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 second quarter of 2020 — 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.

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 20,918,701 shares of Barrick Gold Corp. (GOLD) – NEW POSITION
Purchased 12,357,306 shares of Liberty SiriusXM Group (LSXMK)
Purchased 3,000,000 shares of Kroger Co. (KR)
Purchased 5,793,494 shares of Store Capital Corp. (STOR)
Purchased 4,252,494 shares of Suncor Energy Inc. (SU)

Sales

Sold 41,909,000 shares of American Airlines Group Inc. (AAL) – SOLD OUT
Sold 15,773,444 shares of Bank of New York Mellon Corp. (BK)
Sold 213,148 shares of Charter Communications Inc. (CHTR)
Sold 58,900,759 shares of Delta Air Lines, Inc. (DAL) – SOLD OUT
Sold 1,920,180 shares of Goldman Sachs Group Inc. (GS) – SOLD OUT
Sold 35,506,006 shares of JPMorgan Chase & Co. (JPM)
Sold 845,866 shares of M&T Bank Corporation (MTB)
Sold 370,000 shares of Mastercard Inc. (MA)
Sold 18,933,054 shares of Occidental Petroleum Corporation (OXY) – SOLD OUT
Sold 3,847,398 shares of PNC Financial Services Group Inc. (PNC)
Sold 8,438,225 shares of Restaurant Brands International Inc. (QSR) – SOLD OUT
Sold 82,418,729 shares of Sirius XM Holdings Inc. (SIRI)
Sold 51,334,964 shares of Southwest Airlines Co. (LUV) – SOLD OUT
Sold 22,157,608 shares of United Airlines Holdings Inc. (UAL) – SOLD OUT
Sold 17,628,443 shares of U.S. Bancorp. (USB)
Sold 575,000 shares of Visa Inc. (V)
Sold 85,630,213 shares of Wells Fargo & Co. (WFC)

Purchases

Barrick Gold Corp. (GOLD) – Purchased 20,918,701 shares. 

This is a new position for Berkshire Hathaway.

Barrick Gold Corp. is a leading international mining company that mines for gold and copper in 13 different countries.

This is a very interesting move by Berkshire Hathaway, if only because Buffett has been so vocal about his disdain for gold. It’s not that he dislikes the metal; it’s just that he clearly believes it’s a poor long-term investment.

But I think there are two things to keep in mind here.

First, Barrick Gold is a miner. This isn’t the same as going out and buying physical bars of gold. While Barrick will undoubtedly see its fortunes rise and fall with the spot price of the metals its mines for, there’s a lot more to it than that.

Second, this was a very small transaction for Berkshire Hathaway. We’re talking about a position worth less than $600 million. This leads me to believe that it was almost certainly either Combs or Weschler who made the move. Buffett has publicly noted that if a transaction is less than a billion dollars, he’s unlikely to get involved.

It’s all the same for Berkshire Hathaway shareholders in the end, but I think those of us who are keen to see what Buffett is doing will probably see this particular transaction as immaterial.

Still, it’s surprising that Berkshire Hathaway is making a move on a gold miner. That would likely portend a belief about the relative strength of gold against the US dollar, at least in the near term, which isn’t really a shocking bet when the US government is spending trillions of dollars on trying to keep the domestic economy afloat.

Buying Barrick Gold stock is, in my view, more speculation than investing.

The stock is around the same price it was back in the early 90s. I don’t see it as a high-quality business that’s going to compound your wealth and pay out growing dividends for decades.

But if you want to make a short-term call on the relationship between the dollar and gold, this might be a good way to play that.

Kroger Co. (KR) – Purchased 3,000,000 shares.

This addition brought Berkshire Hathaway’s stake up to 21,940,079 shares, an increase of 15.8% over last quarter.

Kroger Co. operates more than 2,700 supermarkets across 35 states (and the District of Columbia), in addition to multi-department stores, pharmacies, jewelry stores, fuel centers, and food processing plants.

This seems like an opportunistic purchase, simply in terms of the business model and the panic purchasing that occurred across the US as consumers went out and stocked up on basic goods. Berkshire Hathaway likely saw what was happening and decided to take advantage of the situation.

Based on the small size of the position, as well as the size of this purchase, it’s most likely that Combs or Weschler is behind this investment.

Businesses that produce/sell consumer staples have done extremely well this year, and that’s caused a dramatic increase in their stock prices. Kroger is no exception here. The stock is up almost 25% YTD.

But one does wonder how much juice is left in the tank.

This is a pretty mature business operating in a pretty mature industry. They do over $120 billion in annual sales. Based on the law of large numbers, it’s hard to compound off of such a large base.

That said, at least until there’s a vaccine, Kroger both as a business and stock should continue to do well in this particular environment.

Meantime, the valuation is undemanding.

The stock is trading hands for a P/E ratio of around 13. The P/S ratio is 0.2. And the stock yields ~2%.

It doesn’t seem like a bad play in the grocery space, if you’re looking for exposure there.

Store Capital Corp. (STOR) – Purchased 5,793,494 shares.

This transaction increased Berkshire Hathaway’s stake by 31.1%, now up to 24,415,168 shares.

Store Capital Corp. is an internally managed net-lease real estate investment trust that owns over 2,500 properties across the US, with over 470 different tenants in over 100 different industries.

This is my favorite move from Berkshire Hathaway this past quarter.

I say that because I was doing the same thing. I was also buying shares in this high-quality REIT last quarter, enthusiastically adding to my position at around $15/share.

This REIT has one of the best management teams in the business. And they’ve been operating extremely well throughout the pandemic. While real estate is absolutely hated right now, it’s not like they’re making any more land. Many services still require physical space. Real estate will shine again. And when it does, Berkshire Hathaway will be glad it picked up high-quality shares at a bargain price.

Even though this stock has rebounded aggressively off its low, I still think it’s pretty cheap.

It’s priced below $26/share as I write this.

That’s well off of the 52-week high of $40.96. And the stock offers a juicy yield of 5.54%.

Notably, STORE Capital didn’t cut its dividend, unlike a lot of other REITs. I think that speaks to their quality, durability, and reliability.

Suncor Energy Inc. (SU) – Purchased 4,252,494 shares.

Berkshire Hathaway now owns 19,201,525 shares, which is an increase of 28.4% over last quarter.

Suncor Energy Inc. is a Canadian integrated energy company with a particular focus on Canadian oil sands.

Berkshire Hathaway was loading up on Suncor as recently as Q4 2019, picking up over 4 million shares in that quarter. Then they modestly reduced that last quarter. They’re now back to buying more. I believe Berkshire Hathaway is adding while oil is so unloved, but it remains to be seen how that will play out.

Personally, I’ve never been a big fan of Suncor Energy. Oil & gas has been a challenged area of the market for years, but the Canadian oil sands is a subset that’s particularly challenged.

That’s due to the high costs of production. And Canadian politics aren’t helping things in terms of production and transportation. It’s a difficult industry in a difficult environment.

The stock is down almost 50% YTD. So if you liked Suncor before, you should love it now. And even after a dividend cut, it still yields a healthy 3.7% (because the stock price has dropped so precipitiously).

However, the global integrated players that don’t have the legacy issues of Suncor seem like better long-term bets to me, if you’re itching to play O&G.

Sales

American Airlines Group Inc. (AAL) – Sold 41,909,000 shares. 

Berkshire Hathaway completely sold out of this position.

American Airlines Group Inc. is a global airline company based in the United States.

The news of Buffett deciding to eliminate all of Berkshire Hathaway’s exposure to its investments in the airlines was known last quarter, and I discussed that rationale in the Q1 update.

Because I already went over Buffett’s decision to sell out of the airlines, I won’t repeat any of that.

Bank of New York Mellon Corp. (BK) – Sold 15,773,444 shares.

This sale reduced Berkshire Hathaway’s stake by 17.9%, now down to 72,357,453 shares.

Bank of New York Mellon Corp. is a global banking and financial services company.

There was a general theme that played out in the Q1 update for Berkshire Hathaway’s common stock portfolio, which was that of liquidity.

More specifically, Buffett was actively reducing overall exposure to banks and financial firms.

That theme is clearly playing out once more in Q2, with Berkshire doing much more selling than buying, but I think the overriding theme this quarter is one of legacy. In my view, Buffett is winding down some of his longstanding positions in order to make room (and capital) for those who will run things when he’s gone. At almost 90, I don’t think anyone would blame him for doing so.

Even without a legacy to think about, Berkshire Hathaway arguably came into 2020 with too much exposure to banking. With a health crisis now turning into somewhat of a financial crisis, financial firms (like banks) are now on the more aggressive end of available options. Furthermore, low interest rates appear to be more of a long-term, systemic issue.

Now, the valuations and yields across financial stocks are compensating investors for some of that risk, but Berkshire Hathaway has been rejiggering the portfolio all year in anticipation of large loan losses.

For those investors who got caught on the back foot with all of this, I think it makes sense to be cautious. If you came into the year with a lot of bank stocks, I’m not sure now’s the time where you double down. This must be on Buffett’s mind.

However, if you don’t already have a lot of exposure, there are some attractive values in the space – as long as you’re in it for the long term.

As the largest global custody bank, Bank of New York Mellon is more of a “financial infrastructure” business. It’s not the typical community banking model that you’re going to see for most banks.

But that hasn’t stopped it from being pummeled by the market.

The stock is available for a P/E ratio of around 8. It sells for less thank book value and yields 3.30%. Compare that yield to the stock’s own five-year average yield of 1.9%. There’s clearly a disconnect here.

Plus, Bank of New York Mellon has a commitment to the reliability and growth of its dividend. The company just declared a dividend on July 15, showing no reduction or elimination of the dividend. That shows confidence.

Again, if you came into 2020 like Berkshire Hathaway, it’s tough to be brave here. But if your portfolio has room for financial firms, there’s a lot to like in this space from a valuation perspective. And banks entered this health crisis in much better shape than they entered the Great Recession.

Charter Communications Inc. (CHTR) – Sold 213,148 shares. 

This sale reduced Berkshire Hathaway’s stake by 3.9%. It’s now at 5,213,461 shares.

Charter Communications Inc. is a telecommunications and media company that offers broadband internet, video services, and VOIP telecommunications.

This has been an excellent investment for Berkshire Hathaway.

The stock is up by more than 200% over the last five years. That follows a nice turnaround in the business, with Charter Communications moving from a perennial money lower into a company that produces a healthy profit.

Still, even with that profit, the stock now trades at more than 50 times earnings. Both the P/S and P/CF ratio are both well above their recent historical averages, respectively.

One does wonder if this stock has gotten ahead of itself. Perhaps Berkshire Hathaway is wondering the same thing and decided to cash in a few chips based on that line of thought.

Goldman Sachs Group Inc. (GS) – Sold 1,920,180 shares.

Berkshire Hathaway completely sold out of this position.

Goldman Sachs Group Inc. is a global investment banking institution.

Berkshire Hathaway reduced its stake in Goldman Sachs by a whopping 84% in Q1, as part of a larger reduction in overall exposure to financials. Here’s what I said about that move in last quarter’s update:

“Again, I think this is another sale that’s more about portfolio positioning than a specific call on a particular business (Goldman Sachs, in this case).”

I then said this:

“With the size of this sale in particular, I wouldn’t be surprised to see Berkshire Hathaway completely sell out of this position next quarter.”

Well, here we are. They did completely sell out. And I’m not surprised.

I don’t see anything wrong with Goldman Sachs. The business is actually performing quite well, especially in this environment. Indeed, they recently reported an outstanding second quarter with record investment banking results.

The stock is still down on the year, commanding an undemanding valuation and yielding almost 2.5%.

In any other world, I actually think Buffett would be looking to buy stocks like Goldman Sachs here.

But there are a number of issues conspiring to keep that from happening.

There’s the aforementioned problem with Berkshire’s positioning coming into 2020.

Then there’s the fact that Buffett has been on the record about being unsure about the insurance businesses and how that aspect of Berkshire Hathaway will be affected by the pandemic. With this being a once-in-a-century event, along with Buffett being almost 90 years old, caution appears to be prioritized more than usual.

In addition, while valuations are attractive in across financials, liquidity from the Federal Reserve has meant that “sweetheart deals” aren’t prevalent today like they were during the financial crisis. Firms simply aren’t desperate for Buffett’s capital and “seal of approval”, which makes it more challenging and expensive for Buffett to assume risk.

Lastly, and most importantly, I think this sale (and the others like it) might be related to the legacy concerns I mentioned earlier.

At almost 90, Buffett’s days of big deals are limited. And I think it’s very possible that he might see his role now as one of capital caretaker, where he avoids any big losses and shepherds in the new team to run Berkshire Hathaway and the portfolio after he’s gone. He might see this pandemic as a sign to slow down and let others start to take on larger roles.

We already know that Buffett has been adding to his stake in Bank of America Corp. (BAC) during Q3 (which is reflected in the Buffett Tracker), but the selling swamps the buying.

JPMorgan Chase & Co. (JPM) – Sold 35,506,006 shares.

This sale reduced Berkshire Hathaway’s down to 22,208,427 shares, which is a 61.5% reduction.

JPMorgan Chase & Co. is an American multinational investment bank and financial services holding company. By assets, it’s the largest bank in the United States.

What I noted about Bank of New York Mellon and Goldman Sachs can be said about JPMorgan Chase (and the rest of the bank sales), particularly as it relates to Buffett selling rather than buying.

If the Federal Reserve would have been less aggressive with liquidity, and if Buffett would have been less aggressive with buying financials prior to 2020, I believe we’d be having a very different discussion right now. I think that’d be even more true if Buffett were, say, 30 years younger.

That said, the rest of us mere mortals don’t have billions of dollars already wrapped up in financials and a legacy to contend with.

And that means there’s an opportunity for us retail investors to take a close look at some of the high-quality, beaten-down banks like JPMorgan Chase.

This is the largest American bank by assets. And in many ways, it’s the best. It’s about as well-run as a bank gets.

Meanwhile, even after a minor recovery, the stock is still down almost 30% YTD.

It sells for less than 14 times depressed earnings. It’s at a 1.3 P/B ratio. And the yield is at 3.5%.

It’s not the cheapest bank out there. But it’s one of the best. And it’s inexpensive on a fundamental basis.

I like this stock here. I was buying in the low $90s. And if it dips back down there again, I’ll almost certainly buy more.

M&T Bank Corporation (MTB) – Sold 845,866 shares. 

Berkshire Hathaway now owns 4,536,174 shares. That’s a reduction of 15.7% over last quarter.

M&T Bank Corporation is a large regional bank that operates 780 branches mostly in the Northeast United States.

Again, what I noted earlier about the other bank sales can also be applied here.

Mastercard Inc. (MA) – Sold 370,000 shares.

This sale dropped Berkshire Hathaway’s stake down by 7.5%, which is now at 4,564,756 shares.

Mastercard Inc. is a global financial services firm that principally operates as a payment processor.

I’m actually surprised by this transaction.

This one’s a bit different from the other sales in Berkshire Hathaway’s holdings in financials, as Mastercard is a payment processor and not a bank. They don’t face the interest rate challenges that banks do.

Moreover, this company (along with the other payment processors) clearly stands to benefit from the pandemic.

The world was already quickly moving to a cashless society, which increases the use of credit cards and other forms of cashless/digital payments. With the way people are uncomfortable with the germs that can be present on physical money, credit cards are an easy way to avoid cash altogether.

I’m not sure at what price Berkshire Hathaway sold its shares in Mastercard, but the stock is now well above its average range for last quarter.

The only thing to not like about this stock is the valuation, and that might be why the reduction occurred.

It’s selling for 45 times earnings and 20 times sales. Even for a world-class business, it’s a rich valuation.

But if you already have Mastercard shares in your portfolio, you really have to hold on for dear life. It’s a rocket ship straight to a new age of payments. It’s one of the best businesses – and stocks – in the entire world.

Occidental Petroleum Corporation (OXY) – Sold 18,933,054 shares. 

Berkshire Hathaway completely sold out of this position.

Occidental Petroleum Corporation is a major hydrocarbon exploration and production company based in the United States.

The sale isn’t quite as odd as the fact that Berkshire Hathaway had the shares in the first place.

Buffett’s $10 billion deal with Occidental Petroleum (to fund Occidental’s Anadarko Petroleum acquisition) has been a highly-publicized transaction. That deal sees Berkshire Hathaway getting a juicy 8% annual dividend on its Occidental Petroleum preferred stock. But Berkshire Hathaway also purchased common stock in Occidental Petroleum in Q3 and Q4 of 2019. In addition to that, we know that Occidental Petroleum had to pay its most recent dividend to Berkshire Hathaway in the form of common stock (rather than cash).

It seems that Berkshire Hathaway’s exposure to Occidental Petroleum was already large enough with the $10 billion deal, so I’m not quite sure why they felt the need to go into the common.

Either way, that experiment has ended. And Berkshire Hathaway is now completely out of this position.

Keep in mind, however, that they’ll have more OXY common stock in the future if Occidental Petroleum pays the next dividend in shares (rather than cash). It’s likely that Berkshire Hathaway will just sell those shares and convert them to cash on an ongoing basis.

I don’t see much to glean from this transaction. Occidental Petroleum has been a poorly-run organization in a challenging industry. The stock appears cheap, but their financials are very messy.

I see this stock as a speculative play, at best.

PNC Financial Services Group Inc. (PNC) – Sold 3,847,398 shares.

This transaction reduced Berkshire Hathaway’s stake down to 5,350,586 shares. That’s a drop of 41.8%.

PNC Financial Services Group Inc. is a bank holding company and financial services corporation that operates in 19 states and the District of Columbia.

Once again, what I noted earlier about the other bank sales applies here.

However, I’ll quickly add that this transaction stands out in the sense that Berkshire Hathaway just added to its PNC stake as recently as Q1 2020. The quick turnaround is noteworthy. And I think that speaks to the broader theme that played out in Q2.

Restaurant Brands International Inc. (QSR) – Sold 8,438,225 shares.

Berkshire Hathaway completely sold out of this position.

Restaurant Brands International Inc. is a Canadian-US multinational restaurant holding company that provides fast food through its major brands in Burger King, Tim Hortons, and Popeyes Louisiana Kitchen.

This was a rather small position for Berkshire Hathaway. Based on that, it’s likely that either Combs or Weschler was behind both the acquisition and disposition of the stake in Restaurant Brands International.

There are some solid brands here. Popeyes Louisiana Kitchen in particular is exciting, as their new offering in the chicken sandwich space gives them a lot of visibility in the competitive fast food space.

And the valuation on this stock isn’t crazy. The P/E ratio is ~15. The P/CF ratio, at 21.3, is lower than its three-year average of 23.5.

Plus, it offers an attractive yield of 3.3%.

The big issue with the business, in my mind, is the debt load. They just have a ton of debt. The interest coverage ratio is well below 5, which is tight. They’ve operated with a lot of debt for years, so they’re obviously comfortable with that. But this does greatly limit their flexibility, and it weighs on their cash flow.

U.S. Bancorp. (USB) – Sold 17,628,443 shares. 

Berkshire Hathaway now owns 131,961,832 shares, which is a decrease of 11.8% over last quarter.

U.S. Bancorp is a bank holding company that offers a diversified mix of financial services, including traditional retail banking, wealth management, commercial banking, and payment services.

Everything I noted about the other sales in the big banks can also apply to Buffett’s decision to scale back on this large regional bank.

I will note, though, that I actually highlighted this stock as an undervalued opportunity in early August.

Again, if you’re not almost 90 years old with billions of dollars already wrapped up in financials, U.S. Bancorp (and many of the other large domestic banks) appear to be at least somewhat compelling in an otherwise expensive market.

I wouldn’t go crazy with these stocks, but having some portfolio room and capital puts you in a nice position to be greedy when others are fearful.

Visa Inc. (V) – Sold 575,000 shares.

This sale reduced the stake by 5.4%, now at 9,987,460 shares.

Visa Inc. is a worldwide payments technology company that connects consumers, banks, governments, and businesses in more than 200 countries to a fast and secure electronic payments system.

This was a pretty minor move from Berkshire Hathaway, so I don’t think we can read too much into it.

Everything I noted about the Mastercard Inc. sale can apply here.

It’s not a cheap stock, but it’s one of the best businesses in the world.

If you already have this stock in your portfolio, be glad you made a great decision and look for any opportunity to add to that stake at a valuation that doesn’t cause you to cry.

Wells Fargo & Co. (WFC) – Sold 85,630,213 shares. 

Berkshire Hathaway now owns 237,582,705 shares, which is 26.5% less than last 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.

Buffett has been on the record numerous times about his adoration of and confidence in Wells Fargo. He’s been a shareholder for decades, and he’s been publicly proud of that.

At the same time, he was quietly and slowly selling shares quarter after quarter. When asked about this, he would adamantly stick to a script about how he was only trying to stay below a 10% ownership line, which would otherwise trigger regulatory problems. Because Wells Fargo is so prolific at buybacks, Buffett would publicly note that he was routinely forced to sell small amounts of stock in order to stay below that 10% threshold.

Well, I think that ruse is up. It’s actually been up for a while now.

Buffett is clearly slowly selling out of Wells Fargo. It wouldn’t surprise me if Berkshire Hathaway is no longer a shareholder by the end of 2020, marking the end of an era.

The reasons for why Buffett might have soured on the bank are numerous.

Between the fake account scandal, management turnover, reputation damage, unwanted political attention, increased regulatory oversight, and large fines, this bank can’t get out of its own way.

On the other hand, the stock is down a jaw-dropping 53% this year. In an ugly space, this stock has been even uglier. Then you have the painful dividend cut that hurt investors who rely on that income.

This has pushed the valuation down to obscene levels. For example, the P/B ratio, at 0.7, is almost half that of what JPMorgan Chase is commanding. A difference in quality and reputation to be sure, but these are both very large banks with similar growth profiles. Plus, Wells Fargo has new management (fixing what was probably their biggest problem) and has been squeaky clean of late.

Don’t get me wrong, I don’t see any major catalyst for the stock to pop in a major way over the near term. It’ll take time for this large ship to fully turn around.

But if you’re a long-term investor looking for value in financials, it’s tough to completely ignore this stock.

-Jason Fieber

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