Mart by 68%, with the holding now standing at 12,971,575 shares.

Wal-Mart Stores, Inc. operates retail stores in various sizes and formats across the globe. They are the largest retailer in the world.

Berkshire reduced their stake in Wal-Mart by more than 27% just last quarter. With that position being dropped by another 68%, it would appear that Berkshire is slowly but completely selling out of their investment. I actually noted in the last update that I wouldn’t be surprised if Berkshire were doing just that.

Based on the company in question, the period over which Berkshire has been invested, and the amount of the transaction, we can pretty safely assume that Buffett was directly behind this.

However, we can’t safely assume exactly why Buffett has soured on his long-time investment in the world’s largest retailer.

Perhaps it’s Wal-Mart’s lack of aggressive moves into e-commerce. Until lately, they’ve been slow to pick up on the increasing competition in e-commerce, while competition has been eating their lunch.

There’s no doubt that Wal-Mart still sells a lot and makes a lot of money. And recent investments in Jet.com and JD.com show that Wal-Mart is taking the e-commerce threat more seriously.

However, I may follow Buffett’s lead if Wal-Mart doesn’t start moving the needle again, especially in regard to their dividend. Their slowing dividend growth is worrisome.

The stock doesn’t appear to be notably expensive right now. It also doesn’t appear to be notably cheap. So if the company can see some real growth again, shareholders should be happy. But those moves may take a while, as Wal-Mart is a gigantic company (its annual revenue is almost $500 billion).

Buffett’s patience may have finally worn out.

Deere & Co. (DE) – Sold 874,185 shares.

This sale reduced Berkshire’s stake down to 21,085,061 shares, or 4%.

Deere & Company manufactures machinery used in agricultural, construction, and forestry applications.

Berkshire also reduced its stake in Deere by 5.7% last quarter, so this is more of the same.

It’s odd to me only because Berkshire had been busy increasing its stake in Deere as recently as Q1.

But this might be a valuation call. After all, the stock is up by almost 20% YTD, even while Deere continues to operationally struggle a little bit.

Deere is a very cyclical business, so it’s nigh impossible to really time the cycle and know when things are going to turn.

However, it’s clear that the boom times of just a few years ago are over for now. Deere’s net income has basically been cut in half from what it was in FY 2012, yet the stock has gone on to perform quite well.

For me, it seems like there’s a disconnect there between Deere’s operational performance and its stock performance.

Perhaps Berkshire also sees that disconnect, and so they’re pulling an “about face” and reducing their exposure.

This is still a rather large position for Berkshire, though, worth almost $2 billion. So I think they’re still very much fans of the business and business model. But taking profit is never a bad idea, especially when a stock might be overvalued.

Kinder Morgan Inc. (KMI) – Sold 6,533,525 shares.

Berkshire reduced their stake in this company by 24.6%, with the position now down to 20,000,000 shares.

Kinder Morgan, Inc. is the largest midstream energy company in North America, operating more than 80,000 miles of pipeline and 180 terminals.

Berkshire initiated a rather large stake in Kinder Morgan during Q4 2015, after Kinder Morgan’s stock took a mighty hit due to concerns over its capital structure and debt rating. The stock bottomed out at just over $11 per share during that quarter.

Well, the stock sat most of Q3 2016 at well above $20 per share.

I’m not sure if this is the start of Berkshire’s rotation out of Kinder Morgan, but it’s also a fairly small position.

Nonetheless, Kinder Morgan remains positioned as one of the top energy companies in the country, operating crucial and necessary components of our infrastructure.

Meanwhile, the company remains committed to shareholders. After their scare, they’ve been busy reducing the debt load while simultaneously funding projects with internal capital (rather than issuing debt or selling equity).

Kinder Morgan looks to be on the road to recovery, but Berkshire seems to be happy taking a little profit off the table.

I believe Kinder Morgan’s stock price will recover to the mid-$30s at some point in the near future, as the company is generating roughly the same amount of DCF as they were before. With a better debt profile, they’re also likely to get back to growing their dividend within the next year or so.

It’ll be interesting to watch what happens to Kinder Morgan, as well as whether or not Berkshire remains invested.

— Jason Fieber

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