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 2021 — 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!
Purchases
Purchased 299,854 shares of Aon PLC (AON)
Purchased 10,727,614 shares of Kroger Co. (KR)
Purchased 35,519 shares of RH, Inc. (RH)
Sales
Sold 2,340,317 shares of AbbVie Inc. (ABBV)
Sold 13,887,037 shares of Axalta Coating Systems Ltd. (AXTA) – SOLD OUT
Sold 643,022 shares of Biogen Inc. (BIIB) – SOLD OUT
Sold 4,737,961 shares of Bristol-Myers Squibb Co. (BMY)
Sold 548,351 shares of Chevron Corporation (CVX)
Sold 7,000,000 shares of General Motors Company (GM)
Sold 3,359,831 shares of Liberty Global PLC Class A (LBTYA) – SOLD OUT
Sold 5,470,446 shares of Liberty Global PLC Class C (LBTYK)
Sold 1,090,834 shares of Marsh & McLennan Companies, Inc. (MMC)
Sold 8,725,196 shares of Merck & Co., Inc. (MRK)
Sold 798,178 shares of U.S. Bancorp (USB)
Purchases
Aon PLC (AON) – Purchased 299,854 shares.
This purchase brings Berkshire Hathaway’s position up to 4,396,000 shares, an increase of 7.3% over last quarter.
Aon PLC is a professional services company that sells a variety of risk-management products that include insurance, pension management, and human resource solutions.
Berkshire Hathaway initiated their position in Aon just last quarter. They’re quickly following that up with a nice add-on buy here.
I noted last quarter that it was unlikely that Buffett was behind the investment, as the size of the position (~$1 billion) is a bit low for Buffett’s typical move. This transaction, which is quite small by Berkshire Hathaway’s standards, solidifies that viewpoint.
Nonetheless, that makes it no less important for Berkshire Hathaway shareholders (who have the exposure to Aon regardless), nor does it make it any less insightful for the rest of us.
It’s really still a classic Buffett play in a lot of ways.
Aon is in the insurance space, which is where Buffett has really cut his teeth and made a significant portion of his wealth. Buffett has an affinity for insurance. An affinity which I share.
The Buffett attraction also relates to cash flow; Aon is a free cash flow machine, as almost all of their operating cash flow drops straight down to FCF. Then there’s the “stickiness” to their products and services, which is also something Buffett loves.
Aon, like a lot of competitors, has had trouble with revenue growth over the last decade. However, a combination of margin expansion and substantial buybacks have allowed them to triple EPS over the last 10 years anyway.
That’s impressive, which has a lot to do with driving the share price higher – it’s up more than 500% over the last 10 years.
The one thing that isn’t terribly Buffett-like here is the valuation, with the stock commanding a P/E ratio of over 30. Most basic valuation metrics are well above their recent respective historical averages. But if this name dips, it’s a very interesting business to consider investing in.
Kroger Co. (KR) – Purchased 10,727,614 shares.
This transaction brings Berkshire Hathaway’s position up to 61,787,910 shares, which is 21.0% higher than the prior 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 is another move that Buffett was unlikely to have been involved in. That said, it is another classic Buffett investment.
It’s a high-quality, profitable, scaled-up, easy-to-understand business that pays a growing dividend (which Berkshire Hathaway can collect and redeploy back into more investments). I mean, that’s right in Buffett’s wheelhouse.
Like Aon, though, the valuation might be the only thing about this stock that isn’t Buffett-like.
Kroger has gone on a big run this year – it’s up 41% YTD. And that’s stretched the valuation as the earnings multiple has expanded. Most basic valuation metrics, including the current P/E ratio of 23.7, are above their respective recent historical averages.
On the other hand, the stock yields 1.9%. That beats the market. And it comes with strong dividend growth – the dividend has been increased for 16 consecutive years, with a 10-year dividend growth rate of 13.3%.
RH, Inc. (RH) – Purchased 35,519 shares.
Berkshire Hathaway increased their stake by 2.0%, with this position now sitting at 1,791,967 shares.
RH, Inc. is a holding company that, through its subsidiary, offers a range of high-end home furnishing products across multiple retail channels.
This purchase follows up a tranche of 23,900 shares Berkshire Hathaway picked up in Q1 of this year, so they clearly see what they like.
It’s another small transaction for Berkshire Hathaway, though, which tells us that Buffett isn’t orchestrating this investment.
Nonetheless, I can see why one of Buffett’s lieutenants is putting capital to work with RH.
RH is the place to go for extremely high-end home furnishings. I can’t think of a single serious competitor. They’re basically in a league of their own.
This has been a home run of an investment for Berkshire Hathaway since initiating their position in Q3 2019. For perspective, the stock was in the low $100s back then. It’s now nearing $700/share.
With this kind of move in the stock, you have to see a major move in the business to rationalize it. While RH has performed well as a business, it’s hard to totally connect that to the stratospheric rise in the stock.
Now, EPS has doubled between FY 2019 and FY 2021. So the performance is nothing to shake a stick at. But you have to believe that this kind of growth isn’t largely thanks to a temporary, pandemic-related pop in demand.
Time will tell on that, but the valuation on the stock is definitely pricing in a lot of expectations.
For instance, the P/CF ratio is 29.4 is nearly twice as high as its five-year average of 16.2.
Also, it’s worth noting that RH doesn’t pay a dividend. That’s usually something that would preclude a Buffett “stamp of approval”, but it doesn’t seem to bother Combs or Weschler at all.
Sales
AbbVie Inc. (ABBV) – Sold 2,340,317 shares.
This sale brought Berkshire Hathaway’s position down to 20,527,861 shares, a reduction of 10.2%.
AbbVie Inc. is a global pharmaceutical company with a particular focus on immunology and oncology.
This follows up a similar sale in AbbVie shares in Q1 2021, which saw Berkshire Hathaway reduce their position by 10.4% after unloading nearly 2.7 million shares.
There’s a clear trend that played out this quarter. That trend involved Berkshire Hathaway reducing their exposure to Big Pharma almost across the board.
I find this odd and disagreeable. Personally, I’d be more inclined to buy shares in high-quality pharmaceutical companies than to sell those shares. These are great businesses raking in a ton of cash, paying out large and growing dividends, and trading hands for reasonable valuations.
To wit, ABBV’s P/CF ratio is a lowly 10.4. That compares very favorably to not only the market as a whole but the stock’s own recent historical average.
Meantime, the stock yields 4.4%. Again, that blows away the market. And it’s even 50 basis points higher than ABBV’s own five-year average yield. This is also a growing dividend, with a five-year dividend growth rate of 18.5%.
The exposure reduction to Big Pharma reminds me, in some ways, of the exposure reduction to banks that Berkshire Hathaway initiated some time ago. I disagreed with selling banks (I was buying many of them), and banks have gone on to perform really well over the last year. I also think Big Pharma is generally situated for great long-term performance.
Axalta Coating Systems Ltd. (AXTA) – Sold 13,887,037 shares.
Berkshire Hathaway completely sold out of this position.
Axalta Coating Systems Ltd. is a coatings company.
This was an elimination of a very small position that didn’t really move the needle for Berkshire Hathaway in any meaningful way. There’s not much to discuss about this move.
The complete elimination of the position follows up a sale of 9,532,963 shares in Q1 of this year. When discussing that sale, I said this:
“Notably, the stock has performed really well since the end of Q1. If Berkshire Hathaway wanted to start moving out of this name below $30/share (which is where the stock was for most of last quarter), I’m sure they’d be even more interested in selling the stock now at almost $33/share.”
Indeed, they were even more interested in selling the stock at that higher price. And that’s exactly what they did.
Biogen Inc. (BIIB) – Sold 643,022 shares.
Berkshire Hathaway sold out of this position completely.
Biogen Inc. is a multinational biotechnology company specializing in the discovery, development, and delivery of therapies for the treatment of neurological diseases.
I’m not privy to precisely when Berkshire Hathaway unloaded their stake in Biogen. We can only say that it occurred during the second quarter of this year. However, if you’re a Berkshire Hathaway shareholder, you have to be hoping that they sold the shares after they popped in early June on the back of the FDA approval for Biogen’s Aduhelm, a a drug for Alzheimer’s disease.
It’s interesting, though, that Berkshire Hathaway did decide to sell out of Biogen. Perhaps they don’t believe that the drug, which is revolutionary in some ways, will be a big deal for Biogen?
Even before Adulhelm came onto the scene, Biogen was growing at a high rate. So it’ll do them no harm. If anything, it can supercharge what the business was already doing.
On the other hand, the big pop means the market priced in a lot of future Adulhelm sales, and the stock’s valuation is now rich. The P/CF ratio of 19.1, for example, is significantly higher than its own five-year average of 11.3.
Although I’m personally turned off from Biogen shares due to the lack of a growing dividend, what I said about AbbVie can apply to Big Pharma in general. I simply think a lot of the stocks in this area of the market are some of the best opportunities long-term investors can find at this particular juncture.
Bristol-Myers Squibb Co. (BMY) – Sold 4,737,961 shares.
This sale reduced Berkshire Hathaway’s stake down to 26,294,266, which is a reduction of 15.3% over the prior quarter.
Bristol-Myers Squibb Co. is a pharmaceutical company that manufactures treatments in several areas, including cancer, HIV/AIDS, cardiovascular disease, diabetes, hepatitis, rheumatoid arthritis and psychiatric disorders.
Here’s what I said about Berkshire Hathaway’s decision to unload a bit over 2.3 million BMY shares during Q1 of this year:
“This move perplexes me in the same way that the AbbVie sale does. The buying and selling shadows AbbVie in a way that almost makes me think that Berkshire Hathaway is just buying and selling baskets of stocks in the pharma space rather than doing a deep dive into individual businesses. It’s quite strange.
As with AbbVie, Berkshire Hathaway initiated their stake in Bristol-Myers Squibb in Q3 2020. They then added to the stake in Q4 2020. Here they are, now in Q1 2021, reducing the position down.
I don’t see anything that’s markedly changed in terms of either the businesses or stocks of these pharmaceutical companies to warrant such a quick shift in the investment thesis or exposure.
And this is another case where I’d be more likely to buy than to sell the stock.”
I really can’t say it any better than that. I view both AbbVie and Bristol-Myers Squibb as more worthy of buying than selling, especially in this market where competing opportunities of this quality and valuation aren’t commonplace.
In fact, I featured Bristol-Myers Squibb as an Undervalued Dividend Growth Stock of the Week in early June, which shows why I think it’s an appealing long-term idea. That article goes into a deep dive on this business, so check it out.
Chevron Corporation (CVX) – Sold 548,351 shares.
Berkshire Hathaway reduced their stake by 2.3%, which now stands at 23,123,920 shares.
Chevron Corporation is an integrated global energy company, with exploration, production, and refining operations across the world.
Chevron is another odd about-face. Berkshire Hathaway initiated their position in Chevron in Q4 2020. They then sold off about half of it only one quarter later – in Q1 2021 – and followed up on that with a small reduction here.
Here’s what I said about the big Chevron sale that occurred during Q1 2021:
“Nothing has really changed in terms of Chevron’s business model or long-term prospects in only a few months, nor has the stock done very much to change one’s opinion of it in a big way. It’s a head-scratcher for sure.”
I’ve noticed, in general, a more active “trading” atmosphere surrounding Berkshire Hathaway’s stock portfolio. Whereas Buffett has long been regarded as almost legendary in terms of his buy-and-hold patience, Todd and Ted seem to be more oriented around short-term moves.
I’m not the only one who has noticed this increased trading frequency. I also said this during the Q1 update for Berkshire Hathaway’s stock portfolio:
“Buffett was actually asked at this year’s Berkshire Hathaway meeting about the increased frequency of trading within the common stock portfolio, which he basically brushed off. Buffett didn’t seem to recognize any increased trading, but I’d beg to differ. I’ve been covering Berkshire Hathaway’s portfolio for years, and I’ve definitely noticed a lot of in-and-out moves like this over the last 2-3 years that were incredibly uncommon about 10 years ago.”
As with Big Pharma, I see Chevron as more buyable than sellable.
The valuation is reasonable, even as the business is still in the midst of recovering from an unprecedented drop in oil prices during 2020.
And the stock yields 5.3%, which is a full 100 basis points higher than its own five-year average. That’s not to mention the fact that this yield is almost four times higher than the broader market’s yield.
Let’s also not forget that Chevron has been increasing its dividend for 34 consecutive years, with a 10-year dividend growth rate of 6.2%. This stock offers big income and a decent growth kicker.
Assuming you believe that the world will continue to consume hydrocarbons for the foreseeable future, there’s not a lot to dislike about Chevron.
General Motors Company (GM) – Sold 7,000,000 shares.
This sale reduced Berkshire Hathaway’s position down to 60,000,000 shares, which is 10.4% lower than the prior quarter.
General Motors Company is a multinational corporation that designs, manufactures, markets, and distributes vehicles and vehicle parts, and also provides financial services.
We can see some consistency with this name. Berkshire Hathaway reduced their GM stake by 7.5 million in Q4 2020. They sold off another 5.5 million shares in Q1 2021. And here they’ve unloaded another 7 million shares during Q2 2021. It looks like they might be systematically selling out, but we’ll have to see how the rest of the year goes.
Buffett is likely behind this move, as this investment dates back many, many years. And the position was, at one time, quite sizable for Berkshire Hathaway.
Personally, I’ve never seen the appeal of investing in a car company. The auto industry is extremely competitive and features low margins, high fixed costs, little brand loyalty, and a lot of product turnover. Plus, there have been a ton of bankruptcies in this industry over the years. As an investor, I don’t get it.
As such, I understand the desire to lighten up on the GM stake. With the stock performing well this year – it’s up nearly 25% YTD – selling into strength would be advantageous for Berkshire Hathaway.
Marsh & McLennan Companies, Inc. (MMC) – Sold 1,090,834 shares.
This sale reduced Berkshire Hathaway’s position by 20.6%, which now stands at 4,196,692 shares.
Marsh & McLennan Companies, Inc. is a global professional services firm with businesses in insurance brokerage, risk management, reinsurance services, talent management, investment advisory, and management consulting.
I see a consulting firm like Marsh & McLennan as perfect for Berkshire Hathaway. You’ve got a very “sticky” client base, attractive margins, and very little capital expenditures to burden operating cash flow. These businesses tend to be free cash flow machines.
That’s why I thought Berkshire Hathaway’s investment in Marsh & McLennan in Q4 2020 made a lot of sense. Berkshire Hathaway then followed that up by picking up another tranche of just over 1 million shares in Q1 of this year.
So it’s a head-scratcher to see them, only one quarter later, sell out of almost 1.1 million shares. It’s an odd and quick about-face that I’ve seen as increasingly common over at Berkshire Hathaway, which I touched on earlier.
I’m not sure how to explain it.
The only thing I can say about this particular transaction is that, while Marsh & McLennan is highly appealing as a long-term investment in a lot of ways, the valuation does leave something to be desired. The P/E ratio of nearly 32 is well above the stock’s own five-year average P/E ratio of 27.3. And the current yield of 1.4% is 40 basis points lower than its own five-year average.
At the right valuation – say, 10% or 15% lower than this – it’s compelling. But I’d like to see a pullback. Perhaps Berkshire Hathaway simply saw the stock’s strong performance – it’s up 36% YTD – as a chance to lighten up a bit and take some chips off the table.
Merck & Co., Inc. (MRK) – Sold 8,725,196 shares.
This sale dropped Berkshire Hathaway’s position down to 9,157,192 shares, which is 48.8% lower than the prior quarter.
Merck & Co., Inc. is a leading global pharmaceutical company that produces a range of medicines, vaccines, and animal healthcare products.
Here’s more evidence that Berkshire Hathaway spent much of Q2 2021 moving out of Big Pharma.
They also did this in Q1 2021. In fact, they sold shares in AbbVie, Bristol-Myers Squibb, and Merck in the prior quarter. And when I wrote the Q1 report for Berkshire Hathaway’s stock portfolio, here’s what I said then about those moves:
“Everything I said about AbbVie and Bristol-Myers Squibb can be said about Merck. It’s a strange trading pattern that doesn’t have a lot of precedent in terms of Berkshire Hathaway’s longstanding modus operandi. And as with the other pharma stocks, I’d be a buyer rather than a seller of this one.”
I’m sticking with that. I can’t explain Berkshire Hathaway’s about-face on Big Pharma, and I don’t agree with it. These are quality businesses generally offering solid growth, low valuations, and attractive yields. There’s more to like than dislike, in my view.
Merck is guiding for $5.52 in adjusted EPS at the midpoint for this fiscal year, which puts its forward P/E ratio at well under 15. Meanwhile, the stock offers a market-beating 3.3% yield on a dividend that’s grown for 10 consecutive years at nearly 5% annually.
Merck is not knocking anyone’s socks off, but I don’t see it as something to disregard and sell, either.
U.S. Bancorp (USB) – Sold 798,178 shares.
This sale reduced Berkshire Hathaway’s position by 0.6%, which is now at 128,888,906 shares.
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.
Buffett was almost certainly behind this sale, as U.S. Bancorp is both a large and old holding for Berkshire Hathaway. Even after this sale, the position is still valued at over $7 billion. That’s Buffett territory.
This sale follows up on a small reduction in U.S. Bancorp during Q1 2021, which is part of an overall reduction in banking exposure generally for Berkshire Hathaway. Here’s what I said about the U.S. Bancorp sale during the prior quarter:
“Berkshire Hathaway has been busy selling out of bank holdings over the last 18 months, which accelerated throughout the pandemic. This was another topic that Buffett recently addressed at the annual Berkshire Hathaway meeting. When asked about the bank sales, he alluded to a feeling of overexposure and wanting to reduce that in the wake of so much economic turmoil and uncertainty.”
Now, I can see where Buffett was coming from here. Berkshire Hathaway arguably had way too much invested in banks heading into the pandemic.
But for the rest of us mere mortal investors who don’t have billions of dollars wrapped up in bank stocks, I think they’re more buyable than sellable. I’ve been saying that pretty consistently over the last two years, even as Berkshire Hathaway systematically moved out of banks.
I think they’re more buyable than sellable due to an improving economic backdrop, tons of liquidity, good odds for higher rates, attractive yields, and low valuations. These stocks have, for years, had extremely low expectations built in. And even now, after a lot of banks have performed strongly over the last year, the valuations for banks are not all that demanding.
USB has a P/E ratio of 12.2. That’s incredibly low in this market and environment. And it’s low even against the stock’s own five-year average P/E ratio of 13.8, which is low in and of itself. These stocks have been so cheap and so ignored for so long. Plus, this stock yields 3%, which is more than twice as high as what the S&P 500 yields.
Here’s something else I said during the Q1 update for Berkshire Hathaway’s stock portfolio when speaking about the sale of U.S. Bancorp stock:
“Investors would have been wise to have been buying banks while Buffett has been selling.”
That’s my story. And I’m sticking to it.
— Jason Fieber
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