Warren Buffett’s Latest Stock Trades and Stock Portfolio

Warren Buffett’s latest trades were just revealed via the most recent Berkshire Hathaway Inc. (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 2017 — 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.

Buffett’s Latest Stock Purchases

Purchased 31,241,180 shares of Apple Inc. (AAPL)
Purchased 10,589,195 shares of Bank of New York Mellon Corp. (BK)
Purchased 2,835,278 shares of Monsanto Co. (MON)
Purchased 18,875,721 shares of Teva Pharmaceutical Industries Ltd. (TEVA) – NEW POSITION
Purchased 1,995,710 shares of US Bancorp (USB)

Buffett’s Latest Stock Sales

Sold 1,000,000 shares of American Airlines Group Inc. (AAL)
Sold 10,000,000 shares of General Motors Co. (GM)
Sold 34,978,653 shares of International Business Machines Corp. (IBM)
Sold 27,351 shares of Sanofi SA (SNY)
Sold 6,000,000 shares of Wells Fargo & Co. (WFC)

Purchases
Apple Inc. (AAPL) – Purchased 31,241,180 shares.

This purchase increased Berkshire’s stake in Apple by 23.3%, which is now up to 165,333,962 shares.

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.

Buffett is almost certainly behind this transaction, based on both the size of the transaction itself and the size of the total position. The position in Apple, by the way, is now the largest single position in the entire portfolio of common stocks for Berkshire Hathaway. That’s rather notable.

What’s also perhaps notable is the fact that Berkshire bought up another 31+ million shares even though the stock sat near its all-time highs in price over most of Q4 2017.  With Buffett being one of the most (if not the most) famous and successful value investors ever, it may, at first glance, be against character to chase a stock way up here.

However, even with the stock being near $170/share right now, I’d argue the stock is actually still quite cheap.

In fact, I did argue that very point less than a week ago, with Apple being featured as the most recent Undervalued Dividend Growth Stock of the Week (talk about timing).

There’s almost nothing to dislike about Apple here, other than maybe its size.

And with an unprecedented cash hoard being brought back to the US, even the sky itself isn’t the limit for this company.

Bank of New York Mellon Corp. (BK) – Purchased 10,589,195 shares.

This transaction increased Berkshire’s stake in Bank of New York Mellon by 21.1%, now up to a total of 60,818,783 shares.

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

Warren Buffett’s well-known affinity for the banking business model is alive and well. And while Berkshire has been oscillating the size of this position with buys and sells in recent years, this particular transaction builds on a purchase of more than 17 million shares in the bank back in the second quarter of 2017.

The bank has had a tough go of it over the last decade, as they really struggled going into and coming out of the financial crisis.

However, results over the last three years have been very encouraging.

While top-line growth still isn’t quite there, the bank’s EPS and FCF growth have both been mighty strong over the last three fiscal years.

And Buffett’s well-known affinity for growing dividends is seemingly still intact here, as Bank of New York Mellon now has seven consecutive years of dividend growth after having to cut its dividend back in 2009.

I’ve not been a big fan of this bank in the past, but it may have finally turned a corner. It’s firing on all cylinders, and the fundamentals have really improved of late. Plus, rising rates serve as a long-term tailwind.

Meanwhile, the valuation appears to be reasonable here.

The bank’s current P/E ratio of 16.42 is below its five-year average P/E ratio, and the stock’s current yield is about 10 basis points above its five-year average yield.

That yield, by the way, is sitting at 1.71%. Not the most attractive yield in the industry, nor is it even really close, but the bank is paying a growing dividend while fundamentals simultaneously improve.

There’s a lot to like here.

Monsanto Co. (MON) – Purchased 2,835,278 shares.

Berkshire now owns 11,708,747 shares of Monsanto, which is an increase of 32% over last quarter.

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

Monsanto is a high-quality company with a sizable economic moat, which makes it a classic, Buffett-type investment.

The company grows practically like clockwork, and it’s a cash flow machine. With increasing demand for food as the world grows larger, Monsanto’s products (which greatly aid farmers) are positioned extremely well.

However, this appears to be more of a merger arbitrage play for Berkshire.

That’s because Monsanto has agreed to be acquired by Bayer AG (BAYRY) for $128 per share. Meanwhile, the stock is currently priced at ~$120. And so there’s a nice gap there that Berkshire appears to be taking advantage of.

My take on this is that less than 7% upside (between the current market price and the deal’s agreed-upon price) isn’t really worth it unless you’d already be happy to own Monsanto for the long haul if the deal were to fall through.

Said another way, investors should be looking at Monsanto as a long-term investment that may, if the deal closes, result in a nice short-term gain on exit. But if something prevents the deal from closing, it should be viewed as a long-term investment that fits an investor’s goals and risk profile.

The great thing about the stock is that valuation right now isn’t egregious, which is uncommon for a stock that’s closing in on a price that was agreed to for the whole of the company. An acquisition usually carries a heavy premium, yet Monsanto’s stock isn’t unreasonable at all.

The P/E ratio of 22.22 is favorable relative to both the broader market and the stock’s own five-year average P/E ratio of 25.8. And the multiple on the company’s cash flow is more or less in line with its own three-year average.

The stock’s yield of 1.8% isn’t particularly high, but that’s right in line with the stock’s five-year average yield. But if you’re a dividend growth investor (like I am), you’ll cringe a bit at the fact that the dividend was last increased way back in late 2015.

Teva Pharmaceutical Industries Ltd. (TEVA) – Purchased 18,875,721 shares.

This is a new position for Berkshire Hathaway.

Teva Pharmaceutical Industries Ltd. is the world’s largest generic pharmaceutical manufacturer. The company also develops and sells branded pharmaceuticals across a variety of health categories.

This transaction may be a bit of a surprise, but it probably shouldn’t be.

It’s a massive player in the global pharmaceutical industry. And with healthcare costs never being more discussed and scrutinized, Teva’s positioning on the generic side bodes well.

Plus, there’s the valuation.

The company’s revenue multiple is less than half its five-year average. And the company’s cash flow is quite cheap relative to its own three-year average.

And that’s the valuation as it sits today, in February 2018. But these shares were purchased back in Q4 2017 – a time when the stock spent a lengthy period in the low teens (dropping below $12/share in November). The stock is now priced near $20.

However, the balance sheet is loaded with debt. And the dividend was recently suspended.

But that dividend suspension is part of a turnaround plan that included a 25% workforce cut. This is part of an effort to get that debt under control.

My view on this transaction is that it’s a trade for Berkshire. I don’t think they’ll be a long-term shareholder, sticking around for years as the turnaround plays out. And the size of the transaction would indicate that Combs or Weschler is behind it.

That said, the stock is likely up considerably since Berkshire bought it. I imagine Buffett is pretty happy about this one.

US Bancorp (USB) – Purchased 1,995,710 shares.

Berkshire’s purchase brought its stake in US Bancorp up to 87,058,877 shares, which is an increase of 2.3%.

US Bancorp is the nation’s fifth-largest bank, with branches located in 25 states in the Western and Northern United States.

This is a longstanding position in Berkshire’s common stock portfolio, easily predating Combs and Weschler as Berkshire employees. Based on that, it would seem likely that Buffett was behind this particular transaction.

US Bancorp is easily, in my opinion, one of the finest and best-run regional banks in all of America. They’re about as consistent as it gets. And the fundamentals are fairly outstanding across the board.

Coming out of the Great Recession, the bank has done an admirable job. EPS has compounded at an annual rate of 18.80% between fiscal year 2009 and FY 2016, which is tremendous. Profitability is robust. And they produce gobs of free cash flow.

The one drawback for a dividend growth investor might be the fact that the bank cut its dividend sharply during the financial crisis. However, they’ve been growing it consistently and significantly since 2011.

The stock, unsurprisingly, has performed pretty strongly in recent years. And rising rates should only serve to reinforce that moving forward.

But the valuation shouldn’t prevent one from building or adding to a position here.

A number of basic metrics are within reasonable distance of their respective recent historical averages. And the stock’s P/E ratio is well below that of the broader market. The current yield, at 2.17%, is on par with its own five-year average.

If you’re looking to buy a high-quality regional bank in today’s market, it may make sense to take a page out of Buffett’s book and follow Berkshire on this one.

Sales
American Airlines Group Inc. (AAL) – Sold 1,000,000 shares. 

This sale reduced Berkshire’s stake by 2.1%, with the position now at 46,000,000 shares.

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

After Berkshire shocked the world in late 2016 and early 2017 by buying up rather significant stakes in the country’s four largest domestic airlines, the latter part of 2017 (including this quarter) has been spent reducing those stakes.

Although this was a rather small transaction for Berkshire, it follows a Q2 2017 that saw Berkshire move away from a number of its airline positions (including American Airlines Group).

The sale, while small, doesn’t surprise me, though.

Buffett has long been a vocal critic of the airline industry, especially from the perspective of an investor.

And it’s easy to see why he’s maintained that stance over the years. The industry is fraught with high fixed and variable costs, stiff competition, limited pricing power, razor-thin margins, few switching costs, and strong exposure to economic cycles.

But the industry seems to have gotten its collective act in gear over the last few years. And the valuations had arguably gotten too cheap to ignore.

Most of these airline stocks have performed very well since Berkshire announced its stakes, seeing valuations rise a bit in the process.

As such, it’s not a surprise to see Berkshire backing away slightly from some of these positions.

All that said, based on a number of basic valuation metrics, this stock still doesn’t appear to be expensive right now. The valuation isn’t as clearly compelling as it was in 2016, but it’s not clearly expensive, either. And Berkshire still maintains rather substantial exposure to the airline industry through its positions in the major domestic airlines.

General Motors Co. (GM) – Sold 10,000,000 shares.

This sale reduced Berkshire’s stake in General Motors to 50,000,000 shares, which is a 16.7% reduction over last quarter.

General Motors Co. is one of the world’s largest auto manufacturers.

Based on the transaction and the size of the position, as well as how it was accumulated, it seems likely that Combs or Weschler is behind this move.

This industry reminds me a lot of the airline industry, in fact. The opportunities and challenges are actually quite similar. I personally see the challenges as greater than the opportunities. And that’s probably why bankruptcy (which GM restructure under not terribly long ago) is unfortunately common in both industries.

That said, GM has come out of its own bankruptcy as a much leaner and meaner company.

Margins have greatly improved, free cash flow is regularly strong, and they’ve been generating top-line and bottom-line growth.

But the valuation is arguably not as appealing as it was a year or two ago.

As it sits, it’s not an overtly expensive stock. But it doesn’t appear to be cheap, either. The P/B ratio is elevated off of its recent historical average. And the revenue multiple is right on par with its five-year average.

And while the stock yields a healthy 3.64%, it’s not a reliable dividend payer/grower, which would pretty much automatically take it off of a dividend growth investor’s radar.

With Berkshire lightening up a bit on this name, it would simply indicate to me that they see more compelling opportunities elsewhere for that capital.

International Business Machines Corp. (IBM) – Sold 34,978,653 shares.

This transaction lowered Berkshire’s stake in IBM by 94.5%, with Berkshire now owning 2,048,045 shares.

International Business Machines Corp. is an information technology company, providing technology-driven solutions to customers globally.

This is now the fourth quarter in a row in which Berkshire has sold IBM stock. And we can be pretty much guaranteed that Buffett was/is behind this. As I’ve noted in prior updates, Berkshire has been slowly but deliberately selling out of its stake in Big Blue. The position as it now sits is quite small, and it will likely be disposed of in a coming quarter.

What happened here is quite simple. Buffett has noted many times over the last year or so that he’s “revalued” (downward) IBM stock. The stock is, to Buffett, worth less than it was back when he first started accumulating a sizable stake in the tech giant, way back in 2011.

Indeed, IBM has struggled in recent years. Its once-dominant mainframe business isn’t what it once was due to the move to cloud storage/computing. And IBM hasn’t had as much success as investors had planned/hoped for in transitioning its company from hardware to higher-margin and faster-growing software and service solutions.

But its most recent quarterly report finally showed revenue growth, as the company’s initiatives are starting to generate impressive growth and meaningful sales.

And the stock’s valuation still looks pretty compelling here, especially in this market. For perspective, the stock’s P/E ratio of 12.9 is about half the market.

Plus, it’s a dividend growth juggernaut. The stock yields 3.88%, and the company has increased its dividend for 22 consecutive years. With a dividend that takes up about 50% of earnings, IBM is a pretty sure bet for a big and growing dividend in the tech space.

Buffett is right, in my view: IBM’s stock isn’t worth as much as it once was. But it’s arguably worth a bit more than the ~$155 it’s trading hands for right now.

Sanofi SA (SNY) – Sold 27,351 shares.

This sale reduced Berkshire’s stake in Sanofi by 0.7%. The position now stands at 3,878,524 shares.

Sanofi develops and markets a diverse array of pharmaceuticals, with a concentration in oncology, immunology, cardiovascular disease, diabetes, and vaccines.

This is an odd sale for Berkshire. It’s a fairly small position already.

And this transaction was tiny relative to the usual moves we’re used to seeing.

It’s made to be more strange based on the fact that Sanofi’s stock looks undervalued on the surface – the company’s earnings, sales, and cash flow are all available for multiples well below their respective recent historical averages.

And the dividend is sizable: the stock yields over 4% right now.

However, the company has had trouble mustering growth over the long term (10 years) and the short term (five years). Top-line growth has been offset by margin compression.

And that lack of business growth has more or less translated to a lack of dividend growth.

The good news, though, is that the company produces a ton of free cash flow.

Regardless, this transaction was, overall, immaterial to Berkshire Hathaway.

Wells Fargo & Co. (WFC) – Sold 6,000,000 shares.

This sale brought Berkshire’s stake in Wells Fargo down to 458,232,268 shares, which is a reduction of 1.3% compared to last quarter.

Wells Fargo & Co. is one of the four largest banks in the US, with diversified financial offerings across retail, commercial, and corporate banking services.

This particular transaction is easily explainable.

Berkshire is essentially prevented from owning more than 10% of Wells Fargo due to the onerous commitments that would be involved in exceeding that level of ownership. Berkshire had attempted to work with the Federal Reserve in order to maintain a simple path toward an equity stake that exceeded 10%, but Berkshire was unable to come to reasonable (in their view) terms on that.

Berkshire has already noted that it will regularly divest small portions of its Wells Fargo so as to remain under that 10% threshold. Berkshire has to regularly sell stock because Wells Fargo continues to buy back its own stock, which thus increases Berkshire’s ownership stake as a percentage of the bank (due to the reduced outstanding float).

As such, Berkshire may continue to sell off small portions of its Wells Fargo stake in the future, depending on its ownership size, the valuation of the stock, and the timing of Wells Fargo buybacks.

— Jason Fieber

Berkshire Hathaway’s Stock Portfolio