Buffett’s Latest Trades: Buys 12 Stocks, Sells 5 Stocks

warren-buffett-SSJust yesterday, Warren Buffett’s latest trades were revealed via Berkshire Hathaway Inc.’s (BRK.B) 13F filing, which is a filing that lists all of the transactions that took place over the third quarter in the $108 billion 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 putting his capital to work.

[ad#Google Adsense 336×280-IA]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 was thinking when he executed each transaction.

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 2,641,083 shares of Charter Communications, Inc. (CHTR)
Purchased 6,532,015 shares of DIRECTV (DTV)
Purchased 449,489 shares of Express Scripts (ESRX)NEW POSITION
Purchased 7,039,944 shares of General Motors Company (GM)
Purchased 304,034 shares of International Business Machines Corp. (IBM)
Purchased 534,461 shares of Liberty Global PLC Class A (LBTYA)
Purchased 665,400 shares of Mastercard Inc. (MA)
Purchased 205,600 shares of Precision Castparts Corp. (PCP)
Purchased 2,019,400 shares of Suncor Energy Inc. (SU)
Purchased 101,000 shares of Viacom Inc. Class B (VIAB)
Purchased 346,541 shares of Visa Inc. (V)
Purchased 1,588,034 shares of Wal-Mart Stores, Inc. (WMT)

Sales

Sold 1,275,233 shares of Bank of New York Mellon Corp. (BK)
Sold 883,234 shares of ConocoPhillips (COP)
Sold 3,978,767 shares of Deere & Company (DE) SOLD OUT — 2/17/15 UPDATE
Sold 919,918 shares of National Oilwell Varco, Inc. (NOV)
Sold 293,400 shares of Phillips 66 (PSX)

Purchases

Charter Communications, Inc. (CHTR) – Purchased 2,641,083 shares.

2014-Q3-CHTRThis purchase effectively doubled Berkshire’s stake in the media company. Berkshire initiated a stake in the company last quarter, and apparently used the third quarter as an opportunity to up that stake.

Charter Communications, Inc. provides cable services throughout the US, and is the fourth largest such provider. They serve approximately 4.5 million customers across more than two dozen states.

I discussed when I wrote about Charter last quarter after Berkshire disclosed its initial state in the company that it might be a bit of a surprise investment. And that’s because Buffett has long described fondness for investing in companies that possess durable competitive advantages, excellent fundamentals, and great track records. However, Charter has had difficulty in managing any kind of profit over the last decade – its net income over that time frame has been consistently negative, sometimes substantially so.

It’s quite possible that one of Buffett’s lieutenants initiated and added to this investment, due to its size. But it’s impossible to know for sure. At any rate, I see a number of red flags with this company. Profitability has been negative for the last ten years as aforementioned, revenue hasn’t grown substantially for the last four years, and, perhaps most disturbingly, the company is heavily leveraged. I can’t say what Berkshire sees in this company — I can’t come up with a solid investment thesis here.

DIRECTV (DTV) – Purchased 6,532,015 shares.

2014-Q3-DTVThis was an addition to an existing stake. This now brings Berkshire’s position in DTV up to 30,000,000 shares.

DIRECTV provides digital television entertainment services in the US and Latin America.

This is actually a rather large stake now, and DTV makes up 5.98% of Berkshire’s $108 billion common stock portfolio. Furthermore, this now locks in Berkshire Hathaway as DIRECTV’s largest single shareholder. It would seem Buffett sees something he likes here.

I think I see what he likes – revenue has almost tripled over the last decade, while earnings per share is up from $0.24 to $5.17 from fiscal years 2005 – 2013. That’s a compound annual growth rate of 46.78%. Nice! One aspect of DTV that’s particularly interesting, and perhaps where Buffett sees continued value, is that the company has already agreed to be acquired by AT&T Inc. (T) for $95.00 per share. Shares are still trading below that level, so there might be some arbitrage here that Buffett sees in the company, if the merger is approved and completes.

Express Scripts Holding Company (ESRX) – Purchased 449,489 shares.

2014-Q3-ESRXThis is an entirely new position for Berkshire Hathaway. Although, it’s also a rather small position, accounting for just 0.06% of the portfolio.

Express Scripts Holding Company is a healthcare management and administration services company, operating as the largest pharmacy benefit manager in the US.

This investment makes a lot of sense to me. The company is in the dominant position in the market it serves, and healthcare is absolutely an exciting industry to be in. The changing demographics in this country provide a huge tailwind for companies like ESRX, as it will surely see increased volume over the coming decades. And their huge volume provides them an economic moat through economies of scale and pricing power.

ESRX’s revenue and EPS have both grown fairly substantially over the last decade, and there doesn’t appear to be anything on the horizon to stop them from continuing down this path. The only thing about this stock that might give me pause here is its P/E ratio, which is currently at 31.15. Seems a bit rich for me, but the company’s dominant position and growth might make up for that.

General Motors Company (GM) – Purchased 7,039,944 shares.

2014-Q3-GMThis was a sizable increase to Berkshire’s existing position in GM, and brings the stake up to 40 million shares.

General Motors Company designs, manufactures, and sells a variety of cars, trucks, and auto parts across the globe.

Berkshire Hathaway now owns a fairly sizable chunk of General Motors. I also think this might be a surprising investment, only because Buffett has often been critical of auto manufacturers as investments, pointing out that very few have survived if you look at how many auto companies were around 75 years ago. That leads me to surmise that perhaps one of Buffett’s lieutenants are behind this investment.

That being said, GM has exited bankruptcy as a stronger company. Some of the fundamentals, including profitability and the balance sheet, seem fairly solid here. The company shows promise, but I personally feel the auto business is a brutal industry to invest in. It’s incredibly capital-intensive and competitive. GM is making better cars now, but they’re still dealing with the overhang of its history, including recalls and ongoing attention regarding faulty ignition switches. However, the
stock seems cheap here, with a forward P/E ratio just above 7, and the yield, at 3.77%, is attractive.

International Business Machines Corp. (IBM) – Purchased 304,034 shares.

2014-Q3-IBMThis was a rather small transaction for IBM, but added to a massive position in IBM worth more than $11.5 billion.

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

I’m not surprised to see this transaction. There’s been some speculation as to what Buffett might do with his IBM stake, seeing as how IBM reported a rather rough third quarter. The company has had trouble moving quick enough in fast-growing areas like cloud, mobile, and security, as these areas are not yet offsetting some of the losses in legacy hardware and chip businesses. But the company’s track record is excellent, and they’re well-positioned.

I’m a shareholder in IBM, so perhaps I’m biased. But I see a lot of value here, and clearly so does Buffett. The recent woes have given Buffett and Berkshire an opportunity to add to its stake in IBM at extremely cheap prices here. Furthermore, IBM itself also seems to see a lot of value in shares, as it recently announced an additional $5 billion to the buyback program. The value is compelling – the P/E ratio sits just a bit over 10 – but questions still certainly remain about their ability to grow and take market share away from competitors. I personally like this move a lot, and recently added to my position as well. The stock’s yield is near an all-time high and IBM remains committed to growing its payout to shareholders.

Liberty Global PLC Class A (LBTYA) – Purchased 534,461 shares.

2014-Q3-LBTYAThis was a relative drop in the bucket for Berkshire, but it now means they control more than 10 million shares in Liberty Global.

Liberty Global PLC, through its subsidiaries, provides various media and telecommunications services, such as video, broadband internet, fixed-line telephone, and mobile telephone services.

This appears to be a continued play on media for Buffett and Berkshire. They continue to add to their sizable investments in a number of media companies, as can be seen above with DIRECTV and Charter Communications. Liberty Global adds to that line of thought, as they’re the largest cable operator in Europe. There are fixed assets there that are attractive, and it’s likely that, either through television or over the internet, consumers will continue to pay for high-quality media content delivery.

However, like with Charter, the fundamentals don’t really strike me as attractive here. Revenue has been growing, though in a somewhat inconsistent manner. But net income is routinely negative. Furthermore, the balance sheet appears highly leveraged, and the profitability metrics appear to be poor at first glance. The one aspect that does seem attractive is the free cash flow, as cash flow is what any business owner is ultimately after. I’m not sure I can make much of an investment thesis here, but it appears Berkshire is a fan of Liberty Global.

Mastercard Inc. (MA) – Purchased 665,400 shares.

2014-Q3-MAThis is an addition to a growing position in Mastercard, and Berkshire now controls just over 4,715,000 shares in MA.

Mastercard Inc. provides payment solutions on a global scale with various services in support of credit, debit, and related payment programs.

This purchase makes a lot of sense. Global payments are still mostly completed in cash, which gives a company like Mastercard a huge runway of growth. It creates a payment process that is easier, safer, and more beneficial than cash. It’ll take time for some of the emerging markets to catch on to this, but the benefits for consumers and retailers alike are obvious.

MA has been growing at an incredible rate over the last 10 years and sports excellent fundamentals. The yield is a bit low for me here, but there’s certainly a lot to like with this investment. I suspect Berkshire will continue to add to its stake in MA routinely and profit handsomely from it. This is probably one of the few stocks on the market with a P/E ratio near 30 that makes sense.

Precision Castparts Corp. (PCP) – Purchased 205,600 shares.

2014-Q3-PCPThis purchase adds to Berkshire’s stake in PCP, bringing it up to 2,082,222 shares.

Precision Castparts Corp. manufactures metal components and products that provide investment castings, forgings, and fastener systems used in aerospace and power applications.

This purchase comes on the heels of Berkshire’s sale of 100,714 shares over the course of the second quarter. This appears to possibly be a valuation call, as PCP is off about 17% from its June highs. Overall, Berkshire sold a small portion of the position in Q2, only to add those shares back and then some during Q3.

There appears to be a lot to like here. The company is growing at robust rates across the board and the rest of the fundamentals appear rather solid as well. Revenue has grown by a compound annual rate of 14.16% over the last decade. Meanwhile, EPS has almost doubled since 2010 alone. This stock doesn’t really fall in my wheelhouse due to the extremely low yield, but it seems like a rather solid long-term investment here. The P/E ratio, at 17.70, is quite reasonable, especially considering the growth profile.

Suncor Energy Inc. (SU) – Purchased 2,019,400 shares.

2014-Q3-SUThis addition means Berkshire now has a stake in Suncor on the order of 18,477,730 shares worth just over $647 million.

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

As Canada’s leading integrated oil and gas producer, this investment seems rather solid to me. Suncor focuses on the Athabasca oil sands, which provide a low-decline source of energy. There is also little exploration risk there; however, the heavy oil is typically more expensive to procure and worth less on the open market.

SU has experienced robust growth across both the top line and bottom line across the last 10 years, and one of the more impressive integrated energy companies in this regard. I can personally appreciate the dividend, as it’s up more than threefold since 2009. The stock now yields a healthy 2.92% here, which provides Buffett and Berkshire plenty of incoming capital which can be allocated in a manner Buffett sees fit. I personally like SU here, even with declining oil prices. And the Keystone project is a potential catalyst as well.

Viacom Inc. Class B (VIAB) – Purchased 101,000 shares.

2014-Q3-VIABThis addition now brings Berkshire’s stake in Viacom up to just over 7.7 million shares.

Viacom Inc. is a global entertainment content company, with audiences in 165 countries and territories.

Again, we can clearly see a trend here with Berkshire and media. So they’re investing not only in media delivery companies, like Charter and Liberty Global, but also media creation companies like Viacom that actually own the content being moved over the pipes. Buffett has long been an open fan of media and content, with legendary investments in newspapers across the country. The only issue I perhaps see with media content is that it’s quite easy for anyone to create media these days. For instance, anyone can create an online channel and, if talented and entertaining enough, generate a viewership. Sames goes for written content, to a degree.

That all said, Viacom does sport some fairly solid metrics across the board. Growth might be a concern here, as revenue has stalled since 2007, but earnings per share is up healthily up over the last decade. Furthermore, the profitability metrics look very attractive. Their content, spread across multiple cable networks that are carried across the world, is obviously incredibly valuable, and Berkshire obviously agrees.

Visa Inc. (V) – Purchased 346,541 shares.

2014-Q3-VThis is another great buy, in my view, and means Berkshire now controls over 2.1 million shares in Visa.

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 actually like this buy even more than Mastercard. Visa is the dominant player in the global payments processing space, with a substantial lead on Mastercard and other competitors. Visa, like MA, offers brand name quality and has huge economies of scale, with a massive network already built out. Furthermore, one great aspect about this business is that there is inflation protection already built in. Since Visa earns a percentage off of every transaction that is completed using its network, as the cost of goods rise over time Visa will subsequently generate more revenue.

This company sports some phenomenal fundamentals, with huge growth across the top and bottom lines. Revenue sports a CAGR of 14.26% over the last five years, while EPS has grown at a compound annual rate of 38.88% over that time frame. Plus, it has been increasing its dividend payout rather substantially over the last few years. And that’s something I can appreciate as a dividend growth investor. I suspect, like MA, this investment will treat Berkshire quite well over the coming years. I’m also a shareholder in Visa, and I continue to look for opportune prices to add to my position. Like Mastercard, Visa isn’t cheap here with a P/E ratio approaching 30. But it appears to be growth at a reasonable price.

Wal-Mart Stores, Inc. (WMT) – Purchased 1,588,034 shares.

2014-Q3-WMTThis purchase adds to Berkshire’s sizable position, increasing it to 60,385,293 shares worth just over $5 billion.

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

This is a rather old position for Berkshire, and one might think that Buffett was behind this purchase. Berkshire has slowly and consistently increased its position in the world’s largest retailer, now amassing a rather sizable stake in the company. This makes sense as WMT sports the type of wide economic moat that Buffett loves. Being such a massive retailer gives WMT economies of scale and bargaining power with manufacturers so that they can be a low-cost provider. This gives consumers a one-stop shop where they can find merchandise at some of the lowest prices around, especially with recent price matching initiatives.

Though retailing is a low-margin business, WMT has quietly, but surely increased revenue and earnings per share like clockwork over the last decade. Furthermore, they’ve been routinely buying back their own shares, meaning there are less owners with which to share their profit with. All in all, good things. Though a lot of analysts have been predicting Wal-Mart’s demise due to the rise of e-commerce, WMT is holding their own and is also increasing their e-commerce presence as well. WMT isn’t the value it once was, with a P/E ratio of 17.35, but its yield of 2.31% and consistent dividend raises offer a lot of comfort in the form of dividend checks. I share Buffett’s affinity for WMT, as I’m a fellow shareholder.

Sales

Bank of New York Mellon Corp. (BK) – Sold 1,275,233 shares.

2014-Q3-BKThis sale reduces Berkshire’s stake in BK down to just over 23.3 million shares.

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

Berkshire still controls a rather large stake in BK, although Buffett may see something he doesn’t like here with BK.

I do notice that revenue is flat over the last two years, and even worse EPS is flat over the last decade. Of course, the financial crisis was in there, but there are many peers in this space that haven’t had as much trouble growing the top and bottom lines. The lack in meaningful growth in EPS is probably concerning by itself, but I also notice that return on equity and return on invested capital have both been falling over the last 10 years. These seem like troubling trends to me, and perhaps Buffett agrees.

ConocoPhillips (COP) – Sold 883,234 shares.

2014-Q3-COPThis transaction means Berkshire is left with just 471,994 shares worth only $33.7 million dollars – a veritable rounding error for Berkshire.

ConocoPhillips is an independent energy exploration and production company, primarily involved in crude oil and natural gas.

Buffett has been slowly selling off Berkshire’s stake in COP, and this most recent sale comes after Berkshire sold off more than 9.7 million shares last quarter. I wouldn’t be surprised to see Buffett completely exit this position next quarter, as there’s very little left now. The Q2 exit was quite timely, as COP started to tumble just after that on concerns over lower oil prices – the stock is down almost 17% since late July. But Buffett has been selling into strength and weakness, indicating he might be letting this stock go.

I’m a shareholder in COP, as its continued focus on high-quality assets on the domestic front is impressive, in my view. The company is reshaping itself after spinning off its refining assets in 2012, but it still sports solid profitability metrics. A healthy and growing dividend certainly doesn’t hurt either. The stock appears attractively valued here, but Buffett might be anticipating a protracted pullback in oil prices, in which case it could be a tough go for a number of oil companies. In that case, it would make sense to exit here.

Deere & Company (DE) – Sold 3,978,767 shares. See 2/17/15 UPDATE

2014-Q3-DEThis sale means Berkshire completed exited its position in Deere.

Deere & Company manufactures machinery used in agricultural, construction, and forestry applications.
I’m actually surprised Buffett exited his position here, but perhaps I shouldn’t be. Analysts are predicting a protracted slowdown in farming equipment purchases due to record sales over the last cycle. In addition, low corn prices are reducing demand for farm equipment in general. Thus, this could create a perfect storm where Deere may see weak earnings for years to come over the next cycle.

I’m a shareholder in Deere, and I personally think that they’re well-positioned for the long-term. However, there appears to be a dearth of near-term catalysts for the stock over the short term, which might create a lack of interest here. Deere performed exceptionally well over the last decade – revenue sports a CAGR of 7.34%; EPS, 14.07%. And the dividend is up big as well, as Deere sports a 10-year dividend growth rate of 16.3%. However, we invest where a company is growing, not where it’s been. As such, Buffett might see better opportunities out there for his capital, which would thus mean the Deere sale made sense.

National Oilwell Varco, Inc. (NOV) – Sold 919,918 shares.

2014-Q3-NOVThis sale reduced Berkshire’s stake in NOV down to 6,382,360 shares.

National Oilwell Varco, Inc. provides equipment and components used in oil and gas drilling operations.

This sale seems to keep with recent themes. Like COP above, it’s another company in the energy sector. In addition, Berkshire sold off over 1.5 million shares last quarter. So Berkshire appears to be systematically reducing its exposure to energy. Again, this might be due to concerns over reduced global energy demand and a glut of oil, reducing oil prices fairly significantly lately.

I’m actually taking a long view on oil dependence, and NOV is a dominant player in the oil services area. I actually wrote about this stock very recently, and concluded it’s rather attractively valued here. Reduced spending on drilling as a direct result of lower oil prices will likely also reduce demand for some of NOV’s products, but this is likely to be a short-term issue, in my view. Meanwhile, the company has a long-term track record of success, with top line and bottom line compound annual growth above 25% over the last decade. And the dividend is healthy, well-supported, and growing. I actually recently initiated a position in the company, so I’m moving in the opposite direction, but Berkshire still has a sizable stake in NOV.

Phillips 66 (PSX) – Sold 293,400 shares.

2014-Q3-PSXThis transaction means Berkshire still owns 6,202,400 shares of PSX.

Phillips 66 is a downstream energy company with operations primarily in refining.

Much of the same here. Buffett also sold shares in PSX last quarter, though this transaction was a fraction of last quarter’s sale of 3,245,503 shares. Another energy sale, and perhaps timely. I think the value of PSX and other energy companies depends in large part on where you think oil is going to be in five or ten years. It can oscillate wildly over the short term, but it’s hard to believe it’s not going to go up over the long haul. That being said, if Buffett believes prices will stay low for a rather lengthy period of time, these sales in energy could allow him to compound his capital at more attractive rates elsewhere in the interim.

I believe in the long-term story here with energy, and I own a stake in PSX. Energy could stay cheap for a while here, but I think, long-term, the cost of energy and demand for it both increase. PSX has a rather short operating history as an independent company, after being spun off from COP back in 2012, but it has been increasing its dividend payout aggressively since, indicating management is confident about cash flows and its prospects moving forward.

You can find more details on all of these transactions, including access to Berkshire Hathaway’s entire portfolio of U.S.-listed stocks (as reported in its quarterly filing), inside DailyTradeAlert’s Buffett Tracker.

— Jason Fieber, Dividend Mantra

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