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 information on all of the transactions that took place over the second quarter of 2015 — the quarter ending June 30 — in the stock portfolio managed by the legendary investor.
This filing can provide some valuable insight into where Warren Buffett thinks the best investments might lie.
Now, it might not make sense to piggyback on his trades and simply buy and/or sell whatever he has because these filings are generally released 45 days after the most recent quarter ended, but it would appear to be an intelligent move to investigate exactly where the most successful investor of all time is (and isn’t) putting his capital to work.[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 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.
Purchased 20,000,000 shares of Axalta Coating Systems Ltd. (AXTA) – NEW POSITION
Purchased 2,535,542 shares of Charter Communications, Inc. (CHTR)
Purchased 1,289,777 shares of U.S. Bancorp (USB)
Sold 1,374,189 shares of Chicago Bridge & Iron Company N.V. (CBI)
Sold 1,978,895 shares of National Oilwell Varco, Inc. (NOV) – SOLD OUT
Sold 7,499,450 shares of Phillips 66 (PSX) – SOLD OUT
Sold 2,618,358 shares of Viacom, Inc. (VIAB)
Sold 86,000 shares of WABCO Holdings Inc. (WBC)
First, I’ll quickly note that although it’s not reflected in the most recent 13F because the transaction just went public this past week, Berkshire acquired the entirety of Precision Castparts Corp. (PCP) in a deal valued at $37.2 billion, including debt.
Berkshire owned approximately 3% of the company before this deal, but decided to purchase the other 97% it didn’t own.
Buffett is obviously behind this deal. However, Buffett has given the credit to Todd Combs for putting this company on his radar, meaning that it was likely Combs who was behind the building of this position.
This is now the biggest deal ever for Berkshire Hathaway. Although the Buffett Tracker will still show a small position in PCP due to the fact that this transaction just closed, it’s important to be aware that Berkshire actually owns the entire company as an operating subsidiary now.
Axalta Coating Systems Ltd. (AXTA) – Purchased 20,000,000 shares.
This is a new position for the Berkshire Hathaway common stock portfolio.
Axalta Coating Systems Ltd. manufactures, markets, and distributes coatings systems that primarily serve the automotive industry.
This transaction is pretty interesting. Berkshire bought these shares directly from The Carlyle Group LP (CG), who in turn bought Axalta from E. I. Dupont De Nemours And Co (DD) in 2013. The Carlyle Group offered an IPO on Axalta in November 2014, but retained significant ownership in the company.
This transaction means Berkshire is now the second-largest shareholder in Axalta, an 8.7% stake in the company. That’s behind only The Carlyle Group.
Axalta hasn’t been public long, so it’s difficult to get a read on where the results are headed. But it’s clear that Berkshire likes the coatings business – they also own paint company Benjamin Moore & Co.
We can see that revenue in fiscal year 2014 was up a solid 10.2% compared to FY 2013 for AXTA. And net income swung from a moderate loss to a solid profit year-over-year.
What Berkshire probably sees in this company is a rich history, since the company has been around for almost 150 years. And there are only a few major suppliers of coatings to the automotive industry, of which Axalta is one.
Charter Communications, Inc. (CHTR) – Purchased 2,535,542 shares.
This purchase brings Berkshire’s stake in CHTR up to 8,514,678 shares, which is an increase of 42.4%.
Charter Communications, Inc. provides cable services throughout the US, and the fourth largest such provider. They serve approximately 4.5 million customers across more than two dozen states.
This is a massive increase in Berkshire’s stake in the domestic cable provider. I continue to be a bit perplexed by the building out of this position, which now ranks Berkshire as one of the largest shareholders in Charter.
As long as Buffett has run Berkshire, he has typically invested in high-quality companies with strong fundamentals. Now, it’s not known if Buffett is behind the Charter investment. It’s actually likely, due to the size, that it’s Combs or Weschler. But Charter doesn’t turn a profit, doesn’t sport particularly impressive fundamentals, isn’t the largest in its market, and is saddled with debt.
However, this investment might turn out to be rather prescient after all. The company announced in May that they had entered into an agreement to merge with Time Warner Cable Inc. (TWC), which would create a juggernaut in the industry.
In addition, there’s a contingent deal to acquire privately held company Bright House Networks. The combined transactions would transform Charter into a leading cable and broadband company.
These transactions haven’t closed yet, but this investment could turn out to be far better than what it initially appeared to be on paper.
U.S. Bancorp (USB) – Purchased 1,289,777 shares.
This transaction increases Berkshire’s stake in USB up to 85,063,167 shares, which is a 1.5% increase since last quarter.
U.S. Bancorp is a holding company that, through its banking subsidiary, offers general banking business products and services across 25 states in the northern and western United States.
This regional bank is now one of Berkshire’s larger positions, valued at just over $3.8 billion.
Buffett’s love of banks has long been known. And why wouldn’t he love banks?
It’s an industry that’s age old and hasn’t changed much over the last century. Although capital is now available via a number of newer channels like crowdfunding and peer-to-peer lending, the fact of the matter is that banks still hold the keys when it comes time to take out a large loan or run a checking or savings account.
Banks have access to large and low-cost sources of capital, which gives them an incredible competitive advantage. And when interest rates rise, this will make these sources of capital even more profitable as banks are able to increase their rates of return without taking on excess risk.
USB has performed well coming out of the financial crisis. Fundamentals are among the best in the industry. Earnings per share have increased every year since fiscal year 2009 and the bank is back to increasing its dividend regularly. This investment should be a nice hedge against rising rates all while providing Berkshire a rising source of cash flow.
Chicago Bridge & Iron Company N.V. (CBI) – Sold 1,374,189 shares.
This sale reduces Berkshire’s position in CBI to 9,326,921 shares, which was a 12.8% reduction.
Chicago Bridge & Iron Company N.V. is an energy infrastructure company, providing design, engineering, and construction services to clients in the energy, petrochemical, and natural resource companies.
This is an interesting sale in the sense that Berkshire added a similar number of shares to its CBI position a year ago at likely a much higher price.
As I’ve mentioned before, CBI offers a lot to like. I believe the building out of infrastructure will be a huge story over the next decade or two, especially in emerging markets. And while CBI focuses on the energy industry, it hasn’t been particularly hard hit recently.
Its backlog was recently reported to be at just under $30 billion, which is more or less unchanged since the end of the last fiscal year. Moreover, recent results have been rather strong.
The valuation also appears compelling here, with the stock sporting a P/E ratio below 10. However, if I had to venture a guess, Berkshire might be reducing its risk here. First, the company has notably been reducing its exposure to the energy industry in general lately. Second, the company is involved in litigation with Southern Co. (SO) over cost overruns of the Vogtle nuclear project. Third, there is some questions regarding goodwill after acquiring Shaw Group in 2013.
This appears to be a deep value play, but perhaps Berkshire sees the risks as fairly serious.
National Oilwell Varco, Inc. (NOV) – Sold 1,978,895 shares.
This transaction completely eliminated Berkshire’s stake in NOV.
National Oilwell Varco, Inc. provides equipment and components used in oil and gas drilling operations.
The complete selling out of this investment should surprise no one that follows Berkshire’s moves.
Berkshire reduced its position in NOV by more than 60% just last quarter.
They’ve been slowly selling out of this position for more than a year. Furthermore, Berkshire has been reducing its exposure to the entire Energy sector for quite some time.
I’m actually a shareholder in National Oilwell Varco, and I’ve been actively buying as the stock has cratered. And cratered it has – it’s down by more than 39% YTD.
This sale makes a lot of sense from the perspective of near-term performance. Although I think National Oilwell Varco is well positioned for the long term, the next year or so appears to be very tough for the company due to a dearth of new orders which is slowly reducing its backlog.
This company’s financial results will likely continue to discouraging for the foreseeable future with the oil & gas industry reeling on the back of falling oil prices. Q2 2015 EPS was almost cut in half compared to Q2 2014. And there doesn’t appear to be much relief on the horizon.
As such, Berkshire likely sees better places to put its capital to work. And it may be the case where Buffett just doesn’t see the oil & gas industry returning to its recent former glory anytime particularly soon.
Phillips 66 (PSX) – Sold 7,499,450 shares.
With this transaction, Berkshire has completely sold out of its stake in PSX.
Phillips 66 is primarily an independent refiner, with assets in midstream and chemicals.
Again, not a shock here at all. This might be a little interesting only in the sense that Berkshire actually added to its PSX stake over the last two quarters. But this is basically the culmination of Berkshire’s systematic reduction to exposure to major energy plays, especially those in the oil & gas industry.
This could have also been a valuation call here. As I noted in the last update on Bufett’s moves, it’s quite possible that Berkshire took advantage of the major price drop on PSX shares that occurred early in Q1.
The stock hit just above $57 a share earlier this year and currently trades at $82.25 per share. That’s quite a swing in the right direction for a company that operates in a volatile industry that’s especially volatile right now.
However, because of PSX’s unique position in the marketplace, they’re fairly well placed for the foreseeable future. They have no upstream operations and their midstream, chemical, and refining operations have all been extremely strong lately. FY 2015 Q2 EPS was up significantly compared to 2014 Q2.
Nonetheless, I think this is just a case of chasing after the best opportunities. And there’s a chance that Buffett and Berkshire see better opportunities elsewhere right now.
Viacom, Inc. (VIAB) – Sold 2,618,358 shares.
Berkshire now owns 5,646,721 shares of VIAB after this transaction, which is 31.7% less than last quarter.
Viacom Inc. is a global entertainment content company, with audiences in 165 countries and territories.
This is the second quarter in a row that Berkshire has reduced its stake in Viacom, with this transaction being particularly aggressive.
It would appear that this move was rather timely – VIAB was caught up in the recent rout that affected media stocks across the board, with Viacom’s stock down more than 29% over just the last month. Berkshire did right to unload part of its stake here, saving shareholders some serious cash.
Berkshire has been, overall, a net buyer of media stocks over the last year or so. However, there are concerns over Viacom’s ability to compete in an increasingly competitive world where content creation and delivery is widening both in scope and breadth.
Revenue for the company has been flat since FY 2007. And the company carries a rather substantial amount of debt.
On the other hand, Viacom owns some of the most valuable and well-known media properties in its space. Cable channels Nickelodeon and MTV along with its filmed entertainment business in Paramount are still some of the best around when it comes to content creation.
But Viacom’s near term prospects could be challenging, which might make reducing exposure here sensible.
WABCO Holdings Inc. (WBC) – Sold 86,000 shares.
Berkshire’s sale here reduced its stake in WBC down to 3,777,195 shares, a reduction of 2.2%.
WABCO Holdings Inc. and its subsidiaries is engaged in the manufacture, marketing, and sale of electronic, mechanical, and mechatronic products for the commercial truck, trailer, bus, and passenger car manufacturers.
This was a small transaction, following on the heels of a small reduction in the WBC stake last quarter. This remains a fairly small position for Berkshire, at under $500 million. $500 million might be a lot of money to you or me, but it’s not to Berkshire.
WABCO isn’t a household name, but the company has done fairly well for itself over the last decade. Notably, its results can be rather volatile, but the overall fundamentals are pretty solid.
As was the case last quarter, this might just be a valuation call. The stock’s P/E ratio is over 25 right now, which is substantially higher than the five-year average of 18.5. This follows a stellar performance for WBC over the last year – the stock is up 22% over the last year.
But net income for FY 2014 was lower than that which the company recorded for FY 2011. So the stock’s movement lately seems to be disconnected from the company’s profit performance.
WABCO has some impressive fundamentals, like sky-high return on invested capital. However, the valuation, in light of oscillating results and the recent historical multiple, seems awfully rich. So it would make sense that Berkshire might want to take a little off the table here.
— Jason Fieber, Dividend Mantra[ad#DTA-10%]