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 2018 — 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.
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!
Purchased 18,919,000 shares of Bank of America Corp. (BAC)
Purchased 3,087,774 shares of Bank of New York Mellon Corp. (BK)
Purchased 19,808,285 shares of General Motors Co. (GM)
Purchased 14,451,627 shares of JPMorgan Chase & Co. (JPM)
Purchased 2,175,743 shares of PNC Financial Services Group Inc. (PNC)
Purchased 4,175,792 shares of Red Hat Inc. (RHT) – NEW POSITION
Purchased 14,166,748 shares of StoneCo Ltd. (STNE) – NEW POSITION
Purchased 10,758,000 shares of Suncor Energy Inc. (SU) – NEW POSITION
Purchased 2,425,703 shares of Travelers Companies Inc. (TRV)
Purchased 4,385,739 shares of US Bancorp (USB)
Sold 2,889,450 shares of Apple Inc. (AAPL)
Sold 307,486 shares of Charter Communications Inc. (CHTR)
Sold 41,404,791 shares of Oracle Corporation (ORCL) – SOLD OUT
Sold 3,537,182 shares of Phillips 66 (PSX)
Sold 1,200,000 shares of Southwest Airlines Co. (LUV)
Sold 4,045,900 shares of United Continental Holdings Inc. (UAL)
Sold 15,592,798 shares of Wells Fargo & Co. (WFC)
Bank of America Corp. (BAC) – Purchased 18,919,000 shares.
Berkshire increased its stake by 2.2%, with its position now up to 896,167,600 shares.
Bank of America Corp. is an American multinational investment bank and financial services company. It’s one of the largest banks in the United States by total assets.
It’s a pretty strong bet that Buffett is behind this move, based on the size of the position and how Berkshire initially came into its position in Bank of America.
This position dates back to 2011, when Buffett agreed to inject $5 billion of capital into the bank. Bank of America was struggling then, and needed both the capital and the seal of approval.
In exchange, Buffett received preferred shares that paid a 6% annual dividend and the right to exercise warrants that would grant common stock at an exercise price of just $7.14 each.
It’s clearly been a phenomenal long-term investment for Berkshire.
But I think it’s noteworthy that Berkshire continues to average up on their position by adding more shares at much higher prices than their cost basis. This transaction builds on a purchase of almost 200 million BAC shares in the prior quarter.
It shouldn’t be too surprising, however.
This bank has been operating at a very high level over the last few years, which says a lot when we consider that they were really struggling less than a decade ago (hence the injection of capital by Berkshire). It’s been an incredible turnaround story.
Bank of America continues to log great numbers quarter in and quarter out, regularly increasing its profit and its dividend.
Meanwhile, the stock is down more than 10% over the last 52 weeks, and the valuation is decently appealing here. With a 2.11% yield that’s backed by regular dividend raises, even income investors can get excited about this one.
Bank of New York Mellon Corp. (BK) – Purchased 3,087,774 shares.
Berkshire now owns 80,937,250 shares in this bank, which is an increase of 4% over the last quarter.
Bank of New York Mellon Corp. is a global financial services company, providing investment management and investment services.
This is the fifth quarter in a row in which Berkshire has purchased shares in Bank of New York Mellon.
Buffett has long been a fan of banks. Based on this quarter’s activity – indeed, almost every quarter’s activity – nothing has changed here. Berkshire continues to load up on high-quality banks on a net basis.
This is another transaction that I believe Buffett is behind. This position dates back quite a while. And it just fits his modus operandi perfectly.
I argued back in November 2018 that this was an undervalued high-quality dividend growth stock. It was a compelling long-term idea then, and it remains so now.
It looks like Berkshire agrees.
General Motors Co. (GM) – Purchased 19,808,285 shares.
This transaction increased Berkshire’s position up to 72,269,696 shares, which is an increase of 37.8%.
General Motors Co. is a multinational company that designs, manufactures, markets, and distributes vehicles and related parts. They also offer financial services.
Berkshire picked up just over 1 million shares last quarter, but they really put their foot on the gas with this purchase. After selling 10 million GM shares in Q4 2017, Berkshire has bought GM shares for the last three consecutive quarters.
An auto manufacturer is an interesting investment for Berkshire. Buffett has long been critical of the auto industry, frequently citing how many auto companies have went bankrupt over the last century.
As such, it seems very likely that Todd or Ted is behind this investment.
I can see why Buffett has lacked interest in the auto industry.
An auto manufacturer faces many large-scale challenges to running profitably: high fixed costs; extremely competitive industry; constant need to spend on advertising; regular model obsolescence; effectively no switching costs for consumers; intense exposure to economic cycles; and even an existential crisis regarding self-driving vehicles and ride-sharing services.
I think these challenges explain why there’s been so much consolidation in this industry over the last few decades. There are now only a few major global players. GM is one of them.
All that said, GM has been running a lean, mean machine post-bankruptcy.
And the valuation isn’t crazy here. Most basic valuation metrics are in line with their recent historical averages. For instance, the P/CF ratio of 3.7 is exactly the same as the three-year average P/CF ratio of 3.7 for the stock.
Plus, the stock is a nice income play, with the yield now at 3.91%.
JPMorgan Chase & Co. (JPM) – Purchased 14,451,627 shares.
This transaction increased Berkshire’s stake by 40.5%, with the position now up to 50,116,394 shares.
JPMorgan Chase & Co. is a global investment bank and financial services company. It’s the largest bank in the United States.
Berkshire initiated its stake in JP Morgan Chase & Co. in the prior quarter. They’re following up on that in a big way with this significant addition. This stake went from non-existent a year ago to now worth more than $5 billion in Berkshire Hathaway’s common stock portfolio.
It’s yet another big bank investment for Berkshire, which shouldn’t be a surprise. Berkshire has been loading up on banks for a long time now. My bet is that Buffett is behind this one based on the size, speed, and nature of the investment.
I’ve noted before that I totally whiffed on this bank. I should have invested in JP Morgan & Chase a long time ago.
I feel good knowing that Berkshire just recently got into the bank, however, so there’s still time to make up for prior mistakes.
This bank is on another level, folks. For perspective, JP Morgan & Chase has almost quintupled its EPS over the last decade. Every meaningful metric for a bank is fantastic. There’s almost nothing to fault here.
Surprisingly, the stock’s valuation isn’t necessarily reflecting the quality.
Now, it’s not a cheap stock. It’s not in the garbage bin or anything. But the P/E ratio is coming in at 11.5, and the P/B ratio is 1.5. These are not nosebleed levels, especially for a high-quality bank.
The stock also offers a yield of 3.12% here. Plus, JP Morgan & Chase continues to increase its dividend aggressively.
This looks like a pretty attractive long-term stock investment right now.
PNC Financial Services Group Inc. (PNC) – Purchased 2,175,743 shares.
Berkshire now owns 8,263,062 shares of this bank, which increases its stake by 35.7%.
PNC Financial Services Group Inc. is a bank holding company and financial services corporation.
Another bank. That’s really the story here. Berkshire is quite simply loading up on financial institutions.
Similar to the stake in JP Morgan & Chase, Berkshire added to a position it initiated just one quarter ago.
This is a regional player, though, which differentiates it from, say, JP Morgan & Chase.
With a market cap of over $55 billion, however, it’s not a tiny bank.
I think PNC is similar to a lot of other banks, in the sense that they’ve radically improved operations over the last few years (relative to a decade ago). If Berkshire believed a major recession was imminent, investing in banks wouldn’t be the way to play that.
Revenue has been mostly flat since FY 2009; however, net income and EPS are both up very nicely since then. Notably, this bank was still very profitable right through the financial crisis.
The stock offers a yield of over 3%, on a dividend that’s been increasing dramatically recently. The P/B ratio is only 1.2, and the P/E ratio is at 11.3.
It’s a very solid bank going for a valuation that is fairly compelling. It’s right up Buffett’s alley.
Red Hat Inc. (RHT) – Purchased 4,175,792 shares.
This is a new position for Berkshire Hathaway.
Red Hat Inc. is a multinational software company that provides open-source software products to enterprises.
I don’t know the exact date that Berkshire bought this stock. We only know the transaction occurred in Q4 2018.
However, since we do know that International Business Machines (IBM) announced on October 28, 2018 that it was buying Red Hat in a deal valued at $34 billion, it seems very likely that Berkshire got in right after the deal was announced.
As such, I believe this is a very simple merger arbitrage play for Berkshire. Based on the nature of this, as well as the size of the investment, it was probably one of Buffett’s lieutenants that made this move.
The stock was below $170/share on October 29, yet the deal is for IBM to pay $190/share in cash for all RHT stock. This is pretty easy. Red Hat shareholders have already overwhelmingly approved the deal; Berkshire probably stands to gain somewhere around $20/share (on their RHT stock) for their troubles.
StoneCo Ltd. (STNE) – Purchased 14,166,748 shares.
This is a new position for Berkshire Hathaway.
StoneCo Ltd. is a Brazil-based financial technology solutions company that offers a payment services gateway.
This is a very interesting investment for Berkshire. It’s not your classic blue-chip bank, insurance company, or consumer products company. Instead, it’s a payments company that is based and operates in an emerging market.
Although Berkshire took an 11% stake in StoneCo with its investment, the $301 million investment is pretty small potatoes for Berkshire’s common stock portfolio. Due to all of this, I don’t believe it was Buffett that was behind this move.
StoneCo had its IPO on October 28, 2018, so there’s not much to go on here.
I can only say this is a higher-risk investment due to the base of operations and limited public operational history. But it could just as well be a high-reward play, too. The company doesn’t appear to turn a profit yet. There’s obviously no dividend here.
Berkshire would have done plenty of homework before getting into it, but I just don’t personally have much data to work with to make any kind of inference.
Suncor Energy Inc. (SU) – Purchased 10,758,000 shares.
This is a new position for Berkshire Hathway.
Suncor Energy Inc. is a Canadian integrated energy company with a particular focus on Canadian oil sands.
While this is a new position for Berkshire’s common stock portfolio, Berkshire isn’t new to Suncor.
Berkshire used to have a rather significant stake in Suncor, but they sold out of their Suncor stake completely in Q3 2016.
It’s notable that the (NYSE listed) stock was trading hands for well under $30/share for the duration of Q3 2016, yet the stock was trading for well over $30/share for much of Q4 2018. Other than a precipitous drop toward late December 2018, the stock was apparently priced at a much higher level than what it was when Berkshire sold out over two years ago.
That said, very recent results from Suncor have been promising. Perhaps Berkshire sees that as rationale for jumping back into this Canadian oil sands player.
For example, Q4 2018 results showed a new record for quarterly sands production, a big jump in operating earnings, a dividend increase of 17%, and a $2 billion increase to the ongoing buyback program.
I’ve long been hesitant to invest in Suncor because the oil sands have been synonymous with high costs for a very long time now. It’s just not an advantageous method for extraction and production. That might be why the stock has essentially been flat over the last decade.
But Suncor might just be turning the corner, finally. The stock offers a yield near 4%. And most of the basic valuation metrics are reasonable relative to their respective recent historical averages.
Travelers Companies Inc. (TRV) – Purchased 2,425,703 shares.
Berkshire increased its stake by 68.7%, with the position now up to 5,958,391 shares.
Travelers Companies Inc. is a holding company that, through its subsidiaries, provides commercial and personal property and casualty insurance products to individuals, businesses, government units, and associations.
Berkshire initiated their position in Travelers Companies in Q3 2018, but they obviously followed up on that with another major purchase of shares.
I can see why. I’ve been an investor in this well-run P&C insurer for years now.
And I argued that it’s a high-quality undervalued dividend growth stock as recently as just a couple weeks ago.
Glad to be on the same side as Buffett with this one!
US Bancorp (USB) – Purchased 4,385,739 shares.
Berkshire now owns 129,308,831 shares of this bank, an increase of 3.5% over the prior quarter.
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 regional bank that operates almost as a national bank. Its market cap of over $81 billion tells you how large this institution actually is.
This is another bank that I wish I would have invested in a long time ago. It’s run extremely well across the board. US Bancorp consistently puts out great results.
The last 10 years has been one long, steady march upward for the bank. Revenue is up by more than 50% over the last decade; earnings per share has more than doubled over that time frame. Considering the fact that the first three years of this period included one of the worst financial calamities my generation has ever seen, these numbers are outstanding.
At about $50/share, I think this is a very solid long-term investment. It could have been had for less than $45/share for a brief period in December, and Berkshire may well have struck then. Cheaper is better, of course. But it still looks good here if we’re talking about a long-term investment.
The stock yields almost 3%. And most basic valuation metrics are below their respective recent historical averages. The P/E ratio is 12.2, while the P/B ratio is at 1.8. It’s not the cheapest bank around, but it’s one of the best.
Apple Inc. (AAPL) – Sold 2,889,450 shares.
This sale reduced Berkshire’s stake by 1.1%, with the position now at 249,589,329 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 has noted a few times now that it was one of his lieutenant (he won’t reveal which one) that initially invested in Apple and brought it to his attention. When Buffett got involved is when Berkshire went really heavy (Todd and Ted control about $25 billion combined) in Apple stock.
Well, based on the small size of this transaction, I believe that Todd or Ted (whomever was invested in Apple first) needed the capital for some other move (perhaps the Red Hat deal). So they reduced (or eliminated) their particular investment in Apple, which is very small relative to Berkshire’s overall stake in Apple (because Buffett still controls most of the capital).
There’s not much to glean from this. It was an insignificant change to a significant position.
Charter Communications Inc. (CHTR) – Sold 307,486 shares.
This sale reduced Berkshire’s position down to 7,033,499 shares, which is a reduction of 4.2% over the prior quarter.
Charter Communications, Inc. provides cable services throughout the US, and is the fourth largest such provider.
This is the fourth quarter in a row in which Berkshire reduced its stake in Charter Communications. They basically spent all of 2018 selling off stock in the cable services company.
I think this is just profit taking.
Buffett has long had a fascination with media companies, and Charter obviously fits the mold.
Charter was posting some rough numbers a few years back, but they’ve become a much better business since becoming the parent company of Time Warner Cable and Bright House Networks in mid-2016.
The stock price has reflected that, moving up from the low $200s to well over $300/share since that merger occurred.
But Berkshire still retains a stake in Charter Communications that’s valued at over $2.4 billion. Based on recent activity, though, it wouldn’t surprise me to see further sales throughout 2019.
Oracle Corporation (ORCL) – Sold 41,404,791 shares.
Berkshire Hathaway sold out of this position.
Oracle Corporation is a global technology company focused on database management systems, enterprise software products, and enterprise cloud solutions.
This one is puzzling. Berkshire initiated its position in Oracle in Q3 2018, then they sold out just one quarter later.
There wasn’t any major change in the business, nor did the stock price rapidly move up. In fact, I’d say the price action was more favorable to a seller in Q3 2018.
I honestly don’t know why Berkshire would have initiated and then eliminated a stake in a company like this so fast. I can’t imagine the investment thesis changed much in such a short period of time.
The only thing I can think of is that they found a better use of the capital moving forward.
Phillips 66 (PSX) – Sold 3,537,182 shares.
Berkshire now owns 11,895,842 shares, which is a reduction of 22.9% over the last quarter.
Phillips 66 is primarily an independent refiner, with assets in midstream and chemicals.
Buffett had stated many times that he wanted to have a large stake in Phillips 66; however, he also desired to stay under a 10% ownership stake in the company so as to avoid certain additional regulatory requirements.
Phillips 66 announced in February 2018 that it had agreed to repurchase 35 million shares from Berkshire for $93.725 per share, which prompted Buffett to clarify his 10% stance and desire to remain a major shareholder in Phillips 66.
However, Berkshire then sold an additional 10,960,378 shares in Q2 2018. Berkshire then sold more than 19 million shares in Q3.
As I stated in the Q3 2018 update, I believe that Berkshire is systematically selling out of its stake in Phillips 66.
That’s been clear for a while now, regardless of what Buffett was saying before.
Berkshire is, and has been, well under a 10% ownership threshold.
As such, I believe Berkshire will continue to sell its PSX shares.
I’m not quite sure why, though, because Phillips 66 is operating at a very high level.
They’ve been reporting fantastic numbers since being spun off from ConocoPhillips (COP) in 2012.
To give you additional perspective here, Phillips 66 recently reported outstanding Q4 2018 numbers with record earnings.
The stock might have gotten a bit ahead of itself at almost $125/share in the fall of 2018, but the $95/share it’s priced at now seems to be a favorable risk/reward relationship over the long run.
It offers a yield of 3.35% right now. And the P/CF ratio is less than half of its three-year average.
I’d be more inclined to buy than sell. Then again, I’m not Warren Buffett.
Southwest Airlines Co. (LUV) – Sold 1,200,000 shares.
This sale reduced Berkshire’s position down to 54,847,399 shares. That’s a reduction of 2.1% over the prior quarter.
Southwest Airlines Co. is a major domestic airline carrier.
Buffett has stated that he wants Berkshire to be under 10% ownership of the major domestic airline companies. Indeed, this small sale follows a sale transaction of 500,000 LUV shares in Q3 2018.
I’m just going to take Buffett’s word that this move is purely based around the idea of staying under 10%. There’s not much more to say, especially considering how small this transaction was.
United Continental Holdings Inc. (UAL) – Sold 4,045,900 shares.
This sale reduced Berkshire’s stake by 15.6%. Berkshire now owns 21,938,642 shares.
United Continental Holdings Inc. is a holding company that, through its subsidiaries, is engaged in the transportation of people and cargo through its mainline operations.
I’m not sure this transaction follows exactly the same logic as the Southwest Airlines stake reduction.
United Continental Airlines has been busy buying back its own stock, which means Berkshire has to follow suit and sell off a little stock in order to remain below that 10% threshold.
However, selling off more than 4 million shares greatly goes beyond what would be required.
I think this was partly driven by pure profit taking. This stock rallied quite a bit during Q4 2018, spiking up to over $97/share. That compares to ~$66/share in February 2018. The 52-week stock performance has been stellar.
United Continental Holdings now has approximately 270 million shares outstanding. There’s now a healthy gap between Berkshire’s position and the 10% threshold. So it’ll be interesting to see if Berkshire does anything else with this in the interim.
Wells Fargo & Co. (WFC) – Sold 15,592,798 shares.
This sale dropped Berkshire’s stake down to 426,768,902 shares. That’s a 3.5% reduction over the prior 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.
Again, this is another position that Buffett has been cautious about regarding the 10% threshold.
The issue here is that this is a very large position for Berkshire, and Wells Fargo continues to buy back a lot of its stock. This forces Berkshire to aggressively sell stock in order to stay under that 10% mark. Wells Fargo recorded net repurchases of $17.9 billion in FY 2018, which is substantial.
Wells Fargo ended FY 2018 with ~4.7 billion shares. That means Berkshire is comfortably under that 10% mark, but they may have to intermittently sell stock in order to keep pace with Wells Fargo and maintain a buffer.
That said, none of us regular investors have this kind of problem.
I last covered this stock in April 2018, showing why it was a compelling long-term investment opportunity. That article is due a refresh, but the overall thesis remains unchanged. Recent results have been encouraging. It appears that they’re finally moving past some of the scandals that have plagued the bank.
At under $50/share, this stock looks very appealing for the long run. It offers a 3.71% yield, which is very high for a major US bank. The P/E ratio, at 11.3, prices in very little growth. The P/B ratio is 1.3.
I think Buffett would be buying, not selling, if the situation were different. But us mere mortals don’t have to worry about staying under a 10% ownership threshold of this bank.
I think it’s a long-term buy here.
— Jason Fieber