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 first quarter of 2018 — 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.
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 74,233,671 shares of Apple Inc. (AAPL)
Purchased 1,372,665 shares of Bank of New York Mellon Corp. (BK)
Purchased 488,962 shares of Delta Air Lines Inc. (DAL)
Purchased 7,261,387 shares of Monsanto Co. (MON)
Purchased 21,663,989 shares of Teva Pharmaceutical Industries Ltd. (TEVA)
Purchased 3,788,844 shares of US Bancorp (USB)
Sales
Sold 266,518 shares of Charter Communications Inc. (CHTR)
Sold 107,575 shares of Graham Holdings Co. (GHC) – SOLD OUT
Sold 2,048,045 shares of International Business Machines Corp. (IBM) – SOLD OUT
Sold 1,974,489 shares of Liberty Global PLC Class A (LBTYA)
Sold 35,000,000 shares of Phillips 66 (PSX)
Sold 177,512 shares of Sanofi SA (SNY)
Sold 505,600 shares of United Continental Holdings Inc. (UAL)
Sold 1,278,656 shares of Verisk Analytics, Inc. (VRSK)
Sold 1,719,024 shares of Wells Fargo & Co. (WFC)
Purchases
Apple Inc. (AAPL) – Purchased 74,233,671 shares.
Berkshire increased its stake in Apple Inc. by 44.9%, with the total position now up to 239,567,633 shares.
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.
We all know Warren Buffett himself made the call on this transaction, which is saying a lot based on both the size of the transaction (we’re talking over $13 billion here) and where the position now sits.
For perspective on the size of this position, Apple Inc. accounts for more than 22% of Berkshire’s entire common stock portfolio.
The current market value of the position is worth over $44 billion.
Furthermore, it’s almost three times the position size of what Berkshire has in Coca-Cola Co. (KO), which is an iconic long-term investment that Buffett is arguably most known for.
This is saying a lot.
What it also says, though, is that Buffett continues to stick to what he does and knows best: buying high-quality companies at reasonable valuations.
Apple Inc. is about as high quality as it gets.
The fundamentals are phenomenal across the board. They register net income near $50 billion per year. EPS is up more than ninefold over the last decade. The company is producing net margin over 20%.
Moreover,they have hundreds of billions of dollars in cash and equivalents on the balance sheet, which will be used to prolifically buy back stock and increase the dividend.
It’s a cash cow of epic proportions.
The valuation also isn’t unreasonable, as I personally argued not too long ago.
I wouldn’t be surprised to see Berkshire continue to add to its position over the near term. And with Apple Inc. itself buying back a ton of stock, us mortal investors will have to scrounge for scraps.
Bank of New York Mellon Corp. (BK) – Purchased 1,372,665 shares.
This transaction increased Berkshire’s stake by 2.3%, now up to 62,191,448 shares.
Bank of New York Mellon Corp. is a global financial services company, providing investment management and investment services.
I’ve been tracking Buffett’s moves for years now. This particular position has always been a bit mystifying for me, because Berkshire has regularly traded around the position for a while. They’d buy stock one quarter, only to sell in the following.
However, this transaction follows up two quarters of sizable stock purchases in this bank.
That leads me to believe they’re building this position up for a long-term hold from here.
While all banks had a rough time during the financial crisis, Bank of New York Mellon Corp. seemed to find it especially difficult to get any traction going after the economic recovery that ensued after the financial crisis.
They were essentially treading water for a number of years.
But if you look at where this bank has gone since FY 2013, it’s been a pretty remarkable turnaround. It would seem that Buffett is banking (pun intended) on this bank continuing that trend well into the future.
Fundamentals across the board have strongly improved over the last five years. And they’re regularly and aggressively increasing the dividend, which is something that Buffett obviously enjoys (as do I).
Rising rates should serve as a long-term tailwind. And the valuation isn’t out of line at all.
Investors are paying fairly appealing multiples for earnings and cash flow, although the book value is a bit elevated off of its five-year average. One has to weigh that against the fact that the bank has improved markedly recently.
Delta Air Lines Inc. (DAL) – Purchased 488,962 shares.
Berkshire increased its position by 0.9%, now up to 53,599,357 shares.
Delta Air Lines Inc. is a global airline company.
Berkshire has been a bit quiet in regard to its various airline company positions recently, which came after a very surprising move in late 2016 which saw Berkshire go heavy on major domestic carriers.
This addition was small, relatively speaking.
But it does show that Berkshire remains optimistic about airlines in general, particularly Delta Air Lines Inc.
Compared to where the company was a decade ago, Delta Air Lines Inc. is now running a spectacular company.
There are still a lot of issues around the airline industry in general – high fixed costs, brutal competition, exposure to volatile fuel prices, etc. – that can limit the size of a so-called “moat” that Buffett likes to see in a business, but most of the domestic airline companies seem to be operating far more rationally now than they were in the past (especially as it relates to competing on price).
This stock started the year with a pretty solid plunge from over $60/share to about $50/share, which is when Berkshire likely struck.
As it sits, the stock is a bit over $52/share. And the valuation at this level doesn’t look unreasonable – assuming they can continue to manage the business at this level.
Meanwhile, the stock is paying a hefty dividend that’s well over 2% after the dividend has been aggressively increased in recent years. That’s almost unheard of for an airline company like this.
Buffett obviously likes the more rational industry, improving fundamentals, that bigger dividend, and a pretty appealing valuation.
Monsanto Co. (MON) – Purchased 7,261,387 shares.
This transaction increased Berkshire’s stake by 62% over last quarter, with the position now up to 18,970,134 shares.
Monsanto Co. provides agricultural products for farmers, including seeds, biotechnology traits, herbicides, and precision agricultural tools.
This hefty addition follows up on a purchase of more than 2.8 million shares the prior quarter.
As I’ve been noting for many quarters now (Berkshire has been building a position in Monsanto Co.), this is, in my view, a simple merger arbitrage play.
Monsanto Co. has already agreed to be acquired by Bayer AG (BAYRY) for $128 per share.
It seems likely the merger will go through.
With the stock trading at a bit over $125/share, it’s an easy way to make a quick buck. Based on the size of the numbers here, we’re talking about quite a few bucks, actually.
I would never go after a merger arb play unless I were also okay with holding stock in a company over the long term, just in case things didn’t work out as planned.
And with that in mind, Monsanto is a classic idea in that sense, as it’s a very strong business on a standalone basis.
Teva Pharmaceutical Industries Ltd. (TEVA) – Purchased 21,663,989 shares.
Berkshire’s position is now up to 40,539,710, which is up 114.8% over last quarter.
Teva Pharmaceutical Industries Ltd. is the world’s largest generic pharmaceutical manufacturer. The company also develops and sells branded pharmaceuticals across a variety of health categories.
Berkshire first initiated this position in Q4 2017, so this is a very quick move to aggressively add more in Q1 2018.
I noted last time around that this move might have been a bit surprising due to the heavy debt, suspended dividend, and workforce cut that Teva Pharmaceutical Industries Ltd. announced not long ago.
However, it’s a massive player in the global pharmaceutical industry.
And with healthcare costs never being more discussed and scrutinized, the company’s positioning on the generic side bodes well.
More prominent than all of that, though, the valuation hangs heavy on the likely reasoning behind Berkshire’s move to aggressively add to its position here.
The stock is dirt cheap by any measure you could possibly throw at it. Put it up against the industry, the broader stock market, or even the stock’s own recent historical averages, and you’ll find a very, very cheap stock.
The stock hasn’t moved too much recently, which indicates that Berkshire still likes it quite a bit near $20/share.
I’ll note, though, that I ultimately believe this is not a long-term investment for Berkshire. I think it’s simply a manner of being confident that the pharma company will turn itself around and see the valuation eventually more accurately reflect the business’s long-term prospects.
In addition, based on the size of the transaction and the position, the odds are somewhat strong that Combs or Weschler masterminded this one.
US Bancorp (USB) – Purchased 3,788,844 shares.
This transaction increased Berkshire’s stake by 4.4%, with the position now up to 90,847,721 shares.
US Bancorp is the nation’s fifth-largest bank, with branches located in 25 states in the Western and Northern United States.
Berkshire has had a position in this stalwart of a bank for many years now.
And this transaction builds on the almost 2 million shares Berkshire picked up in Q4 2017.
There’s just not much to dislike about US Bancorp.
It’s run about as well as a bank can be.
They were still massively profitable straight through the financial crisis.
And they’ve been running like clockwork since.
Revenue is up by more than 60% over the last decade. EPS has more than doubled. The balance sheet is fantastic. Profitability is robust.
The stock is arguably fully valued right now, however.
But Buffett has noted many times that he’s okay with paying a fair price for a wonderful business, and I think this is a great example of that.
Sales
Charter Communications Inc. (CHTR) – Sold 266,518 shares.
Berkshire reduced this position by 3.1%, now down to 8,222,873 shares.
Charter Communications, Inc. provides cable services throughout the US, and is the fourth largest such provider.
Berkshire getting into this cable company in the first place came as a bit of a surprise to me, since the company historically had a difficult time posting up respectable numbers when it came to pretty much anything you’d want to see from a high-quality company.
But the business has been performing well since becoming the parent company of Time Warner Cable and Bright House Networks in mid-2016. Numbers across the board have improved markedly.
The valuation doesn’t seem too bad here considering the improvement in the business, but Berkshire has done pretty well on this position over a rather short period of time.
In addition, this was a rather small sale. So it’s tough to glean much from it.
Graham Holdings Co. (GHC) – Sold 107,575 shares.
This position has been eliminated.
Graham Holdings Co. is a diversified media and education company.
The last time Berkshire did anything with this position was in the second quarter of 2014. They substantially reduced their position back then, leaving just the 107,575 shares. So they’ve been sitting on this very tiny position for almost four years, surprisingly.
But it’s finally been eliminated.
There’s not much to say here.
It was a very small position that has almost no impact on Berkshire’s results.
Berkshire would have been wiser to move out of this position back in 2015 when the stock was priced much higher, but it would have made very little difference in the grand scheme of things.
The interesting thing about the stock is that this is a very old position for Buffett. If you read Buffett’s biography, you’ll see the very close relationship he had with Kay Graham and his interest in media (particularly newspapers). The sale of The Washington Post by Graham Holdings Co. in 2013 and what was an insignificant position in the portfolio likely led Buffett to finally move on.
International Business Machines Corp. (IBM) – Sold 2,048,045 shares.
Berkshire has completely sold out of this position.
International Business Machines Corp. is an information technology company, providing technology-driven solutions to customers globally.
Berkshire had spent the last four quarters systematically selling out of IBM. I surmised that they’d finally completely sell out in this quarter – and I was right.
This investment has no doubt been disappointing for Buffett. He had long been opposed to being invested in tech companies, until he shocked the investment world in 2011 by accumulating a rather sizable stake in “Big Blue”.
Buffett thought the company had “sticky” businesses/assets that would survive the test of time.
But IBM’s once-venerable economic moat had been withered away by massive changes in tech that took IBM (and Buffett, perhaps) by surprise.
IBM wasn’t quick enough to recognize these changes, which allowed competitors to take advantage.
While late to the party, IBM has lately been aggressively moving into growth areas in tech – cloud, security, analytics, AI, blockchain, etc.
They’re doing well with these initiatives; however, their legacy businesses continue to shrink.
I don’t personally think Buffett made a mistake by investing in IBM, looking at the situation at the time. But the size of the position was pretty heavy.
I remain a shareholder in IBM, but it’s a small position for me.
The valuation is low, the yield is high, the dividend is growing, and the company continues to pump out a ton of free cash flow.
They might not ever again be the dominant force in tech they once were, but the low expectations and valuation seem to be pricing that in, in my view.
Liberty Global PLC Class A (LBTYA) – Sold 1,974,489 shares.
This position has been reduced down to 18,206,408 shares, which is down by approximately 1%.
Liberty Global PLC, through its subsidiaries, provides various media and telecommunications services, such as video, broadband Internet, fixed-line telephone, and mobile telephone services.
Berkshire routinely trades around its various Liberty holdings – which are numerous.
I’ve discussed these trades ad nauseam in prior updates, but there’s not much to glean here. Berkshire regularly buys and sells shares in the various Liberty entities.
Phillips 66 (PSX) – Sold 35,000,000 shares.
This transaction reduced Berkshire’s stake down to 45,689,892 shares, which is a reduction of 43.4% over last quarter.
Phillips 66 is primarily an independent refiner, with assets in midstream and chemicals.
Phillips 66 announced in February 2018 that it had agreed to repurchase 35 million shares from Berkshire for $93.725 per share.
Investors might have been initially shocked by this, because Buffett had discussed many times not only his affinity for this business and its business model, but also his desire to hold a rather large stake in it.
Indeed, Berkshire had spent the better parts of Q4 2015 through Q4 2016 aggressively accumulating shares in Phillips 66 – at prices that are not terribly dissimilar to what Berkshire ultimately sold its 35 million shares at.
And then we can see the stock is now at almost $120/share.
However, this isn’t Buffett being short-sighted, nor is it an about-face.
It’s quite simple, really.
Berkshire wanted to eliminate the regulatory requirements that come with ownership levels above 10 percent, as per a statement made by Buffett himself when news of the agreed-upon transaction came out.
Berkshire’s stake in Phillips 66 is now well below 10%, so I’d be surprised to see too much movement here in the near term.
Sanofi SA (SNY) – Sold 177,512 shares.
This position has been reduced down to 20,803,000, which is 0.8% lower over last quarter.
Sanofi develops and markets a diverse array of pharmaceuticals, with a concentration in oncology, immunology, cardiovascular disease, diabetes, and vaccines.
This is the second quarter in a row in which Berkshire has reduced its stake in Sanofi.
However, this sale was a bit larger than the last.
Still, we’re talking about a very small move relative to the scope of both the position and Berkshire’s common stock portfolio as a whole.
It’s hard to make out the reasoning for such a small move, but I will say that Sanofi has a had a difficult time with growth over the last decade.
The company more or less has been suspended in stasis, which is never what you want to see when you’re an investor.
The valuation of the stock doesn’t look outrageous. And the stock is down somewhat substantially over the last year.
Perhaps Berkshire simply sees better ideas for that capital, which required a little pruning from a holding that hasn’t done well of late either as a stock or a business.
United Continental Holdings Inc. (UAL) – Sold 505,600 shares.
This transaction reduced this position by 1.8%. The position now sits at 27,705,963 shares.
United Continental Holdings Inc. is a holding company that, through its subsidiaries, is engaged in the transportation of people and cargo through its mainline operations.
A rather small sale, this might have been motivated by valuation/price movement.
Berkshire accumulated the bulk of this position in Q4 2016 – when the stock spent part of that time in the $50s.
There were opportunities to unload these shares for almost $80/share in Q1 2018, which is likely when Berkshire did just that.
The stock has retreated quite a bit since that short-term spike.
And this transaction was fairly small.
Thus, we may not see much more transpire from this.
Verisk Analytics, Inc. (VRSK) – Sold 1,278,656 shares.
This position was reduced by 83.7%. It now stands at 284,778 shares.
Verisk Analytics, Inc. is data analytics and risk assessment company that serves customers globally.
Looking at both the stock and the business over the last five years, there’s a lot to like.
Clockwork-like top-line and bottom-line growth, very strong profitability, plenty of cash flow, and a balance sheet that isn’t terribly leveraged.
Meanwhile, the stock is up something like 75% over that period.
It’s difficult to say why Berkshire is moving heavily out of the position.
It wasn’t large to begin with, but it’s now practically inconsequential, which means it’s likely it will be completely disposed of soon.
The valuation isn’t terribly elevated off of recent historical averages. And there doesn’t appear to be anything that would indicate a pending issue with the company.
If it paid a growing dividend, I might even be personally interested in it. Alas, it does not.
At a lower valuation, this would be an interesting investment. Perhaps a compression in the multiple would entice Berkshire to get back into this one.
Wells Fargo & Co. (WFC) – Sold 1,719,024 shares.
This transaction reduced the stake down to 456,513,244 shares. That’s 0.4% lower 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.
This transaction has the same reasoning (per Buffett’s own words) as the transaction regarding Phillips 66 – Berkshire simply wanted to avoid the regulatory headaches that come with owning more than 10% of the firm.
I’ve noted in prior quarters that Berkshire will likely have to routinely sell off small portions of this position, because Wells Fargo & Co. continues to buy back its own stock, reducing the available float of common stock.
As that occurs, Berkshire’s ownership stake increases, even through no action (buying of stock) on its part.
As such, it wouldn’t be a surprise to see Berkshire continue to initiate very small sales transactions over coming quarters, although Berkshire is currently comfortably below that 10% ownership number of Wells Fargo & Co. (sitting at about 9.3% or so).
— Jason Fieber
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