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 2019 — 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.
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.
Purchases
Purchased 648,447 shares of Biogen Inc. (BIIB) – NEW POSITION
Purchased 2,730,304 shares of General Motors Company (GM)
Purchased 18,940,079 shares of Kroger Co. (KR) – NEW POSITION
Purchased 11,465,546 shares of Occidental Petroleum Corporation (OXY)
Purchased 500,504 shares of RH (RH)
Purchased 39,400 shares of SPDR S&P 500 ETF TR (SPY) – NEW POSITION
Purchased 4,261,031 shares of Suncor Energy Inc. (SU)
Purchased 43,000 shares of Vanguard Index FDS (VOO) – NEW POSITION
Sales
Sold 1,200,000 shares of American Airlines Group Inc. (AAL)
Sold 3,683,113 shares of Apple Inc. (AAPL)
Sold 2,240,000 shares of Bank of America Corp. (BAC)
Sold 1,172,193 shares of Bank of New York Mellon Corp. (BK)
Sold 6,348,884 shares of Goldman Sachs Group Inc. (GS)
Sold 4,955,201 shares of Phillips 66 (PSX)
Sold 5,646,012 shares of Travelers Companies Inc. (TRV)
Sold 55,156,100 shares of Wells Fargo & Co. (WFC)
Purchases
Biogen Inc. (BIIB) – Purchased 648,447 shares.
This is a new position for Berkshire Hathaway.
Biogen Inc. is a global biotechnology company specializing in the discovery, development, and delivery of therapies for the treatment of neurological diseases to patients worldwide.
Biogen is a classic Buffett play in a lot of ways.
First, the company is high quality across the board.
Revenue has more than tripled over the last decade. Earnings per share is up more than ninefold. The business produces gaudy profitability – net margin is well into the double digits. Growth has been secular. And buybacks have been prodigious.
There’s really not much to dislike here.
Although it doesn’t pay a dividend (something Buffett has a penchant for), the stock looks downright cheap. Every basis valuation metric I look at indicates significant undervaluation. The multiple on cash flow, at only 8.8 right now, is well off of its three-year average of 12.0.
All that said, I don’t think Buffett was behind this one.
The size of the transaction indicates that it was likely Combs or Weschler.
My personal pick in this space has long been Amgen Inc. (AMGN), which has actually been the superior investment over the last five or so years. However, Biogen looks significantly cheaper than Amgen at this point in time (due, in part, to that relative stock underperformance).
General Motors Company (GM) – Purchased 2,730,304 shares.
This purchase increased Berkshire’s stake by 3.8%, with the position now up to 75,000,000 shares.
General Motors Co. is a multinational company that designs, manufactures, markets, and distributes vehicles and related parts. They also offer financial services.
Berkshire was last seen gobbling up shares in General Motors during Q4 2018. They’ve been quiet regarding this name since then, but they’re back to accumulating.
This is an interesting investment.
The stock looks cheap by most measures. And it offers a fat 4%+ yield.
However, even post-bankruptcy and now operating in a more rational industry, General Motors is still facing difficulties when it comes to putting together some really solid results. Free cash flow, in particular, is concerning. And with the entire industry being upended by the shift to electric vehicles, General Motors will have to continue investing heavily in order to compete in the future.
Kroger Co. (KR) – Purchased 18,940,079 shares.
This is a new position for Berkshire Hathaway.
Kroger Co. is a retail chain that operates as the largest supermarket in the United States by revenue.
This looks like another classic Buffett investment.
It’s an easy-to-understand business model. And it’s not prone to too much disruption, even in the age of e-commerce. We’re talking about groceries here. It’s pretty straightforward stuff.
In addition, the stock is cheap. The P/E ratio is under 15 right now. And the stock spent a good chunk of Q4 2019 (when Berkshire was buying) at an even cheaper level. In an elevated market, that’s attractive. In fact, I selected this stock as an Undervalued Dividend Growth Stock of the Week in October 2019. I was obviously on the same page as Berkshire here.
Plus, the stock offers a solid yield of over 2%. And the dividend is regularly growing.
I think this is a smart investment. Kroger offers quality, value, and yield. Their large size might work against them, however, constraining growth prospects.
As with Biogen, though, I don’t think Buffett was behind this one. It’s a relatively small investment. It’s more likely that Combs or Weschler engineered this investment, although that doesn’t take away from it at all.
Occidental Petroleum Corporation (OXY) – Purchased 11,465,546 shares
This transaction moved Berkshire’s stake up to 18,843,054 shares, an increase of 154% over last quarter.
Occidental Petroleum Corporation is an independent energy exploration and production company, operating as one of the largest O&G companies in the world.
Despite the rather small size of this position, there’s good reason to believe that Buffett is behind it.
I say that because Buffett was the one who authorized a large financing deal with Occidental Petroleum, which saw Berkshire Hathaway lend $10 billion to Occidental Petroleum to help finance a massive takeover deal. In exchange, Berkshire Hathaway got preferred stock with an 8% annual dividend, along with a warrant to purchase up to 80 million shares of Occidental at an exercise price of $62.50 a share.
It’s pretty clear that Buffett doesn’t need to worry about those warrants. Occidental Petroleum’s common stock is near $40/share right now.
Occidental Petroleum is, in my view, a deep value/turnaround play. The market has brutally punished the company’s decision to acquire Anadarko Petroleum Corporation, almost to the point of valuing the deal at $0.
However, the oil patch is awash with deals. Even the supermajors on more solid ground, like Exxon Mobil Corporation (XOM) are very cheap right now. And I recently selected Chevron Corporation (CVX) as an Undervalued Dividend Growth Stock of the Week, which was at the same time Berkshire Hathway was getting busy with some names in Big Oil.
RH (RH) – Purchased 500,504 shares.
This purchase increased Berkshire Hathaway’s stake by 41.4%. The position is now up to 1,708,348 shares.
RH is an American luxury home-furnishings company that sells its various merchandise through retail centers, catalog, and online.
Berkshire Hathaway initiated their position in this retailer during Q3 2019. And they were quick to add to their position in a big way in the very next quarter.
I can see why.
The products that RH puts out are unique. They have an entrenched position in the high-end furnishings space.
RH has notably been putting out some impressive numbers in recent quarters. The business is more fundamentally sound than it’s been in some time. They’ve finally swung to consistent positive free cash flow. The balance sheet might be the only thing that concerns me about the business.
The stock spent much of Q3 2019 – when Berkshire Hathaway was initially buying – between $120 and $140 per share. It’s now over $235/share. Clearly a big winner thus far, although the stock has gone from looking undervalued to looking arguably expensive.
I think it’s highly unlikely that Buffett was behind this move. The position is just too small. But I’m sure he’s very happy that Combs or Weschler jumped on it.
Suncor Energy Inc. (SU) – Purchased 4,261,031 shares.
This transaction increased Berkshire Hathaway’s position up to 15,019,031 shares, an increase of 39.6% over last quarter.
Suncor Energy Inc. is a Canadian integrated energy company with a particular focus on Canadian oil sands.
This is the first time Berkshire Hathaway has added to its Suncor Energy stake since initiating the position back in Q4 2018.
I think that’s a timely move.
As I noted above with Occidental Petroleum, Big Oil has faced some troubles of late. And this has taken a toll on many of the stocks in this space.
But the long-term prospects (looking out a decade or so) of many of these companies still looks solid, even as the world slowly moves away from hydrocarbons.
There’s no doubt that Suncor Energy has not been a very good investment for Berkshire Hathaway thus far. The stock was mostly flat in 2019, even though the S&P 500 increased by nearly 30% last year. On the other hand, the fact that Suncor Energy’s stock was pretty much flat for 2019 says a lot about the quality of the business and the valuation of the stock – a lot of other oil stocks didn’t fare so well in 2019.
Speaking of valuation, this stock does look appealing right now.
It’s going for just 5.9 times cash flow, in comparison to the 8.4 multiple the stock has averaged over the last three years. That’s a severe disconnect. Today’s investors are getting all of that future cash flow for a much cheaper price than it’s typically been offered at. Meanwhile, the stock now has a 4.70% yield, which is more than twice as high as the broader market’s yield.
Suncor Energy is hampered by its exposure to Canadian oil sands. This gives it a higher cost base in terms of extraction and production. In addition, the balance sheet is not as strong as some of the global supermajors.
But I think Suncor Energy is very interesting from a valuation and yield perspective.
Sales
American Airlines Group Inc. (AAL) – Sold 1,200,000 shares.
This sale reduced Berkshire’s stake by 2.7%. The position is now at 42,500,000 shares.
American Airlines Group Inc. is a major US airline carrier.
It’s highly likely that Buffett was behind this move. He’s been vocal about leading the way with Berkshire Hathaway’s investments in airlines. And seeing as how the combined positions in the airlines are sizable, it only makes sense that Buffett is directing any buys and/or sells in these investments.
I’m not sure there’s much to take away from this move, however.
It’s a very small reduction. It’s a tiny ripple in the ocean that is Berkshire Hathaway’s common stock portfolio.
I don’t think it was a valuation call. There’s nothing that indicates clear overvaluation. If anything, the stock looks cheap after a pretty miserable 2019.
Perhaps it’s just risk management, seeing as how the overall exposure to airlines is somewhat high for Berkshire Hathaway. The coronavirus and the toll it might take on global air travel might has spooked some in the industry. It might make sense to peel back a little bit.
Apple Inc. (AAPL) – Sold 3,683,113 shares.
This sale reduced Berkshire Hathaway’s position down to 245,155,566 shares, a reduction of 1.5% over last quarter.
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.
Apple is by far the largest position in Berkshire Hathaway Inc.’s common stock portfolio. Their 245,155,566 shares are worth almost $80 billion. It’s truly astounding.
Buffett has confirmed on numerous occasions that he’s behind the huge investment in Apple. I think that goes without saying, seeing as how it’s way beyond the amount that Combs and Weschler are allowed to manage.
However, Buffett also said that one of his investment lieutenants (he wouldn’t say which one) invested in Apple first, which brought it to his attention. He liked the idea so much, he decided to go very heavy into Apple.
Knowing that, and looking at the size of this particular transaction (approximately $1.2 billion), it’s very possible that it was actually Combs or Weschler that sold this stock in order to raise cash for a different opportunity (perhaps Kroger or Biogen).
Apple’s stock has become possibly expensive after going parabolic – it’s up more than 80% over the last year.
But they deserve much of their premium. The company has been executing about as well as they ever have, if not better. And with their increasing focus on services and accessories, there’s an argument to be made that it deserves a higher multiple than it used to command.
I wouldn’t go crazy with buying this stock here. But I don’t think there’s much to take away from this sale, either.
Bank of America Corp. (BAC) – Sold 2,240,000 shares.
This transaction dropped Berkshire Hathaway’s stake by 0.2%. The position is now at 925,008,600 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.
We can deduce that Buffett was squarely behind this sale. Bank of America is all Buffett. The position, worth over $30 billion, has Buffett’s fingerprints all over it, dating back to the capital injection deal he made with the bank in 2011. To jog your memory, that deal saw Berkshire Hathaway inject $5 billion into Bank of America in exchange for preferred stock that offered a 6% annual dividend and and the right to exercise warrants that would grant common stock at an exercise price of just $7.14 each.
This has obviously been a stellar investment for Berkshire Hathaway.
I don’t think that’s going to change moving forward. Bank of America is executing at a high level. They’re fundamentally as strong as they’ve ever been.
And the stock doesn’t look all that expensive. Even though it’s more than doubled over the last five years, EPS has doubled over the last five years. The stock is going for under 13 times earnings. And the P/B ratio is only at 1.3.
As long as Bank of America keeps doing what it’s doing, the stock will keep doing what it’s doing.
The sale was extremely tiny. It’s not even noteworthy.
But it does speak on a trend that played out over Q4 2019 for Berkshire Hathaway.
That trend is the fact that they definitely lightened up on financial holdings in general. This holding didn’t move much. But some of the other holdings, as I’ll note below, did get trimmed rather significantly.
This could be the sign of a changing of the guard. Buffett is coming up on 90 years old. And I think he’s starting to step aside as it pertains to the common stock portfolio. He’s been vocal about wanting to do one last big deal for an entire business, but it does seem like some of his legacy positions in the common stock portfolio are being reduced.
Bank of New York Mellon Corp. (BK) – Sold 1,172,193 shares.
Berkshire Hathaway’s position has been reduced to 79,765,057, which is down by 1.4% over last quarter.
Bank of New York Mellon Corp. is a global financial services company, providing investment management and investment services.
This transaction, while small in relative terms, does kind of piggyback onto the Bank of America sale. It’s just part of an overarching theme for this quarter.
Berkshire is stepping back from some financial names. And in the process, they’re also stepping back from some of Buffett’s long-time investments.
However, as with the Bank of America sale, I don’t think there’s much that regular investors can read into here. I say that because there’s nothing that would indicate that Bank of New York Mellon Corp looks like a poor investment at this point in time.
The bank produces gobs of profit. The’re printing some really solid numbers. And with their focus on scalable, fee-based securities servicing and fiduciary businesses, Bank of New York Mellon provides a unique value proposition in the banking landscape.
Meantime, the bank actually looks cheap.
It’s going for just 1.1 times book value. The P/E ratio is just over 10, which compares very favorably to the stock’s own five-year average P/E ratio of 15.3. Plus, the stock offers an attractive 2.70% yield. That’s high in comparison to the 1.90% yield the stock has averaged over the last five years.
This was a small move for Berkshire Hathaway. I don’t think it’s necessarily something that signals a lack of confidence in Bank of New York Mellon. If that were the case, they would have sold big. Rather, it just seems like Berkshire Hathaway is in some way starting to step back from some of Buffett’s legacy holdings.
Goldman Sachs Group Inc. (GS) – Sold 6,348,884 shares.
This sale reduced Berkshire Hathaway’s position down to 12,004,751 shares, a reduction of 34.6% over last quarter.
Goldman Sachs Group Inc. is a global investment banking institution.
This is an interesting sale.
First of all, it follows the overarching theme I’ve been discussing.
But it does kind of mimic a similar-sized purchase of shares in Goldman Sachs Group that Berkshire Hathaway made back in Q3 2018. They picked up just over 5 million shares during that quarter, when stock in Goldman Sachs Grouip was priced around $230/share. It’s at a similar price now.
So Berkshire Hathaway picked up a hefty pile of shares in Goldman Sachs Group, then sold a hefty pile of shares (and then some) around the same price more than a year later.
Again, I think this speaks more about a broader positioning within the common stock portfolio that Berkshire Hathaway manages. I’m not sure it speaks much about Goldman Sachs Group directly.
That said, the stock did run up rather nicely as 2019 started to draw to a close. Perhaps Buffett saw that as an opportunity to substantially lighten up on a position that has maybe been a bit disappointing in terms of performance against the market.
Phillips 66 (PSX) – Sold 4,955,201 shares.
This sale dropped Berkshire Hathaway’s stake by 95.6%. Their position is now at 227,436 shares.
Phillips 66 is primarily an independent refiner, with assets in midstream and chemicals.
I’ve stated in prior updates that it appears that Berkshire Hathaway is systematically selling out of its stake in Phillips 66. Continuous sales have foreshadowed this. The only thing that surprises me here is that Berkshire Hathaway didn’t completely sell out of its position. That will likely come next quarter.
I’m not quite sure what caused Buffett to sour on Phillips 66. He’s expressed optimism about their prospects every time he’s been asked about Phillips 66 publicly. However, it’s clear that he’s privately less constructive about the business.
I will say, though, that I’m publicly and privately much more optimistic about Phillips 66. I remain a long-term shareholder.
The stock can be very volatile. That’s because of the very nature of the business model.
But Phillips 66 as a business has been remarkably consistent and impressive in terms of its results, especially because of the volatile nature of refining.
That consistency is most evident in the dividend raises they’ve reliably handed out since being spun off from former parent ConocoPhillips (COP) in 2012. They’ve handed out dividend increases every year as an independent company, with eight consecutive years of dividend raises and double-digit long-term dividend growth. This allows shareholders like myself to ride the waves of volatility fairly effortlessly.
On the other hand, since Berkshire Hathaway was already obviously selling out of Phillips 66, Q4 2019 was a pretty opportune time to get rid of a lot of Phillips 66 stock. The stock was trading hands for well over $100/share for a large part of last quarter. It’s now below $90/share.
Travelers Companies Inc. (TRV) – Sold 5,646,012 shares.
This sale reduced Berkshire Hathaway’s position by 94.8%, with the position now at 312,379 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 Hathaway initiated their position in Travelers Companies in Q3 2018, then followed that up with another large purchase in Q4 2018. They’ve now decided to wind down most of that position a bit more than a year later.
It’s odd that they decided to do so during Q4 2019, as the stock was actually priced much more advantageously in the summer of 2019. It went as high as $155/share in July before falling somewhat precipitously during the second half of 2019.
This was a quick turnaround by Berkshire Hathaway standards. Buffett is famed as being a buy-and-hold investor, particularly in the insurance space, but it does seem like someone changed their mind on Travelers Companies quickly.
It would seem, based on what I can see, that Berkshire Hathaway roughly broke even on this investment.
I’m not sure what caused the change of heart, but I think Travelers Companies remains a solid long-term investment opportunity in the insurance space.
Admittedly, Travelers Companies has had some trouble with moving the needle on the bottom line in recent years. Low interest rates have plagued insurance firms. However, book value and the dividend keep moving in the right direction.
Moreover, the stock isn’t priced for high expectations.
It’s trading hands for a P/E ratio of 13.88. The P/CF ratio, at 6.9, is way off of its three-year average of 8.9. Plus, the stock offers a nice yield of 2.38%. And the dividend continues to get bigger year in and year out.
This stock isn’t going to knock your socks off with growth. But it’s a consistent and necessary business, and they continue to execute at a high level.
Wells Fargo & Co. (WFC) – Sold 55,156,100 shares.
This move reduced Berkshire Hathaway’s stake by 14.6%. The position is now at 323,212,918 shares.
Wells Fargo & Co. is one of the four largest banks in the US, with diversified financial offerings across retail, commercial, and corporate banking services.
I’m confident that Buffett was behind this move.
Wells Fargo & Co. is an old investment for Buffett. Berkshire Hathaway’s investment in Wells Fargo & Co. dates back more than 30 years – way before Combs or Weschler were part of Berkshire Hathaway. And it’s a very large position in the common stock portfolio.
Buffett has been clear in the past that he’s aiming to stay under the informal 10% ownership threshold of any bank, which would trigger certain regulatory headaches that Buffett would prefer to avoid.
Since Wells Fargo continues to buy back a lot of its own stock, reducing its outstanding share count in the process, Buffett has almost no choice but to routinely sell off small bits of stock in order to stay under the 10% threshold.
I’ve typically taken Buffett at his word regarding his regular sales of Wells Fargo & Co. stock.
However, there does appear to be a shift in recent quarters, with this most recent quarter being even more apparent of that.
Berkshire Hathaway is well under the 10% threshold. They’re somewhere around 7% now. And they’ve been under the 10% threshold for some time.
It appears that Buffett is instead just selling out of Wells Fargo & Co. to outright reduce exposure to the bank.
I think it’s clear at this point that he’s soured a bit on the bank, despite his public proclamations.
Wells Fargo & Co. has undoubtedly performed poorly, and the scandals that have rocked the bank were both unnecessary and extremely disappointing.
But I think they’re doing their best to move on from the past. New CEO Charles Scharf an outsider with a solid track record with other major financial companies, and corporate scandals tend to be forgotten about over time. Time heals most wounds.
The rest of us mere mortals do not need to worry about a 10% threshold. With that in mind, I think the stock looks more like a buy than a sell right now.
The P/E ratio on the stock is below 12. The P/B ratio is at 1.2. And the stock offers a very juicy yield of 4.23%, along with strong dividend growth.
I expect more sales of this stock by Berkshire Hathaway, especially because of what looks like a shift in the common stock portfolio.
But I think the rest of us should look at potentially picking up stock in this bank. You’re not going to find this value and yield among the other large US banks.
P.S. I didn’t discuss SPY or VOO because I can’t add much value or insight there. Furthermore, that could just be an aspect of Berkshire Hathaway’s cash management.
-Jason Fieber
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