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 third quarter of 2021 — the quarter ending September 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!
Purchased 5,579,599 shares of Chevron Corporation (CVX)
Purchased 816,863 shares of Floor & Decor Holdings Inc. (FND) – NEW POSITION
Purchased 13,145,902 shares of Royalty Pharma plc (RPRX) – NEW POSITION
Sold 6,129,373 shares of AbbVie Inc. (ABBV)
Sold 4,247,330 shares of Bristol-Myers Squibb Co. (BMY)
Sold 1,012,835 shares of Charter Communications Inc. (CHTR)
Sold 1,876,522 shares of Liberty Global PLC Class C (LBTYK) – SOLD OUT
Sold 276,108 shares of Mastercard Inc. (MA)
Sold 1,454,937 shares of Marsh & McLennan Companies, Inc. (MMC)
Sold 9,157,192 shares of Merck & Co., Inc. (MRK) – SOLD OUT
Sold 1,550,481 shares of Organon & Co. (OGN) – SOLD OUT
Sold 2,471,019 shares of U.S. Bancorp (USB)
Sold 425,000 shares of Visa Inc. (V)
Chevron Corporation (CVX) – Purchased 5,579,599 shares.
This purchase brings Berkshire Hathaway’s position up to 28,703,519 shares, an increase of 24.1% over last quarter.
Chevron Corporation is an integrated global energy company, with exploration, production, and refining operations across the world.
This is an odd move, particularly for Berkshire Hathaway. It’s perplexing.
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 another small reduction in Q2 2021. Here we are now, in Q3, and Berkshire Hathaway is doing an about-face and buying up the stock again.
When covering that big sale of Chevron stock in Q1, I said this:
“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 a general theme across Berkshire Hathaway’s portfolio that’s been building over the last few years. That theme is one of “trading”, as there are a lot of active moves in and out of stocks over relatively short periods of time, compared to Berkshire Hathaway’s historical patterns of very long-term investment. It’s quite possible that Todd and Ted are simply more oriented toward short-term moves.
I’m not the only one to notice this. I noted the following in that Q1 update:
“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.”
I’ve also called Chevron more buyable than sellable in Q1 and Q2 updates. It seems that someone over at Berkshire Hathaway finally agrees.
The price of oil has gone through the roof over the last year. Meanwhile, oil companies are very hesitant to invest much into exploration and production. This will likely keep supplies tight and prices high, which leaves companies like Chevron to become cash cows for long-term investors.
Speaking of which, the stock yields 4.6%. That’s more than three times higher than what the broader market offers. That’s also 30 basis points higher than the stock’s own five-year average yield. Despite the stock running up 31% this year, the current yield is still higher than what investors have, on average, typically been able to get over the last five years. This is also a dividend that’s been increased for 34 consecutive years, with a 10-year dividend growth rate of 6.2%. A lot to like in terms of income.
And the valuation isn’t egregious at all, which fits the Buffett mold. Most basic valuation metrics are pretty close to their respective recent historical averages. The P/CF ratio of 10.2, for instance, is not far off from its five-year average of 10.8. And that includes some poor quarters before oil rebounded.
I’ve been calling Chevron more buyable than sellable all year. And I’m sticking to that viewpoint.
Floor & Decor Holdings Inc. (FND) – Purchased 816,863 shares.
This is a new position for Berkshire Hathaway.
Floor & Decor Holdings Inc. is an American specialty retailer of hard surface flooring and related accessories.
This is a very interesting move. It’s a clear way to profit from the housing market, which has gone absolutely gangbusters. That goes for both transactions and improvements, which play right into a company like this.
But this isn’t a company that’s only suddenly doing well.
No, this company has increased its revenue by nearly tenfold over the last decade. And it’s been a pretty consistent move upward, rather than just something extremely recent. EPS has a CAGR of 41.7% over the last 10 years. Incredible growth.
This company doesn’t pay a dividend, however. And based on the size of the holding (under $110 million), I can just about guarantee you that Buffett didn’t initiate this investment.
Nevertheless, this under-the-radar business is printing some gaudy numbers. That’s why it’s not surprising to see the stock up 71% over the last year.
It’s trading hands for a P/E ratio of 48.0. So it’s not even close to “cheap”. But for a business that’s growing EPS at over 40% per year, the PEG ratio is only a bit over 1.
If you’re okay with the valuation, as well as the fact that there’s no dividend, it’s a captivating way to play the housing boom. It’s not the kind of stock I’d ever personally buy, and I’m confident that Buffett didn’t buy it, but that doesn’t necessarily make it any less interesting or worthwhile.
Royalty Pharma plc (RPRX) – Purchased 13,145,902 shares.
This is a new position for Berkshire Hathaway.
Royalty Pharma plc is the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the biopharmaceutical industry.
Another very interesting move for Berkshire Hathaway, especially when you contrast this against their general selling across the pharma space over the entire year (including Q3).
There’s not much I can really comment on here.
The company only went public in June of last year. With such a limited history as a public company, and little financial information to go off of before they went public, I’m not real sure what to make of the business.
I can say that it’s highly, highly unlikely that Buffett was behind this move. The holding is worth less than $600 million. Buffett has repeatedly stressed that he almost never gets involved when it’s less than $1 billion. He simply manages too much money.
I think it’s a stock to watch. Notably, it is down by 15% over the last year, even while the market has been on a breathtaking run. So that performance disconnect is somewhat troublesome.
However, there’s just not enough “meat on the bone” for me to draw a lot of concrete conclusions from, so I’m assuming that Berkshire Hathaway had access to more financial information than I’m able to gather.
AbbVie Inc. (ABBV) – Sold 6,129,373 shares.
This sale brought Berkshire Hathaway’s position down to 14,398,488 shares, a reduction of 29.9%.
AbbVie Inc. is a global pharmaceutical company with a particular focus on immunology and oncology.
This follows up sales in AbbVie shares in Q1 and Q2 of this year, but this particular sale is the largest of the three.
I said this in my Q2 update on Berkshire Hathaway’s portfolio:
“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.”
Well, we can see that trend playing out once again in Q3. Berkshire Hathaway aggressively lowered their exposure to Big Pharma throughout this past quarter.
When speaking on this trend in the Q2 update, I said this:
“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.”
I stand by my words. I still think many high-quality pharma stocks, such as AbbVie, make more sense as buys than sells for long-term investors. Now, I have no idea which way these stocks are going to go over the short term. But if you’re in this for the next decade or so, I believe these businesses (and their stocks) will do very well.
I don’t know exactly when Berkshire Hathaway unloaded these AbbVie shares last quarter. But I do know that the stock is up more than 8% since the start of Q4. And I think there’s plenty more where that came from.
I say that because the business is doing well, yet the stock still looks attractively valued. The P/CF ratio is only 9.2, which is well off of its own five-year average of 12.1.
While you wait for the valuation gap to close, the stock offers a generous yield of 4.8%. This is a high-quality Dividend Aristocrat that just increased the dividend by 8.5% late last month.
The stock is right up Buffett’s alley in a lot of ways. It’s a cheap stock that pays a fat dividend. And there are plenty of durable competitive advantages in place. So it surprises me that they’re unloading.
Near the end of September, I highlighted AbbVie as an undervalued dividend growth stock to consider for long-term investment, so I obviously disagree with the idea of selling this stock right now.
Then again, I also said this in the Q2 update when reflecting on the Big Pharma sales by Berkshire Hathaway:
“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.”
Again, I stand by my words.
Bristol-Myers Squibb Co. (BMY) – Sold 4,247,330 shares.
Berkshire Hathaway reduced their stake by 16.2%, which is now at 22,046,936 shares.
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.
Pretty much everything I just said about AbbVie can be said about Bristol-Myers Squibb.
It’s a high-quality company. The stock is cheap. And you get a fat dividend while you patiently wait for the upside to unfold over time.
I actually analyzed and valued Bristol-Myers Squibb in June, where I provided a compelling case as to why the stock looked 8% undervalued.
That article goes over the entire business model, its growth, the dividend metrics, and the valuation.
Suffice it to say, as with AbbVie, I view Bristol-Myers Squibb as a stock to buy, not sell, for long-term investors.
Charter Communications Inc. (CHTR) – Sold 1,012,835 shares.
This sale dropped Berkshire Hathaway’s position down to 4,200,626 shares, which is 19.4% lower than the prior quarter.
Charter Communications Inc. is an American telecommunications and mass media company.
Berkshire Hathaway’s investment in Charter Communications dates back to Q2 2014. The stock is up about 400% since then, so it’s been a home run of a long-term investment.
More recent performance, however, has been a bit middling – the stock is up only 8% over the last year.
I don’t see anything fundamentally different about the business that would trigger the idea of trimming. The business continues to hum along very, very nicely.
In addition, the valuation doesn’t seem all that stretched right now. The P/E ratio is 32.0, but this is a stock that usually commands a high earnings multiple. The P/CF ratio of 8.5 is very close to its five-year average of 8.7.
This might just be a portfolio management and capital allocation call. Berkshire Hathaway is likely taking some profits off the table and moving that elsewhere within their large empire of holdings and subsidiaries.
In my view, this stock looks like a hold to me. It’s not particularly compelling as a buy, as the valuation doesn’t pop out. On the other hand, nothing is screaming to sell it. It seems like a stock to just kind of sit on and enjoy that incredible long-term performance.
Mastercard Inc. – Sold 276,108 shares.
This sale reduced Berkshire Hathaway’s position by 6.0%, which is now at 4,288,648 shares.
Mastercard Inc. is an American multinational financial services corporation.
Mastercard is a fantastic business. They’ve more than doubled revenue over the last decade, and they’ve more than quadrupled EPS over that same time frame (thanks largely to a combination of margin expansion and share buybacks).
However, new fintech competition is coming. And the valuation is arguably rich.
Speaking on that latter point, the stock’s P/E ratio is 44.4. Even for a stock that is frequently awarded a high earnings multiple, that’s a bit high – the stock’s own five-year average P/E ratio is 41.2. The P/CF ratio of 42.2 is also elevated when compared to its five-year average of 38.0.
Trimming a bit makes sense to me. I think one could just as well continue to hold through an “expensive” period, but this was only a small trim for Berkshire Hathaway.
It’s a great, great business. Zero doubts about it.
But the valuation may have gotten ahead of itself. And there could be better opportunities to buy at lower valuations in the days ahead.
Marsh & McLennan Companies, Inc. (MMC) – Sold 1,454,937 shares.
Berkshire Hathaway’s position is now at 2,741,755 shares, a reduction of 34.7% from the prior quarter.
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.
This is another odd about-face for Berkshire Hathaway. This reduction follows up on a sale of nearly 1.1 million shares in Q2. But that’s not what is odd. What’s odd is that Berkshire Hathaway initiated their position in Marsh & McLennan in Q4 2020, which I actually saw as brilliant.
I noted the following in the Q2 update:
“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.”
Perhaps the best way to look at this, and some of their other moves, is not as a long-term investor. That’s difficult for me to do as a long-term investor who is used to covering Berkshire Hathaway as a long-term holder of assets. However, as aforementioned, Berkshire Hathaway’s common stock portfolio has become a lot more active with trading over the last few years.
With that in mind, this stock is up 47% this year. So if you went into it for a short-term gain, or if you’re open to taking short-term gains, the stock has provided exactly what you wanted.
If you’re a long-term investor who thinks like a business owner, though, and you bought in at a lower valuation, I think it could be argued just as well that one should continue holding what they’ve got.
Now, the stock isn’t cheap by any measure. In fact, it looks somewhat expensive from most angles.
The P/E ratio of 31.7, for instance, is running ahead of its five-year average of 27.9. Not egregiously so. But it is elevated, nonetheless.
And the current yield of 1.3% is 50 basis points below the stock’s five-year average yield of 1.8%. But with a 10-year dividend growth rate of 8.6%, it would only take a sizable dividend increase and a minor pullback to “right-size” this yield once again.
I wouldn’t be very excited about buying this stock. But I also think the “old” Berkshire Hathaway would have been just as happy to remain a long-term owner. That said, reducing after a big run doesn’t strike me as a terrible idea.
Merck & Co., Inc. (MRK) – Sold 9,157,192 shares.
Berkshire Hathaway completely sold out of this position.
Merck & Co., Inc. is a leading global pharmaceutical company that produces a range of medicines, vaccines, and animal healthcare products.
As I foreshadowed earlier on, Berkshire Hathaway was very busy in Q3 reducing its exposure to Big Pharma. And this isn’t something sudden. They’ve been doing this most of the year.
But just as I disagreed with Berkshire Hathaway’s move out of banks last year (before they went on huge runs), I disagree with getting out of Big Pharma here. These stocks could be primed for big runs (again, like the banks), with low multiples, attractive yields, and strong growth setting them up well as a group.
I performed a full analysis on Merck in early September, highlighting it as an undervalued dividend growth stock that looked compelling on a valuation and quality basis.
That analysis includes a full look at the business and stock, so check it out. Notably, the stock is up quite a bit since my analysis went live, but I still see the stock as materially undervalued.
Organon & Co. (OGN) – Sold 1,550,481 shares.
Berkshire Hathaway completely sold out of this position.
Organon & Co. is American pharmaceutical company that focuses on women’s health.
While this move could technically fall under the broader umbrella of Berkshire Hathaway’s sales across Big Pharma throughout Q3, this one is differentiated by the fact that Berkshire Hathaway never actually bought these shares.
Rather, Organon was a spin-off from Merck.
It was a very, very small position for Berkshire Hathaway. A position which they never initiated. Since Berkshire Hathaway was already moving out of Big Pharma anyway, it makes total sense to unload their tiny stake in Organon.
All that said, I think Organon is a super interesting business.
There’s not much corporate history to go by here as an independent, standalone drug company. They haven’t even been in operation for a year on their own. So we have yet to see what they’re truly capable of.
But their first two quarters have shown promise. Their Q3 report beat handily on both the top line and bottom line.
Meantime, the stock offers a juicy 3.4% yield.
Berkshire Hathaway manages too much money for this position to have moved the needle in any meaningful way. So I get the sale.
But I think longtime Merck shareholders who still own their spin-off Organon shares should consider holding and seeing what this business can do. Early results have been encouraging, in my view. And the yield is nothing to scoff at.
U.S. Bancorp (USB) – Sold 2,471,019 shares.
This sale dropped Berkshire Hathaway’s position down to 126,417,887 shares, which shows a 1.9% reduction over the prior 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.
I can say with confidence that Buffett was behind this sale. I have 99% certainty on that. U.S. Bancorp is both a large and old holding for Berkshire Hathaway. Even after this sale, the position is still valued at over $7.6 billion. That’s Buffett’s realm.
This sale follows up small sales in Q1 and Q2 of this year. So Buffett has been pretty consistent here.
Here’s what I said when I covered this move in the Q1 update:
“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.”
If you look at things from Berkshire Hathaway’s perspective, some of these bank sales make sense. Buffett was, as he admits, too aggressive with buying up banks as we headed into the pandemic. Even if you factor out the pandemic, Berkshire Hathaway was arguably too heavily tilted toward banks.
However, if you’re a mere mortal investor like me, where you don’t already have billions of dollars wrapped up in banks, I think the banks continue to look appealing as long-term investments, especially for dividend growth investors.
You get sticky assets, low valuations, market-beating yields, strong growth, and the specter of rising rates.
For example, even though this stock is up 31% this year, the P/E ratio here is only 12.1. That’s very undemanding in this environment.
And the stock offers a 3% yield, which beats both the market and the stock’s own five-year average yield of 2.7%.
I remain sanguine on high-quality banks like U.S. Bancorp.
Visa Inc. (V) – Sold 425,000 shares.
This sale reduced Berkshire Hathaway’s stake by 4.3%, which is now down to 9,562,460 shares.
Visa Inc. is an American multinational financial services corporation.
This seems to be a calculated and coordinated move here, with Berkshire Hathaway reducing its positions in both Mastercard and Visa by somewhat similar amounts in the same quarter.
Much of what I noted about Mastercard can apply to Visa.
Visa, like Mastercard, is a wonderful business. It’s precisely the type of business that Buffett loves to own – excellent fundamentals, a wide economic moat, a growing dividend, etc.
However, as with Mastercard, the valuation is, perhaps, a bit high for Berkshire Hathaway. And maybe they see that as a sign to trim.
Now, whereas I see Mastercard as clearly overvalued, I think Visa would be closer to fairly valued right now. There’s a clear difference in their valuations.
Visa’s earnings multiple is coming up on 38 right now. But the stock’s five-year average P/E ratio is 37.6. We’re basically right there.
And the yield of 0.7% isn’t lighting the world on fire. But the stock’s five-year average yield is 0.6%. Again, it’s pretty much in line.
Just like Mastercard, though, Visa’s appeal lies in its growth, not its yield. The dividend, which has been increased for 14 consecutive years, has a 10-year dividend growth rate of 25%. Visa just recently announced a 17.2% dividend increase.
I think it’s easy to rationalize the trimming of the Mastercard stake. The Visa stake, less so.
Still, Berkshire Hathaway has owned Visa since 2011, and they’ve done extremely well with the investment. It’s pretty close to a ten-bagger for them at this point. Far be it from me to question taking some well-deserved profits off the table.
— Jason Fieber
The goal? To build a reliable, growing income stream by making regular investments in high-quality dividend-paying companies. Click here to access our Income Builder Portfolio and see what we’re buying this month.