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 first quarter of 2016 — the quarter ending March 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.[ad#Google Adsense 336×280-IA]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.
Purchased 9,811,747 shares of Apple Inc. (AAPL) – NEW POSITION
Purchased 715,000 shares of Bank of New York Mellon Corp. (BK)
Purchased 45,200 shares of Charter Communications, Inc. (CHTR)
Purchased 396,844 shares of Deere & Company (DE)
Purchased 198,853 shares of International Business Machines Corp. (IBM)
Purchased 3,033,140 shares of Liberty Global PLC Class A (LBTYA)
Purchased 2,200,000 shares of Liberty Media Corp. (LMCA)
Purchased 4,613,743 shares of Liberty Media (C shares) (LMCK)
Purchased 354,000 shares of Visa Inc. (V)
Purchased 14,063,819 shares of Phillips 66 (PSX)
Sold 46,577,138 shares of AT&T Inc. (T) – SOLD OUT
Sold 295,000 shares of Mastercard Inc. (MA)
Sold 4,200,792 shares of Precision Castparts Corp. (PCP) – SOLD OUT*
Sold 52,477,678 shares of Procter & Gamble Co. (PG)
Sold 94,121 shares of WABCO Holdings Inc. (WBC)
Sold 949,430 shares of Wal-Mart Stores, Inc. (WMT)
Apple Inc. (AAPL) – Purchased 9,811,747 shares.
This is a new position for Berkshire’s common stock portfolio.
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 may surprise some. Although, Berkshire has already confirmed to The Wall Street Journal that Buffett wasn’t behind this investment (meaning it was either Combs or Weschler). Buffett himself has long been averse to tech investments in general due to most technology being beyond his circle of competence.
However, Apple’s core product – the iPhone – is pretty easy to understand in that people all over the world need to communicate regularly, and it’s obvious by now that they prefer to do so while using devices like the iPhone. Moreover, people continue to consume more and more data and information, and doing so is simple and fun on a high-end smartphone. Apple’s vertical integration (software, hardware, ecosystem) and design prowess has allowed them to register otherworldly margins as a result.
While Berkshire has never invested in the next “hot tech trend”, Apple is a bonafide value stock at this juncture. The P/E ratio is 10.45, which is half the broader market. Meanwhile, the company continues to pay out growing dividends while buying back substantial amounts of its stock. And the stock yields almost 2.5%. This gives Berkshire plenty of incoming cash flow to reinvest. These are hallmarks of Buffett investments, which is surely why one of his lieutenants (both of which were hand picked by Buffett) bought Apple stock.
Bank of New York Mellon Corp. (BK) – Purchased 715,000 shares.
This transaction brings Berkshire’s position up to 20,827,212 shares, an increase of 3.6%.
Bank of New York Mellon Corp. is a global financial services company, providing investment management and investment services.
This is an interesting purchase. It reverses a trend where Berkshire was consistently and almost systematically selling shares in the bank last year.
This could just be a valuation call. The EPS has moved up in recent quarters even while the stock price is down. The stock was trading for well over $40 per share for much of 2015, while the stock was in the mid-$30s for much of January and February.
However, I will note, as I’ve noted before, that this bank doesn’t sport the strong fundamentals that you’ll find across many of the banks that Buffett typically prefers. The bank hasn’t performed as well as one might expect coming out of the financial crisis – EPS is still lower than it was a decade ago.
Charter Communications, Inc. (CHTR) – Purchased 45,200 shares.
This purchase brings Berkshire’s stake in the company up to 10,326,803 shares, which is an increase of 0.4% since last quarter.
Charter Communications, Inc. provides cable services throughout the US, and is the fourth largest such provider.
Berkshire was aggressively adding to this company throughout 2015, although they’ve been a bit quieter here to start this year.
This was just a small transaction, barely nudging Berkshire’s stake in the cable company.
I remain a bit befuddled by this investment since it lacks any of the clear hallmarks that you typically see of Buffett-type investments. While it’s not known if Buffett is actually behind this investment, Charter isn’t dominant, they continue to post losses year after year (they haven’t been profitable over the last decade), and even the long-term top-line growth isn’t particularly great.
However, the stock is up more than 11% on the year, so the market (and Berkshire) clearly sees something I don’t. For perspective, Berkshire owns more than 9% of the company.
Deere & Company (DE) – Purchased 396,844 shares.
Berkshire now owns 23,280,994 shares, an increase of 1.7%.
Deere & Company manufactures machinery used in agricultural, construction, and forestry applications.
Berkshire has been regularly purchasing large lots of stock in Deere, although this transaction was rather small relative to what we’ve seen over more recent quarters.
Nonetheless, it brings Berkshire’s stake in Deere up to over 7.5% of the company, which is significant. That places Berkshire as the second-largest shareholder, behind only Cascade Investment LLC, which is Bill Gates’s – a close friend of Buffett – personal investment vehicle. And based on the size of the position, it would make sense that Buffett is behind this one.
So we see that both men – who are both among the world’s richest – are big fans of Deere. And I concur as a fellow (albeit much smaller) shareholder.
The company remains very profitable, even with commodities across the board falling through the floor. And that’s because Deere remains a dominant force with a leading market share here in the US. Meanwhile, fundamentals across the board are very solid. With the way the world is growing richer, older, and bigger, demand for mechanized farming and more labor-intensive meat products are likely to only grow. That bodes well for Deere.
And the stock offers a yield near 3% here, which offers plenty of cash flow for Berkshire. Deere also routinely increases its dividend, doing so for 12 consecutive years. The valuation also appears to be very reasonable here. This is right up Berkshire’s alley.
International Business Machines Corp. (IBM) – Purchased 198,853 shares.
This transaction increased Berkshire’s position in IBM to 81,232,303 shares, up by 0.2%.
International Business Machines Corp. is an information technology company, providing technology-driven solutions to customers globally.
Buffett has championed this large investment for years now, even as the stock hasn’t performed very well. Berkshire is the largest shareholder in IBM, owning more than 8.5% of the company.
But Buffett is keenly aware that a cheaper stock is much more advantageous because IBM routinely buys back substantial portions of its outstanding shares – it has reduced its outstanding share count by more than 36% over the last decade. The cheaper the stock, the more accretive these buybacks are to EPS. And the cheaper the stock, the more shares that can be bought back with a fixed amount of money, which also has the effect of increasing Berkshire’s stake in IBM (even if Berkshire doesn’t buy any IBM stock).
IBM continues to turn its business around, which is one of the largest and most dramatic pivots any corporation has ever taken on.
While revenue has dropped slightly over the last decade, EPS has more than doubled. And margins are up significantly as IBM continues to shift its business mix away from lower-margin hardware and toward higher-margin services and software.
Buffett obviously still believes in IBM.
And the valuation is really appealing here, with the stock sporting a P/E ratio of just 11.25 (compared to its five-year average of 12.9). Moreover, the stock yields 3.75% (compared to its five-year average of 2.3%) right now. And that big dividend will likely continue to grow for years and years since the stock’s payout ratio is low and dividend growth is supported by that aforementioned buyback program.
Liberty Global PLC Class A (LBTYA) – Purchased 3,033,140 shares.
Berkshire now owns 16,094,575 shares, an increase of 24.2% over last quarter.
Liberty Global PLC, through its subsidiaries, provides various media and telecommunications services, such as video, broadband Internet, fixed-line telephone, and mobile telephone services.
Berkshire has been aggressively adding to Liberty Global and all of its offshoots for as long as I’ve doing these updates. Other than some small sales here and there, Berkshire has been a strong net buyer of these stocks.
Buffett has long been enamored with media. He has a long history with newspapers and networks, and we see that infatuation continuing to this day, with Berkshire’s common stock portfolio being somewhat heavily exposed to major media companies.
Liberty Global is, admittedly, a bit hard to understand. Although the company’s revenue has grown strongly and fairly consistently over the last decade, many of the other financial results seem to oscillate quite a bit. Moreover, the valuation doesn’t seem to be particularly compelling right now.
Free cash flow remains robust, however. And John Malone (Chairman of the company), a billionaire himself, is a media magnate, building the entities that now make up the Liberty empire.
Liberty Media Corp. (LMCA) – Purchased 2,200,000 shares.
This purchase brings Berkshire’s stake up to an even 10,000,000 shares, or 28.2% more than last quarter.
Liberty Media Corp. is a media, communications, and entertainment company.
So we see more of the media theme playing out with Berkshire’s portfolio, which is a theme that’s been playing out for a long time.
Whereas Liberty Global focuses on traditional cable, broadband, and telecommunications assets, Liberty Media has a diverse media portfolio that includes satellite radio assets, a major league baseball team, interests in various companies and partnerships, and a large ownership stake in Live Nation Entertainment, Inc. (LYV).
Again, the results oscillate a lot. It’s tough to get a good read on some of the fundamentals. But Berkshire must have a good feeling about John Malone and his ability to create value in the media industry.
Liberty Media Corp. Class C (LMCK) – Purchased 3,033,140 shares.
This brings Berkshire’s position up to an even 20,000,000 shares, which is a 30% increase.
Liberty Media Corp. is a media, communications, and entertainment company.
This is essentially the same stock as LMCA in the sense that it offers the same percentage of equity ownership Liberty Media.
However, the difference is that it is a non-voting stock class, whereas the Class A shares offer one vote per share.
Visa Inc. (V) – Purchased 354,000 shares.
This transaction boosted Berkshire’s stake in Visa up to 10,239,160 shares, 3.6% more than last quarter.
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.
Visa remains one of my favorite businesses and stocks.
It’s just a dynamite business model: they provide secure, fast, and easy payment for both consumers and businesses. In return, they have what could be described as a “toll road” of cash flow – Visa collects a percentage of all transactions that are completed on their network.
What’s perhaps more amazing is that inflation protection is built right in. As the cost of goods and services increase, Visa’s revenue grows due to that fee structure.
Revenue has more than doubled since fiscal year 2009. EPS is up fivefold since then. The company has no debt. It’s just high quality across the board. And with the vast majority of global transactions still being conducted in cash, there’s a large runway for growth here. I think Visa is still in its early innings.
Although the stock looks a bit expensive right now, with a P/E ratio over 30, I argued that it was undervalued not long ago.
Phillips 66 (PSX) – Purchased 14,063,819 shares.
Berkshire now owns 75,550,745 shares, which is a 22.9% increase over last quarter.
Phillips 66 is primarily an independent refiner, with assets in midstream and chemicals.
Buffett increasing Berkshire’s stake in Phillips 66 was already discussed in last quarter’s update since the purchasing was disclosed before the most recent 13F was released.
AT&T Inc. (T) – Sold 46,577,138 shares.
Berkshire sold out of this position completely.
AT&T Inc. is the second-largest wireless carrier in the US, supporting over 130 million wireless phone connections, approximately 16 million high-speed Internet connections, and more than 45 million video connections.
I noted in last quarter’s update that “Berkshire ended up with its AT&T stake after AT&T acquired DIRECTV, a large position for Berkshire. Seeing as how Berkshire is almost immediately disposing of its sizable stake, I find it unlikely they’ll hold the stock.”
Well, my prediction came to pass. Berkshire unloaded their stake in AT&T fairly quickly here.
That said, I’m a shareholder. And I continue to hold my shares.
While AT&T is unlikely to provide huge capital gain in the form of a skyrocketing stock price, its 4.89% yield is about as dependable as they come. Furthermore, the company has been increasing its dividend for the past 32 consecutive years, and the company remains committed to continuing that.
With DIRECTV now part of AT&T’s corporate fold, that additional growth should mean that big dividend is more secure than ever. Management at AT&T have been discussing the big acquisition regularly, and it looks like results have exceeded expectations. Free cash flow is set to be as robust as ever.
The valuation, however, looks a bit high here. The yield is well below its five-year average, while investors are also paying more for assets and cash flow than what they have, on average, over the last five years. The yield is appealing, but T has regularly offered a yield well over 5% for as long as I’ve been buying stocks. I’d await a pullback before buying this name.
Mastercard Inc. (MA) – Sold 295,000 shares.
This sale drops Berkshire’s position to 4,934,756 shares, which is a 5.6% reduction.
Mastercard Inc. provides payment solutions on a global scale with various services in support of credit, debit, and related payment programs.
Interestingly enough, Berkshire also sold a lot of Mastercard shares in the first quarter of 2015, that transaction being the last time Berkshire did anything with its stake in the payments company.
I’m honestly a bit perplexed by that because I think Mastercard is one of the strongest businesses out there, although I prefer Visa (I’m also a Visa shareholder).
Mastercard has the same basic business model as Visa; it’s simply a bit smaller. But the stock is also a bit cheaper. The P/E ratio is just under 29 right now, with other basic metrics not terribly far away from Visa. The yield is also similar.
What I take away from this is that Berkshire simply prefers Visa (as do I). They’ve been buying Visa while simultaneously selling Mastercard.
Precision Castparts Corp. (PCP) – Sold 4,200,792 shares.
Berkshire didn’t sell Precision Castparts. They simply bought the entire company, as was noted in the update on Berkshire’s Q2 2015 transactions. Precision Castparts is now a subsidiary of Berkshire Hathaway.
Procter & Gamble Co. (PG) – Sold 52,477,678 shares.
This sale reduced Berkshire’s stake down to 315,400 shares, a change of 99.4%.
Procter & Gamble Co. is a global consumer packaged goods company that manufactures, markets, and distributes products across the world.
This transaction wasn’t a straight “sale”. Rather, Buffett agreed to buy the Duracell battery unit from P&G in a unique manner that saved Berkshire a large tax bill. In exchange for Duracell, Berkshire agreed to give P&G $4.7 billion of the shares it owned, thus reducing Berkshire’s stake down to almost nothing. I would expect them to sell what little is left, though they could just sit on the remaining stake.
Since those shares only cost Berkshire $336 million, they would have incurred a large tax bill had they just sold the shares. This instead allowed them to exchange those shares for a business that Buffett believes will do well under the Berkshire umbrella.
Either way, I think one could view this as symbolic of Buffett not really being interested in Procter & Gamble any longer as an investment. He could have just as easily continued to hold those shares, but decided to get out instead.
Procter & Gamble has had trouble with growth over the last few years, which is something the company has openly admitted. In response, they’ve shed a large number of underperforming businesses that aren’t deemed to be essential to the company. It remains to be seen how well this will work.
Meanwhile, the stock does look pricey here. The P/E ratio is over 27, though that’s artificially higher due to the strong dollar pushing down earnings. But even factoring that out, most other basic metrics are markedly elevated compared to five-year averages. And with revenue and profit roughly flat over the last decade, that’s awfully expensive.
WABCO Holdings Inc. (WBC) – Sold 94,121 shares.
This sale means Berkshire now owns 3,237,094 shares, which is a reduction of 2.8%.
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.
Berkshire has been systematically selling off shares of WABCO for quite a while now. This is a rational way to approach that since WABCO’s market cap is less than $6 billion – any large-scale selling could cause excess volatility, pushing the stock price down as Berkshire tries to sell shares.
But it is interesting that Berkshire continues to reduce its stake. I say that because WABCO has put up some very respectable, if uneven, numbers over the last decade. EPS has more than doubled and profitability metrics are robust.
However, this could be a valuation call right now. Investors are right now paying more for earnings, sales, and cash flow than they have, on average, over the last five years.
Wal-Mart Stores, Inc. (WMT) – Sold 949,430 shares.
Berkshire is now left with 55,235,863 shares after this sale. That’s a 1.7% reduction.
Wal-Mart Stores, Inc. operates retail stores in various sizes and formats across the globe. They are the largest retailer in the world.
Berkshire last reduced its stake in Wal-Mart back in the third quarter of 2015. That sale was designed to raise capital to fund the acquisition of Precision Castparts. With Berkshire selling another lot here, it’s difficult to say why. But with the size of this position, it’s likely that Buffett is behind the transaction.
Although Wal-Mart is a typical Buffett holding – appealing yield, decades of dividend raises, strong long-term growth, and a wide economic moat – Wal-Mart has lately been struggling to adapt to the large changes happening within the retail industry.
More and more people are now shopping online, with e-commerce clearly here to stay. This secular change has perhaps caught Wal-Mart off guard, and recent results have been disappointing. Wal-Mart’s financial results barely nudged during the financial crisis, yet revenue and EPS dropped (substantially in the case of the latter) in the most recent fiscal year.
The stock doesn’t appear to be expensive right now, with a P/E ratio below 15 and a P/S ratio below 0.5. However, I recently argued the stock isn’t that cheap at all due to dividend growth slowing to almost nothing. The company is growing its e-commerce platform, and huge footprint means it has a built-in advantage in terms of fulfilling orders. But the company has its work cut out.
— Jason Fieber[ad#wyatt-income]