Just yesterday, Warren Buffett’s latest trades were revealed via Berkshire Hathaway Inc.’s (BRK.B) 13F filing, which is a filing that gives us an indication as to all of the transactions that took place over the fourth quarter — the quarter ending December 31, 2014 — in the $107 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.
Purchased 1,248,141 shares of Charter Communications, Inc. (CHTR)
Purchased 944,418 shares of DaVita HealthCare Partners Inc. (DVA)
Purchased 9,529,489 shares of Deere & Company (DE)
Purchased 1,353,468 shares of DIRECTV (DTV)
Purchased 1,000,000 shares of General Motors Company (GM)
Purchased 6,493,805 shares of International Business Machines Corp. (IBM)
Purchased 415,317 shares of Liberty Global PLC Class A (LBTYA)
Purchased 684,356 shares of Mastercard Inc. (MA)
Purchased 365,200 shares of Phillips 66 (PSX)
Purchased 771,466 shares of Precision Castparts Corp. (PCP)
Purchased 8,438,225 shares of Restaurant Brands International Inc. (QSR) – NEW POSITION
Purchased 3,876,564 shares of Suncor Energy Inc. (SU)
Purchased 4,747,397 shares of Twenty-First Century Fox Inc. (FOXA) – NEW POSITION
Purchased 925,990 shares of Viacom, Inc. Class B (VIAB)
Purchased 363,000 shares of Visa Inc. (V)
Sold 1,365,000 shares of Bank of New York Mellon Corp. (BK)
Sold 471,994 shares of ConocoPhillips (COP) – SOLD OUT
Sold 449,489 shares of Express Scripts Holding Company (ESRX) – SOLD OUT
Sold 41,129,643 shares of Exxon Mobil Corporation (XOM) – SOLD OUT
Sold 1,123,975 shares of National Oilwell Varco, Inc. (NOV)
Charter Communications, Inc. (CHTR) – Purchased 1,248,141 shares.
Berkshire has been busy with Charter. This is the third quarter in a row in which the firm has purchased shares in the cable services provider. This purchase was smaller than last quarter’s purchase, but obviously continues to show faith in the investment.
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.
This investment continues to surprise me a bit due to the company’s seemingly poor fundamentals. The company hasn’t posted a profit even once over the course of the last decade and the long-term debt load is substantial. That said, they are generating free cash flow which I’m guessing is exactly what Berkshire is after.
It’s very likely that one of Buffett’s lieutenants is investing in Charter due to the size of the transactions. However, Charter is now a sizable investment for Berkshire, at now over $1 billion total invested in the cable company. The stock has been on a run over the last year, so it appears that Berkshire is making the right call here. Though, I still remain cautious and a bit leery regarding this stock.
DaVita HealthCare Partners Inc. (DVA) – Purchased 944,418 shares.
This is another stock where we can see conviction, as this transaction increases Berkshire’s stake to over 38 million shares.
DaVita HealthCare Partners Inc. provides dialysis and related lab services across the US.
Berkshire must see something they like here, as their stake in DaVita is now worth over $2.8 billion. That’s a sizable stake, even for Buffett’s standards. Healthcare is certainly an industry that favors the long-term investor, as demographic trends and costs across the board both point to increasing demand and revenue for high-quality companies that are able to provide necessary products and/or services.
DVA’s growth over the last decade has been nothing short of impressive – revenue has quadrupled and EPS is up almost threefold. Though their net margin and return on invested capital possibly leaves a bit to be desired, there’s no doubt that providing services that are absolutely necessary to a select portion of the population should lead to continued profits for shareholders, of which Berkshire is the largest. Furthermore, the stock actually looks attractively valued here at 22 times trailing twelve months earnings.
Deere & Company (DE) – Purchased 9,529,489 shares.
This is an interesting transaction. Buffett had actually requested and received special confidentiality permission to omit his DE holding from the Q3 2014 13F, which is why we reported it as a sale and closed position. However, it turns out Berkshire was actually buying DE aggressively. Berkshire didn’t only not sell 3,978,767 shares of DE during Q3, but picked up an additional 3,588,630 shares that quarter. Then, in Q4, Berkshire purchased 9,529,489 more shares, bringing Berkshire’s total position in DE up to 17,096,886 shares.
Deere & Company manufactures machinery used in agricultural, construction, and forestry applications.
I mentioned in the last update that I was surprised that Buffett would close his position out in Deere. I stated “I’m a shareholder in Deere, and I personally think that they’re well-positioned for the long-term.” That’s still true today. I’m still a shareholder in Deere, never selling out because it was thought that Buffett did. Instead, I continued to hold, as I think Deere is in a great position to capture growth from growing agricultural demand on less usable land across the world. Due to the size of these transactions, it’s almost a certainty that Buffett is behind this.
Deere’s growth over the last decade is really impressive, though it should be noted that Deere operates in a heavily cyclical industry. And demand for farming equipment is expected to fall over the next year or two. That said, a long-term investor like Buffett (and me) sees the potential here for the next decade or two.
DIRECTV (DTV) – Purchased 1,353,468 shares.
This was an addition to an existing stake, bringing Berkshire’s total position in DTV up to 31,353,468 shares.
DIRECTV provides digital television entertainment services in the US and Latin America.
More of the same here for Buffett and Berkshire, as they’ve been adding to DTV fairly heavily quite regularly. Berkshire is furthermore DTV’s largest single shareholder. And this is a major position for Berkshire, now making up 2.6% of the common stock portfolio.
This could be an arbitrage play here. AT&T Inc. (T) has already made an offer to acquire DTV for $95.00 per share. Seeing as how DTV is currently trading for $87.47 per share, there could be some quick, easy money to be made here. At any rate, DTV has done incredibly well over the last decade. They’ve grown tremendously, especially in Latin America. Revenue has almost tripled over the last ten fiscal years, and EPS has compounded at an annual rate of 46.78% from fiscal years 2005 to 2013. A lot to like here, regardless of whether or not the acquisition goes through.
General Motors Company (GM) – Purchased 1,000,000 shares.
This is another addition to the GM position, bringing the position up to 41 million shares.
General Motors Company designs, manufactures, and sells a variety of cars, trucks, and auto parts across the globe.
This is another sizable investment for Berkshire, making up approximately 1.4% of the stock portfolio. As I’ve mentioned before, this is perhaps a surprising investment due to Buffett’s historical criticism of the auto industry. He’s cited how few auto manufacturers are around in comparison to seven or eight decades ago. The industry is brutally competitive, expensive, and cyclical. However, the good news is that there are only a few truly global players, and GM is one of the biggest. Furthermore, it seems very likely that Buffett isn’t actually behind this investment.
GM has apparently come out of bankruptcy better and leaner than ever, though I think they still have a lot to prove to long-term shareholders. That said, the fundamentals appear perhaps as good as ever and the company is producing solid cash flow. The company does have some overhang from a soiled reputation and recalls, but the stock appears more or less fairly valued here with a yield of 3.22%.
International Business Machines Corp. (IBM) – Purchased 6,493,805 shares.
This was a sizable addition to one of the largest investments in Berkshire’s portfolio, now at over 76 million shares. Due to the size of this investment, Warren Buffett is almost certainly behind this one.
International Business Machines Corp. is an information technology company, providing technology-driven solutions to customers globally.
Buffett’s bet on IBM is now valued at a staggering $12.3 billion. I’m not surprised, however, by this move due to the attractiveness of IBM’s shares. The company is certainly facing some challenges, but they have one of the greatest long-term track records in all of tech. They’re investing heavily in growth areas like mobile, security, and cloud, which should help propel the future of the company while some of its legacy businesses in hardware and chips slow down or completely disappear.
This stock appears to be one of the clearest and best values on the market. Shares trade hands for a ridiculously low P/E ratio of just 10.22, which is almost absurd for a company of this kind of quality. Furthermore, the stock offers a very attractive 2.73% yield backed by a track record of growing the dividend – 19 consecutive years and counting. I’m a shareholder in IBM, but perhaps I should follow Buffett’s lead and add to my stake before it’s too late.
Liberty Global PLC Class A (LBTYA) – Purchased 415,317 shares.
This is an addition to an existing stake in Liberty Global, bringing the position up to 10,816,324 shares.
Liberty Global PLC, through its subsidiaries, provides various media and telecommunications services, such as video, broadband internet, fixed-line telephone, and mobile telephone services.
If there’s a recurring theme across the last few quarters, it’s an increasing of the exposure across media companies for Berkshire. The company continues to add to media holdings, as can be seen with CHTR and DTV above. Whether it’s media delivery, original content production, or broadcasting, Berkshire seems to be interested.
However, like with Charter above, I’m not quite sure I see a compelling investment case here for LBTYA. The fundamentals across the board aren’t really impressive and the company has an inability to generate recurring profit. The company is generating free cash flow, but margins and returns on equity and invested capital aren’t impressive. Nonetheless, Berkshire is obviously a fan of this company and its products/services.
Mastercard Inc. (MA) – Purchased 684,356 shares.
Another addition to Mastercard for Berkshire, now bringing their position up to 5,399,756 shares.
Mastercard Inc. provides payment solutions on a global scale with various services in support of credit, debit, and related payment programs.
I personally applaud this investment. The trends bode very well for Mastercard and companies like it, as the vast majority of global transactions are still performed with cash. So there’s a huge runway of growth ahead here for Mastercard as they eventually capture growth and spread their services across underserved markets.
MA’s growth over the last decade is nothing short of stunning. Revenue has grown at a compound annual rate of 13.89% over the last ten fiscal years, while EPS has compounded at an annual rate of 31.15%. The stock may seem a bit rich at first glance, with a P/E ratio of 28.27. However, I would argue that’s fair considering the company’s historical growth and its potential moving forward.
Phillips 66 (PSX) – Purchased 365,200 shares.
This adds to Berkshire’s stake in PSX, now bringing the position up to 6,567,000 shares.
Phillips 66 is a downstream energy company with operations primarily in refining.
Perhaps a surprising reversal, Berkshire’s addition to its PSX stake is around the same size as the sale that occurred in Q3. I’ve noticed that Berkshire has been a net seller in the energy sector, though this was a rather small transaction.
I’m a fan of the energy sector over the long haul, however, as the predictions I continue to read about are calling for incrementally increasing demand for decades due to a growing global population and rising middle classes across emerging and developing markets. And PSX is a high-quality refiner that should capture a large chunk of the domestic energy renaissance. The stock’s valuation – the P/E ratio is just under 12 – seems reasonable and offers a yield of 2.60%, backed by solid growth in the dividend payout. This purchase makes sense to me.
Precision Castparts Corp. (PCP) – Purchased 771,466 shares.
This transaction adds to Berkshire’s stake in PCP, bringing it up to 2,853,688 shares.
Precision Castparts Corp. manufactures metal components and products that provide investment castings, forgings, and fastener systems used in aerospace and power applications.
Berkshire continues to add to PCP as the stock has tumbled, down some 14.2% over the last six months. For an accumulator of stock, however, cheaper shares is good news. And Buffett and his lieutenants know this. Notably, this purchase was more than three times larger than the purchase in Q3.
As I’ve stated before, there’s a lot to like here. PCP is growing rapidly across the board, net margin is impressive, and return on equity is solid. The balance sheet is also being managed correctly with a lot of flexibility for the firm. And the valuation here appears very attractive considering the fundamentals, with a P/E ratio of just 15.91. This could be an opportunity to buy into PCP for a price below what Berkshire paid.
Restaurant Brands International Inc. (QSR) – Purchased 8,438,225 shares.
This is a new position for Berkshire.
Restaurant Brands International Inc. owns and operates Tim Horton’s and Burger King quick service restaurants.
This is another special transaction, as Buffett notably partially backed a deal for Burger King to acquire Tim Horton’s and create the world’s third-largest fast food company. The financing was a deal structured so that Buffett, via Berkshire, would provide $3 billion in financing in exchange for preferred shares offering a 9% dividend. However, Buffett also received a warrant to purchase 8,438,225 shares for $0.01 per share. How’s that for an attractive cost basis?
QSR may or may not be a good investment for a retail investor, but Buffett obviously negotiated a fantastic deal for Berkshire and its shareholders here. Not only does he receive a 9% dividend on the preferred, but he also basically received over 8 million common shares for free. It’s too early to tell how this company will perform, but Berkshire made out really well here.
Suncor Energy Inc. (SU) – Purchased 3,876,564 shares.
This is an addition to a rather large stake in Suncor, now at 22,354,294 shares.
Suncor Energy is an integrated energy company based out of Canada.
Suncor is Canada’s leading integrated oil and gas producer, with a heavy concentration on the Athabasca oil sands. Those sands provide a low-decline source of oil, though oil that’s heavier and worth less on the open market. The oil from the sands can also be somewhat expensive to extract, though there are limited exploration costs.
SU’s results over the last 10 years have been pretty solid, though heavily volatile as is the nature of the beast with the cyclical prices of energy commodities. There’s a lot to like here with Suncor, though I would caution that some of its fundamentals – namely return on equity and return on invested capital – lag some US producers. One aspect of this stock that I particularly like, as a dividend growth investor, is the dividend yield and growth. The stock yields 2.81% right now, with a five-year dividend growth rate of 27.8%. Though, with falling oil prices and a moderate payout ratio, it’s unlikely the dividend will grow that quickly over the foreseeable future.
Twenty-First Century Fox Inc. (FOXA) – Purchased 4,747,397 shares.
This is the second new position this quarter for Berkshire Hathaway, with all 4.7 million shares purchased in Q4.
Twenty-First Century Fox Inc. (FOXA) is a global diversified entertainment and media companies with operations in cable network programming, television, and filmed entertainment.
We can see a trend here where Berkshire Hathaway continues to add to high-quality and established media companies around the world. This makes sense to me since it’s unlikely that people will stop consuming media anytime soon. In fact, with the proliferation of smartphones and mobile devices, staying connected to media is easier than ever.
Fox owns some attractive media properties across several platforms. The company’s growth and cash flow generation is a bit spotty, however. And most of their fundamentals seem to oscillate rather wildly from year to year. That said, Fox is very entrenched across media, with a high likelihood of that remaining for years to come. Though media is highly competitive, there are really only a few major players, of which Fox is one. This is definitely a stock to consider if you’re looking for exposure to Big Media.
Viacom, Inc. Class B (VIAB) – Purchased 925,990 shares.
This adds to Berkshire’s existing position in Viacom, bringing that holding up to 8,634,190 shares.
Viacom Inc. is a global entertainment content company, with audiences in 165 countries and territories.
This was a rather large addition here, more than nine times the size of the transaction in the prior quarter. And one can see a continuing trend here, as pointed out above, with Berkshire’s shopping spree across media companies. It’s interesting as well that Buffett and Berkshire aren’t just sticking to one kind of media, preferring to invest across multiple media platforms from cable, traditional broadcast, publishing, and content production. Viacom actually creates media content, owning a variety of cable television networks. The only issue I’ve pointed out in regards to owning content production companies is that it’s becoming increasingly competitive as niche companies are able to enter the fray and create competitive content.
Revenue growth is a concern here, but earnings per share is up substantially over the last decade. And the company’s profitability looks excellent. Though the stock’s yield of 1.90% doesn’t particularly interest me, it is a nice income component to the stock. Furthermore, shares appear attractively valued here with a P/E ratio of 12.72. The stock is down almost 8% YTD, meaning you could potentially buy in for less than Berkshire. It’s not often one can say that.
Visa Inc. (V) – Purchased 363,000 shares.
This is another addition to Berkshire’s stake, as they’ve been busy quarter after quarter adding to Visa. Their position in V is now up to 2,509,290 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.
Like I mentioned above with MA, V’s growth has not only been fantastic as long as they’ve been a public company, but the runway for future growth is extremely long. This is one of the few major companies with a market cap over $150 billion that has such massive growth potential due to the fact that a majority of global transactions are still completed using cash. And one great aspect about this company is that it has inflation protection built right in: Since they collect a small percentage of every transaction processed over their network, as goods and services rise in price along with inflation, V’s fees will naturally increase as well.
The stock appears perhaps a tad rich here, with a P/E ratio of just over 30. Though, like with MA, I’d argue that’s probably not particularly expensive since V is growing at such a rapid rate. Over just the last five years, V’s revenue has grown at a compound annual rate of 12.03%, while EPS has a CAGR of 21.09%. So they’re clearly not slowing down. The yield’s a bit unattractive, at just 0.71%. However, I’m a shareholder in Visa anyway due to its incredible growth, excellent fundamentals, and almost bulletproof business model.
Bank of New York Mellon Corp. (BK) – Sold 1,365,000 shares.
This sale reduces Berkshire’s stake in BK down to just over 22 million shares.
Bank of New York Mellon Corp. is a global financial services company, providing investment management and investment services.
Showing incredible consistency, this sale was almost exactly the same size as the transaction Berskhire recorded in the prior quarter, selling almost the same exact number of shares. It’s difficult to tell exactly what Buffett or his lieutenants are thinking here, though it could be as innocent as freeing up capital for higher-conviction investments. It’s important to note that BK is still a very large investment for Berkshire, at over $860 million.
It’s interesting that BK’s EPS is essentially flat over the last decade – $1.85 in FY 2004 and $1.74 in FY 2013. Revenue has fared better, though that’s also fairly flat over the last four years. Overall, this appears to be somewhat of a mediocre holding from what I can see, especially compared to Buffett’s biggest common stock investment – Wells Fargo & Co. (WFC). I wouldn’t be at all surprised to see Berkshire slowly sell this stake off.
ConocoPhillips (COP) – Sold 471,994 shares.
This transaction completely closes Berkshire’s stake in COP out.
ConocoPhillips is an independent energy exploration and production company, primarily involved in crude oil and natural gas.
This continues a recent trend I’ve noticed in Berkshire’s stock portfolio, whereby there’s a shift away from energy in general. This most recent sale wasn’t surprising at all, following up the sale of over 880,000 shares in COP in Q3. It’s possible that Buffett is forecasting a protracted drop in oil, where capital would be better invested elsewhere until oil supply and demand can come into a better equilibrium in the future.
I’m still a shareholder in COP, as I plan on holding for decades to come. An investor in oil producers must be ready to deal with volatility, as that’s just par the course for oil over the long haul. That said, it could be a rough patch for years to come, as it’s just impossible to know when energy will bounce back. But I’m also pretty confident that COP will continue to thrive regardless, albeit perhaps less profitably and unable to grow the dividend at a robust rate.
Express Scripts Holding Company (ESRX) – Sold 449,489 shares.
This sale completely eliminated Berkshire’s stake in ESRX.
Express Scripts Holding Company is a healthcare management and administration services company, operating as the largest pharmacy benefit manager in the US.
Berkshire held this stake for a pretty short period of time, opening a stake in ESRX in Q3 and now selling it all off in Q4. Generally, Buffett and his crew are thought of as long-term investors, so perhaps this was just a valuation call. I do know that ESRX was available in the mid-$60s in Q3 and it ran up to the mid-$80s in Q4. So that’s a pretty big run over a short period of time, and perhaps Berkshire was taking some profits off the table. Nonetheless, it is surprising if they entered into ESRX as a long-term investment.
ESRX appears to be a high-quality company from all I can see. EPS has grown at a compound annual rate of 19.58% over the last decade, which is extremely impressive. Other than low margins, there isn’t really much to dislike here. They’re extremely dominant in their market, and healthcare trends bode well for this company. And I believe their size, scale, and reach provides them competitive advantages that would be extremely difficult to replicate. But the stock does appear pricey here, with a P/E ratio north of 31. So it could be a valuation call.
Exxon Mobil Corporation (XOM) – Sold 41,129,643 shares.
This sale completely closed out BRK’s position in XOM.
Exxon Mobil is an integrated global energy company engaged in the exploration for and production of crude oil and natural gas.
Although Buffett and Berkshire have been steadily reducing their exposure to energy, this is perhaps a little shocking. This was a rather large investment, at almost $4 billion using today’s price of $93.05 on XOM shares. But Exxon Mobil is one of those blue-chip stocks that Buffett operates pretty comfortably around. And if any company could survive – and possibly thrive – through the recent energy downturn, it’s XOM.
I’m a shareholder in XOM, though it’s a rather small position for me. But I am confident in XOM’s ability to perform and grow over long periods of time. Meanwhile, it’s paying out an attractive dividend, with a yield near 3% right now. The P/E ratio is just over 12 right now, though it’s unclear how much their net income will be affected by the drop in oil prices. This could just be an issue of opportunity cost. If Buffett feels his capital will do better elsewhere, then it makes sense to put that capital to work in other opportunities.
National Oilwell Varco, Inc. (NOV) – Sold 1,123,975 shares.
This sale reduced Berkshire’s stake down to 5,258,385 shares.
National Oilwell Varco, Inc. provides equipment and components used in oil and gas drilling operations.
Another energy company and another stock sale. This continues the trend that’s been going on for a while now with BRK. I’m personally a bit surprised with this move, although I probably shouldn’t be as it keeps pace with the last couple quarters. But I’ve actually been adding to my stake in NOV over the last few months, as I think it’s undervalued and high in quality.
NOV’s stock is trading hands for a P/E ratio of 9.67. And the yield, at 3.34%, is among the highest NOV has ever offered, though with the caveat that it’s only been paying a dividend since 2010. But a healthy backlog and exposure to the entire oil and gas industry means NOV should fare well. That being said, this could again be opportunity cost at work. If someone at Berkshire sees better opportunities for capital, that could be the reasoning here. But I can’t imagine it’s a valuation or quality call, from what I can see.
— Jason Fieber, Dividend Mantra[ad#IPM-article]