Warren Buffett’s latest trades were just revealed via Berkshire Hathaway Inc.’s (BRK.B) 13F filing, which is a filing that gives us information on all of the transactions that took place over the first quarter of 2017 — the quarter ending March 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.
[ad#Google Adsense 336×280-IA]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 3,734,000 shares of American Airlines Group Inc. (AAL)
Purchased 71,997,454 shares of Apple Inc. (AAPL)
Purchased 11,340,090 shares of Bank of New York Mellon Corp. (BK)
Purchased 10,000,000 shares of Liberty Global PLC (LBTYA)
Purchased 189,000 shares of Liberty Sirius XM Group (LSXMA)
Purchased 71,000 shares of Liberty Sirius XM Group (LSXMX)
Purchased 5,685,412 shares of Sirius XM Holdings Inc. (SIRI)
Purchased 4,455,681 shares of Southwest Airlines Co. (LUV)
Sales
Sold 5,000,000 shares of Delta Air Lines, Inc. (DAL)
Sold 16,670,348 shares of International Business Machines Corp. (IBM)
Sold 459,840 shares of WABCO Holdings Inc. (WBC)
Sold 8,951,869 shares of Twenty-First Century Fox Inc. (FOXA) – SOLD OUT
Purchases
American Airlines Group Inc. (AAL) – Purchased 3,734,000 shares.
This purchase increased Berkshire’s stake in the airline company by 8.2%, with the position now up to 49,278,854 shares.
American Airlines Group Inc. is a holding company that, through its subsidiaries, operates as an airline carrier.
Berkshire has been aggressively buying stock in the domestic airlines since late last year. A lot of casual observers and Berkshire shareholders have been a little puzzled by this, as Buffett has long been a detractor of the industry from the standpoint of its long-term investment quality.
However, there’s been a lot of consolidation in the industry over the last decade or so. And this consolidation takes what was probably a terrible business model and made it a lot better in terms of competition, cost efficiency, and pricing power. It’s essentially an oligopoly at this point, with four major domestic airline companies controlling most of the market.
The stock is up considerably since Berkshire initiated its position, but the valuation still doesn’t seem to be outlandish here. That’s probably why Berkshire continues to add to its position.
Running an airline is still an incredibly capital-intensive business. But there’s a possibility that the industry has turned a corner.
Apple Inc. (AAPL) – Purchased 71,997,454 shares.
This purchase increased Berkhire’s position by 126%. Berkshire Hathaway now owns 129,357,107 shares of Apple.
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.
This is perhaps another surprise for long-time Berkshire watchers and/or shareholders.
I say that because Warren Buffett has long avoided investing heavily in technology companies. Well, Berkshire now owns about $20 billion worth of Apple stock. So we have both “heavily” and “tech” happening here.
What’s changed?
Well, Buffett actually views Apple as more of a consumer company than a pure tech company. And on that point, I agree. Apple sells experiences and an ecosystem as much as it sells technology. The iPhone – which accounts for the bulk of Apple’s annual profit – is a consumer product that people all over the globe love and own.
Moreover, Apple is a high-quality company across the board.
The long-term growth rate is incredible. They earn more than $45 billion in net income annually. Net margin is over 20%. The balance sheet sports more than $200 billion in cash. And they continue to increase their dividend like clockwork (which is just one reason why I’m a fellow shareholder).
The valuation is arguably stretched a little bit right now, but the company’s fundamentals warrant consideration from just about any long-term investor out there.
Bank of New York Mellon Corp. (BK) – Purchased 11,340,090 shares.
This transaction increased Berkshire’s stake in the bank by 52.3%, with Berkshire now owning a total of 33,012,059 shares.
Bank of New York Mellon Corp. is a global financial services company, providing investment management and investment services.
I’ve noted this before, but Berkshire has been buying and selling this stock for about as long as I’ve been tracking and writing about their quarterly transactions (which I’ve been doing for a few years now). It seems like Berkshire will sell the stock over the course of a quarter or two, only to buy shares back at a later date. I’m not quite sure why that is.
But Buffett is a well-known fan of banks in general. And Bank of New York Mellon is a global player, with a market cap closing in on $50 billion.
While this bank hasn’t had a spectacular decade – keeping in mind the financial crisis ravaged the industry – recent growth is indicating a stronger trajectory, so Berkshire might believe this bank is finally on the rebound.
Just looking at the stock as it sits right now, the valuation appears to be roughly fair. There was a nice dip back in late January, though, and Berkshire could have used that drop to add to their stake.
Liberty Global PLC (LBTYA) – Purchased 10,000,000 shares.
Berkshire now owns 20,180,897 shares of Liberty Global PLC – Class A. This is an increase of 98.2% over last quarter.
Liberty Global PLC, through its subsidiaries, provides various media and telecommunications services, such as video, broadband internet, fixed-line telephone, and mobile telephone services.
There are a few industries that Warren Buffett (and Berkshire by extension) has long preferred investing in.
Media is one of those industries.
Although media continues to evolve in terms of how content is consumed by, and delivered to, consumers, content is nonetheless as popular as ever. And global behemoths still tightly control content creation and delivery, with Liberty (and all of its various offshoots) operating as one of the largest media companies in the world. Indeed, Liberty Global is the largest international cable company, and they’re one of the world’s largest broadband companies.
That’s an enviable position.
Growth over the last decade is pretty strong, with recent results being particularly impressive. Revenue for last fiscal year was more than double what Liberty did a decade ago. Plus, they turned a profit last FY.
The valuation seems fairly appealing right now. The stock hasn’t performed well over the last year, driving a number of metrics below their respective five-year averages. As such, it’s not terribly surprising to see Berkshire loading up on the stock.
I won’t go over every Liberty transaction individually, as I’ve done that in numerous prior updates. But you can see the specifics for every Liberty purchase/sale by reviewing the Buffett Tracker. The specifics are also laid out above.
Southwest Airlines Co. (LUV) – Purchased 4,455,681 shares.
Berkshire now owns 47,659,456 shares of LUV, which is an increase of 10.3% over last quarter.
Southwest Airlines Co. operates a passenger airline that provides scheduled air transportation in the US and near-international markets.
So we see that Berkshire has been busy firming up its bets on some of the large domestic airline carriers. As has been discussed, this remains a little bit of a shock due to the capital-intensive and cyclical nature of the business. In addition, airlines compete heavily on price. All in all, not what you typically see Buffett get excited about.
But Charlie Munger actually noted at this year’s Berkshire Hathaway shareholders’ meeting that the railroad industry used to look a lot like the airline industry (before the airline industry heavily consolidated somewhat recently). But just as the railroad industry become much more appealing (prompting Berkshire’s investment in Burlington Northern Santa Fe, which they later bought out), the airline industry has become more attractive in terms of investment.
This stock has been on an absolute tear over the last year, much like the rest of the airline stocks. Through that lens, Berkshire looks to have timed its reversal on airline stocks impeccably. That’s at least from what we’ve seen thus far.
Even with that run, the valuation doesn’t look too crazy here. That’s perhaps why Berkshire decided to boost its position in Southwest Airlines.
Sales
Delta Air Lines, Inc. (DAL) – Sold 5,000,000 shares.
This sale dropped Berkshire’s stake in Delta Air Lines by 8.3%. Berkshire Hathaway now owns 55,025,995 shares of Delta Air Lines in their common stock portfolio.
Delta Air Lines, Inc. provides airline transportation services for passengers and cargo globally.
So Berkshire substantially increased its position in Delta just last quarter, upping its stake by over 53 million shares. They’ve now reversed course just a little bit, although Berkshire Hathaway remains the largest single shareholder of Delta.
It’s unclear why Berkshire was busy adding to American Airlines and Southwest Airlines last quarter, while simultaneously slightly cutting its stake in Delta Air Lines.
Delta’s stock was actually down slightly over the course of Q1 2017, so it didn’t seem to be particularly advantageous to sell the stock. Meanwhile, the valuation doesn’t appear to be excessive relative to the industry.
International Business Machines Corp. (IBM) – Sold 16,670,348 shares.
Berkshire now owns 64,561,955 shares of IBM after this sale. That’s a 20.5% reduction since the last quarter.
International Business Machines Corp. is an information technology company, providing technology-driven solutions to customers globally.
It seems that Buffett’s patience with IBM’s turnaround strategy is wearing thin.
Although IBM remains an incredibly profitable company (their net income was almost $12 billion last FY), IBM’s earnings per share hasn’t really moved since 2010. Revenue continues to drop, although restructuring is partly behind that. And while the company’s growth initiatives (like analytics and cloud) show a lot of promise, the company’s core business has been struggling as of late.
[ad#Google Adsense 336×280-IA]The good news is that IBM is arguably the best tech company out there in regard to adapting to changing trends, as they’ve done so many times over the course of more than a century.
Meanwhile, investors are collecting a large and growing dividend to keep the faith.
Buffett recently stated that he has revalued the company downward.
That means he views the stock to be worth less than it was when he was previously buying it.
This is sensible, considering the aforementioned issues.
The company looked a lot better back in 2011 when Buffett first started loading up on the stock.
It’s simply not as high quality now.
Buffett noted that they started selling IBM when it popped above $180. With the stock now priced closer to $150 per share, that move seems well-timed. That said, the stock now actually appears to be somewhat compelling on a valuation basis after that drop, with a yield near 4%.
WABCO Holdings Inc. (WBC) – Sold 459,840 shares.
This transaction reduced Berkshire’s stake in WABCO by 13.7%. Berkshire Hathaway now owns 2,908,554 shares of WABCO.
WABCO Holdings Inc. and its subsidiaries is engaged in the manufacture, marketing, and sale of electronic, mechanical, and mechatronic products for the commercial truck, trailer, bus, and passenger car manufacturers.
The last transaction that Berkshire logged regarding WABCO was a purchase of just over 131,000 shares back in the third quarter of 2016.
I’m not quite sure why Berkshire is now selling the stock, although I’ll just quickly note that Berkshire was at one point systematically selling off WABCO stock. It then reversed that with the aforementioned transaction, but it now seems like Berkshire might be selling it off again.
WABCO’s recent operational results seem to be strong. However, the stock has also been strong as of late – it’s up over 11% YTD. The stock now appears to be pretty richly valued. So it could be that Berkshire is using that stock performance to its advantage. Nonetheless, it remains a relatively small position for Berkshire.
Twenty-First Century Fox Inc. (FOXA) – Sold 8,951,869 shares.
Berkshire completely sold out of this position.
Twenty-First Century Fox Inc. is a diversified global media and entertainment company.
This is another move that is perhaps surprising. Buffett has long invested heavily in media, and Twenty-First Century Fox is one of the most prominent and successful media companies in the world.
This was a fairly small position for Berkshire, though, so it wasn’t really going to move the dial either way.
But Fox appears to be performing well as a business. And the valuation isn’t untenable. In fact, the stock appears to be roughly fairly valued right now.
However, the stock hasn’t been a strong performer over the last five years. The stock popped during Q1, so Berkshire might have seen that as an opportunity to get out. Notably, the stock is down 9% over just the last month, so Berkshire seems to have picked a good time to get out.
— Jason Fieber
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