Buffett’s Latest Trades: Buys 8 Stocks, Sells 8 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 fourth quarter of 2016 — the quarter ending December 31 — 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 8,041,784 shares of Monsanto Company (MON)NEW POSITION
Purchased 166,639,941 shares of Sirius XM Holdings Inc. (SIRI)NEW POSITION
Purchased 43,203,775 shares of Southwest Airlines Co. (LUV) NEW POSITION
Purchased 23,774,299 shares of American Airlines Group Inc. (AAL)
Purchased 42,131,950 shares of Apple Inc. (AAPL)
Purchased 535,257 shares of Bank of New York Mellon Corp. (BK)
Purchased 53,692,072 shares of Delta Air Lines, Inc. (DAL)
Purchased 24,418,340 shares of United Continental Holdings Inc. (UAL)

Sales
Sold 21,085,061 shares of Deere & Co. (DE) – SOLD OUT
Sold 20,000,000 shares of Kinder Morgan Inc. (KMI) – SOLD OUT
Sold 88,863 shares of Lee Enterprises, Incorporated (LEE) – SOLD OUT
Sold 1,296,013 shares of Liberty Media Group A (LMCA) – SOLD OUT
Sold 3,189,041 shares of Liberty Media Group C (LMCK) – SOLD OUT
Sold 1,825,569 shares of NOW Inc. (DNOW) – SOLD OUT
Sold 15,000,000 shares of Verizon Communications Inc. (VZ)
Sold 11,578,061 shares of Wal-Mart Stores, Inc. (WMT)

Purchases
Monsanto Company (MON) – Purchased 8,041,784 shares.

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

Monsanto Company provides agricultural products for farmers, including seeds, biotechnology traits, herbicides, and precision agricultural tools.

This is a pretty interesting investment for Berkshire.

I don’t say that because Monsanto isn’t a high-quality company that fits the typical mold for Buffett – top-line and bottom-line growth, solid fundamentals, big dividend, and competitive advantages – but rather because Monsanto has agreed to be acquired.

Indeed, Monsanto has agreed to be acquired by Bayer AG (BAYRY) for $128 per share. With Monsanto trading for under $108/share (as of the writing of this article), Berkshire could be getting into this investment as a form of M&A arbitrage, seeing a spread between the price of the agreed-to deal and the price of the stock.

Of course, there is risk that the acquisition doesn’t go through, especially seeing the size of the deal.

However, as noted earlier, this is a stock that makes sense for Berkshire on a stand-alone basis. Revenue is up more than 60% over the last decade for Monsanto, and the company’s earnings per share is up even more. Profitability is strong, the balance sheet isn’t overly leveraged, and Monsanto’s seed genetics are second to none. Meanwhile, the stock isn’t trading too far off of recent historical averages, indicating a valuation that’s reasonable.

Sirius XM Holdings Inc. (SIRI) – Purchased 166,639,941 shares.

This is another new position for Berkshire Hathaway.

Sirius XM Holdings Inc. is a satellite radio broadcasting company that broadcasts a variety of channels in the US for a subscription fee through its proprietary satellite radio systems.

This is another interesting investment for Berkshire, albeit for different reasons from Monsanto.

I say it’s interesting only because Sirius doesn’t seem to have a number of those hallmark aspects that you typically like to see from a Buffett investment, though it’s not known if Buffett is even behind this investment.

Revenue for the company has grown rather swiftly over the last 10 years; however, profit has been a bit more elusive for Sirius. Moreover, they’re working with a good chunk of debt.

That said, Buffett is a well-known fan of all forms of media. He’s been that way for many decades now, and some of his biggest and most successful investments have been in media. Sirius certainly fits the mold from that angle. In addition, Buffett has invested in a large number of vehicles controlled by John Malone via Liberty Media, so Sirius fits that mold, too.

Looking at the valuation, the stock is trading with most metrics below their respective five-year averages. On top of that, it now offers a yield after a recently-introduced dividend. It’s interesting to note that Berkshire invested in the company right around the time it started to pay a dividend.

Southwest Airlines Co. (LUV) – Purchased 43,203,775 shares.

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

Southwest Airlines Co. operates a passenger airline that provides scheduled air transportation in the US and near-international markets.

This investment follows in the footsteps laid out last quarter, whereby Berkshire started rather large positions in most of the major domestic airline carriers. As noted in the last update, it really goes against pretty much everything Buffett has been saying about airlines over the last few decades; Buffett is a noted antagonist when it comes to the idea of investing in airlines.

Their capital-intensive nature has made them pretty unattractive. It’s also a business that competes hard on price. And the cycles can be brutal, with airlines taking massive losses when the industry turns against them.

However, it appears he’s done an about-face. Berkshire now owns sizable stakes in all four major domestic airlines. I think this is partly because the airline industry in general has consolidated considerably over time, thus making the major companies left far more competitive and cost effective to operate.

The valuation on this particular stock doesn’t look all that appealing as of this moment, but that’s only after the stock’s run up over 20% over the last three months. Keep in mind that Berkshire initiated its position sometime in Q4 2016, so the stock was definitely cheaper then. Still, it’s a very profitable company that has grown tremendously over the last 10 years.

With the way airline travel continues to grow domestically and internationally, the major airlines here in the US should do well over the long run.

American Airlines Group Inc. (AAL) – Purchased 23,774,299 shares.

This purchase brings Berkshire’s stake up to 45,544,854 shares, an increase of 109% over last quarter.

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

Much of what was said about Southwest Airlines can be said about American. The only difference is that Berkshire added to an existing position in this case – and they added big. This makes Berkshire one of the largest single shareholders of American Airlines.

The valuation of this stock looks even more appealing, with most valuation metrics looking very favorable relative to recent historical averages. Of course, airlines tend to be quite volatile in regard to their posted EPS, so you definitely have to take the low P/E ratio with a big grain of salt.

That said, the company’s operating at a high level right now. And they’ve grown quite a bit over the last decade, with most fundamental metrics looking perhaps better than ever.

Apple Inc. (AAPL) – Purchased 42,131,950 shares.

This transaction increased Berkshire’s stake by 277%. Berkshire now owns 57,359,652 shares of Apple.

Apple Inc. designs, manufactures, and markets a variety of consumer electronics, including smartphones, tablets, personal computers, smartwatches, and portable music players. They’re vertically integrated with software and hardware. They also offer a variety of services designed to be used on and for their products.

This was a huge move for Berkshire. Berkshire’s position in Apple is now worth more than $7.7 billion (at current market prices). That’s a major position for Berkshire’s common stock portfolio. Furthermore, it’s notable considering Buffett’s long aversion to tech companies.

But there’s not much to dislike about Apple.

The company makes gobs of money. We’re talking more than $50 billion in revenue – per quarter. They took in more than $50 billion in net income last year. The balance sheet has more than $200 billion in cash.

In addition, profitability is outstanding. Net interest margin is coming at over 20% per year. ROE and ROIC are both outstanding.

And then you have these amazing products that are incredibly sticky. There’s a user friendliness and customer loyalty that is unmatched in the tech space. Apple’s ecosystem is legendary, which allows Apple to sell all kinds of peripherals once customers have actually purchased their (relatively expensive) hardware.

The valuation doesn’t look crazy, though the stock is a bit more expensive than it’s been lately. The current P/E ratio of 16.17 is well below the broader market but above the stock’s own five-year average P/E ratio of 13.5. The yield of 1.69% is right in the wheelhouse for the five-year average. All in all, we’re looking at a pretty reasonable valuation for the world’s largest (by market cap) company.

Plus, Apple continues to buy back its shares and increase its dividend – both at prodigious rates. These are hallmarks that Buffett tends to look for in his investments. And these are certainly aspects I look for, too.

Although it’s a tech company, Apple really fits the Berkshire mold.

Bank of New York Mellon Corp. (BK) – Purchased 535,257 shares.

This purchase brings Berkshire’s stake up to 21,671,969 shares, an increase of 2.5% over last quarter.

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

I’ve been tracking Berkshire’s portfolio moves over the last couples years now, and I’ve noticed a lot of buying and selling of this particular stock. I’m not sure why that is, as the price doesn’t seem to indicate any advantageous trading. And since Buffett has long been known as a buy-and-hold investor, it’s interesting to see the trades go back and forth with this one.

Nonetheless, Buffett’s a big believer in banks, as it’s one of his favorite business models. The ability to hold a large amount of cash and earn interest off of that very low-cost and low-risk capital means banks tends to be extremely profitable over the long run.

That said, this bank has seen its profit essentially flat over the last decade. Although they took a big hit like most other banks during the financial crisis, they haven’t bounced back quite as aggressively as a lot of other banks I track.

Nonetheless, this remains a relatively small investment for Berkshire, valued at just over $1 billion.

Delta Air Lines, Inc. (DAL) – Purchased 53,692,072 shares.

This transaction increased Berkshire’s stake in Delta by 848%, with Berkshire now owning 60,025,995 shares.

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

There’s not a lot that can be said about Delta that hasn’t been said above when speaking about Buffett and airlines in general.

The only difference here is that Delta was a massive increase, and it’s now the largest position for Berkshire out of the four major domestic airline carriers. So either Berkshire is going to be increasing their positions in the other airlines or they just like Delta the best.

Delta’s operational metrics have been choppy like their competitors, but they, too, are operating at an extremely high level right now. Revenue and profit hit all-time highs last year. The balance sheet is reasonable.

And the valuation also looks fairly appealing here, although it’s highly likely that Berkshire got in at a cheaper price – the stock has run up nicely over the last few months. Delta also offers a higher yield than the other three major domestic airlines, which is worth noting considering Buffett’s affinity for yield from his stocks.

United Continental Holdings Inc. (UAL) – Purchased 24,418,340 shares.

Berkshire now owns 28,951,353 shares of United Continental Holdings. That’s an increase of 539% over last quarter.

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.

So we see a clear trend here. Berkshire made headlines for investing in airlines last quarter, and it was headline worthy when remembering how caustic Buffett has been when discussing the idea of investing in airlines.

However, it’s even more headline worthy this quarter as Berkshire has gone from minor investments to relatively large investments in the airlines. Collectively, Berkshire’s investments in the four major domestic airlines adds up to almost $10 billion. So we’re talking a lot of money now.

United Continental follows a similar story to its competitors. Numbers have been really choppy over the last decade. But the company is sitting on great numbers right now. Whether or not that continues is the big question, but it appears that Berkshire is willing to bet (big) that the answer is yes.

The valuation of the stock is also similar to the rest. It looks pretty appealing if they can keep up the operational performance, but the stock was much cheaper for a good chunk of Q4 2016 – which is when Berkshire made its big move.

Sales
Deere & Co. (DE) – Sold 21,085,061 shares.

Berkshire completely sold out of Deere.

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

This sale actually makes sense to me.

Although Deere is kind of a prototypical Buffett investment, with a great brand name, numerous competitive advantages, a lengthy track record of growing revenue and profit, and strong fundamentals, the stock’s valuation may have gotten ahead of itself.

It’s interesting to note that Deere’s stock price is near its all-time high, yet the company’s profit is well off of its all-time high as Deere works through a tough market in agricultural machinery. In fact, profit has been cut almost in half compared to just three years ago. Moreover, Deere has frozen its dividend, with the last dividend raise coming in the summer of 2014.

Of course, Deere should be just fine over the long term. They have incredible products that are trusted by its customers. And as farming becomes more mechanized, Deere stands to profit.

But I may follow Berkshire’s lead on this one and sell out of Deere. The stock has performed incredibly well over the last year; however, the company (and the dividend) has not.

Kinder Morgan Inc. (KMI) – Sold 20,000,000 shares.

Berkshire sold out of Kinder Morgan, reducing their shares to 0.

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

This transaction follows the reduction in the position that occurred in Q3 2016.

Berkshire bought its shares in Kinder Morgan during Q4 2015, so they held the stock for roughly a year.

But Q4 2015 is when Kinder Morgan’s stock suffered an epic fall – from over $30 per share to under $15 per share. And Berkshire was there to scoop up a sizable chunk of shares in the downtrodden pipeline company.

However, it appears that Berkshire wasn’t in this for the long haul. Kinder Morgan’s stock price has recovered some, with it trading at $22.54 as of this writing. So Berkshire appears to have traded in and out of this one for what’s likely a tidy profit.

Lee Enterprises, Incorporated (LEE) – Sold 88,863 shares.

Berkshire Hathaway completely sold out of Lee Enterprises.

Lee Enterprises, Incorporated provides local news and information in midsize markets with 48 daily newspapers and an interest in four others.

Berkshire’s investment in Lee dates back a number of years ago, though this has remained a very small investment. We’re talking just over $262,000 (as of the Q3 portfolio update).

But Lee has continued to decline over the years. Revenue is roughly half of where it was a decade ago. The same can be said for the company’s EPS. Most fundamental metrics are poor.

What likely prompted the sale is the big spike in the stock. The stock rose sharply in late September of last year. My guess is that’s when Berkshire decided to finally let the stock go. Although it wouldn’t have made much of a difference for Berkshire either way, I’m sure they wanted to squeeze out as much as possible from this stock, especially considering the poor operational performance over the life of the investment.

Liberty Media Group A (LMCA) – Sold 1,296,013 shares.

Berkshire Hathaway sold completely out of this stock in their common stock portfolio.

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

This move follows Berkshire’s reduction in the position back in Q3 2016. However, while these two back-to-back sales dropped the position down to 0 shares, it follows what’s been Berkshire mostly buying stock in Liberty’s various offshoots.

Buffett is a noted fan of media companies, and he’s apparently also a big fan of John Malone.

Nonetheless, Berkshire retains major investments in a number of other Liberty businesses.

Liberty Media Group C (LMCK) – Sold 3,189,041 shares.

This transaction means Berkshire Hathaway completely sold out of this stock.

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

This sale follows the selling out of LMCA. The only difference with this stock is in regard to voting rights.

NOW Inc. (DNOW) – Sold 1,825,569 shares.

Berkshire sold out of this position completely.

NOW Inc. distributes products to energy and industrial markets globally.

Berkshire actually owned this stock by virtue of a spin-off from National-Oilwell Varco, Inc. (NOV), which is another stock that Berkshire previously sold out of.

The stock is down some 30% after the spin-off, and NOW’s operational performance hasn’t been great since going independent. In fact, there’s almost nothing to like when looking at the fundamentals. And the track record isn’t long enough to give an investor much historical precedence to work with.

While Berkshire would have been better off getting out of the stock as soon as it received the shares, it’s better late than never.

Verizon Communications Inc. (VZ) – Sold 15,000,000 shares.

This transaction reduced Berkshire’s stake in Verizon down to 928 shares, which is a reduction of 99% from last quarter.

Verizon Communications Inc., through its subsidiaries, provides communications, information, and entertainment products and services to consumers, other businesses, and government agencies.

So Berkshire effectively sold out of Verizon. They now own just 928 shares, which is practically zero for Berkshire. It’s my guess they’ll liquidate the rest of the position in Q1 2017.

Verizon is in a tough business that’s getting tougher. Our domestic telecommunications industry is very mature now. And most of the growth that was there for the taking as customers switched over to smartphones and started to consume (expensive) data is already spoken for. The industry is now becoming far more competitive, as the remaining pool of customers up for grabs is shrinking. It’s becoming an industry that’s competing more on price than service or product quality.

Verizon is diversifying by acquiring ancillary businesses, and they seem to be on the hunt for something larger in the media space. In the meanwhile, growth will likely be limited.

That all said, the stock offers a very appealing 4.79% yield here, which is more than twice what the broader market offers (and it sure beats the local bank account). Verizon also continues to increase its dividend, albeit slowly.

All in all, this move doesn’t surprise me. While I could have just as easily seen Berkshire retain its stake in Verizon, Buffett’s affinity for media doesn’t seem to extend into telecommunications. It’s my guess that Berkshire just sees better opportunities elsewhere (notably in the airlines).

Wal-Mart Stores, Inc. (WMT) – Sold 11,578,061 shares.

Berkshire now owns 1,393,513 shares of Wal-Mart Stores, which is a reduction of 89% over last quarter.

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

I’ve noted a few times now, including in the last Buffett update, that Berkshire seems to be slowly but surely selling out of its longstanding stake in the massive retailer. Sure enough, Berkshire now owns only ~1.4 million shares, which will almost surely be sold off this quarter.

Buffett has long stood behind Wal-Mart, but it seems that he’s lost patience with the company. As a fellow shareholder, I can’t say I blame him. Although Wal-Mart has recently more aggressively moved into the e-commerce space, they’ve been painfully slow to the party. And it’s cost them, as Amazon.com, Inc. (AMZN) has eaten their lunch.

Although the stock doesn’t appear to be expensive – it’s selling for just under 15 times TTM EPS – growth has practically slowed to a standstill. Revenue has gone nowhere for three years. And the company’s EPS has actually moved backwards over that time frame. Moreover, the dividend has barely budged since early 2013.

I believe Wal-Mart’s economic moat has eroded a bit. Since Buffett is a huge fan of wide moats, his enthusiasm for the retailer seems to be waning. Frankly, so is mine. I may just follow Berkshire out of this stock.

— Jason Fieber

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