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 2018 — 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.
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 522,902 shares of Apple Inc. (AAPL)
Purchased 198,248,600 shares of Bank of America Corp. (BAC)
Purchased 13,049,100 shares of Bank of New York Mellon Corp. (BK)
Purchased 1,869,160 shares of Delta Air Lines Inc. (DAL)
Purchased 1,067,800 shares of General Motors Co. (GM)
Purchased 5,099,145 shares of Goldman Sachs Group Inc. (GS)
Purchased 35,664,767 shares of JPMorgan Chase & Co. (JPM) – NEW POSITION
Purchased 41,404,791 shares of Oracle Corporation (ORCL) – NEW POSITION
Purchased 6,087,319 shares of PNC Financial Services Group Inc. (PNC) – NEW POSITION
Purchased 24,229,218 shares of US Bancorp (USB)
Purchased 3,532,688 shares of Travelers Companies Inc. (TRV) – NEW POSITION
Sales
Sold 1,000,000 shares of American Airlines Group Inc. (AAL)
Sold 163,200 shares of Charter Communications Inc. (CHTR)
Sold 19,296,490 shares of Phillips 66 (PSX)
Sold 3,701,012 shares of Sanofi SA (SNY) – SOLD OUT
Sold 500,000 shares of Southwest Airlines Co. (LUV)
Sold 700,000 shares of United Continental Holdings Inc. (UAL)
Sold 9,652,058 shares of Wells Fargo & Co. (WFC)
Sold 1,393,513 shares of Walmart Inc. (WMT) – SOLD OUT
Purchases
Apple Inc. (AAPL) – Purchased 522,902 shares.
Berkshire increased their stake in Apple Inc. by 0.2%, with the total position now coming in at 252,478,779 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.
Buffett is clearly behind the Apple position. He’s said as much, explicitly.
This wasn’t a big move, however. This transaction, relatively speaking, was incidental to the position as a whole.
But it does speak to Berkshire’s continued conviction toward its massive holding in Apple, which now makes up more than 22% of the entire common stock portfolio.
For further perspective, Berkshire’s position in Apple is now worth over $47 billion at current market prices. Go big or go home!
This small transaction, and the gargantuan size of this position, does beg the question of whether or not Berkshire will continue to add more shares moving forward.
AAPL stock got a bit ahead of itself when it was over $230/share, but the recent pullback into the mid-$180s has made the stock attractive once more. Most basic valuation metrics are now more in line with their recent historical averages. The stock spent most of Q3 trading for prices much higher than its current price, so it’ll be interesting to see if Berkshire gets more aggressive once more.
Either way, though, we all know that Apple itself will be buying back stock hand over fist, as that’s one of the primary uses of their unrivaled cash hoard right now.
I don’t think long-term investors could do wrong by buying into this stock here, knowing that Buffett and Apple are (probably) doing the same thing.
The only issue for me, personally, is the fact that the stock only yields a bit over 1.5% right now. The company will almost surely continue to hike their dividend at strong rates over the foreseeable future, but the current income from the stock does leave something to be desired. Just something to be aware of if yield is important to you. Many other tech names offer much higher yields here.
Bank of America Corp. (BAC) – Purchased 198,248,600 shares.
Berkshire now owns 877,248,600 shares, which is an increase of 29.2% over last quarter.
Bank of America Corp. is an American multinational investment bank and financial services company. It’s one of the largest banks in the United States by total assets.
We can almost be sure that Buffett is also behind this move, based on both the size of the transaction as well as the holding in question.
This position dates back to 2011, when Buffett agreed to inject $5 billion of capital into the bank. Bank of America was struggling then, and needed both the capital and the seal of approval.
In exchange, Buffett received preferred shares that paid a 6% annual dividend and the right to exercise warrants that would grant common stock at an exercise price of just $7.14 each. Huge winner, obviously.
But it’s noteworthy that Buffett decided to up the stake in the bank at what’s clearly much higher prices than what they exercised the warrants at.
We might not always be able to get deals like Buffett, but anyone can follow him and buy this stock right now.
The bank is no longer struggling. Operations have been very strong in recent years.
Bank of America continues to hike its dividend, report increases in profit, and basically showcase its global strength.
Meanwhile, the valuation isn’t crazy here.
The P/E ratio is below 13, and the stock is trading hands for just over book value.
This looks like a pretty good long-term idea here.
Bank of New York Mellon Corp. (BK) – Purchased 13,049,100 shares.
This transaction increased Berkshire’s stake up to 77,849,476 shares, which is an increase of 2.0% over last quarter.
Bank of New York Mellon Corp. is a global financial services company, providing investment management and investment services.
This is the fourth quarter in a row in which Berkshire has bought shares in Bank of New York Mellon. They clearly see a lot to like.
I’m inclined to agree.
The bank has had nothing short of a remarkable turnaround over the last five or so years. They’ve been hitting it right out of the park on a regular basis. EPS has more than doubled over the last five years.
And with a valuation that’s low across the board, including a P/E ratio that’s almost in the single digits, following Buffett into this bank seems like a smart play.
By the way, the stock now yields 2.32% right now, which is a full 70 basis points higher than its five-year average. Oh, and the last dividend increase was over 16%.
Strong stuff here both on the growth and income sides of the coin, along with a low valuation.
Delta Air Lines Inc. (DAL) – Purchased 1,869,160 shares.
Berkshire increased its position by 2.9%. The position is now up to 65,535,000 shares.
Delta Air Lines Inc. is a global airline company.
Berkshire bought more than 10 million shares in Q2. This wasn’t as big, but you can clearly see a trend here.
It is interesting, however, in the sense that Buffett has noted a few times in media that he’s been easing up on the airlines only because he’s concerned about going over 10% ownership in any single airline (due to the additional regulations that would trigger).
Berkshire is now bumping up against 10% ownership in Delta. And Delta continues to repurchase its own shares. So I’m not sure if Berkshire will do a 180-degree move with this holding, much like they’ve done with some of their other airline holdings (which we’ll touch on throughout this update).
I’m personally not a fan of investing in airlines. That’s a point I’ve been making ever since Buffett shocked the world with his big move into airlines back in 2016. That was an about-face, since Buffett had long been against investing in the industry.
While certain industry dynamics are more favorable than they have been in the past (especially in terms of competition and rational pricing), an airline company still faces major issues like high fixed costs, exposure to volatile fuel prices, stiff competition, almost no switching costs, and cyclical demand.
That said, the stock itself does look cheap. And Buffett is a world-class bargain hunter.
The P/E ratio is just over 11. That’s below the industry average, which is low in and of itself (due to those aforementioned challenges). And the yield, now sitting at almost 2.5%, is more than double its five-year average.
There were particularly good opportunities to pick this stock up in Q3 (notably in early July), but DAL doesn’t look a bad play here at all – if you’re interested in investing in an airline.
General Motors Co. (GM) – Purchased 1,067,800 shares.
This purchase increased Berkshire’s stake by 2.1%, with the position now up to 52,461,411 shares.
General Motors Co. is a multinational company that designs, manufactures, markets, and distributes vehicles and related parts. They also offer financial services.
Berkshire sold 10 million GM shares in Q4 2017, but this is the second quarter in a row in which they’ve added to their stake in GM.
An auto manufacturer, in my view, faces similar challenging industry dynamics to airlines, which partly explains why there’s been so much consolidation in both industries over the last few decades. It’s just plain difficult to profitably run a business like this.
GM has been running a leaner, meaner company post-bankruptcy; however, the FCF picture still isn’t very pretty. And there are a lot of questions regarding the future of this industry as it relates to ride-sharing services potentially altering the personal auto ownership paradigm.
A lot of challenges, but there’s nothing very challenging about the valuation.
The stock is down approximately 15% YTD, most basic metrics indicate cheapness, and the stock yields a lofty 4.31% for investors to sit and wait on it.
Goldman Sachs Group Inc. (GS) – Purchased 5,099,145 shares.
Berkshire increased its stake in the bank by 38.5%, with that position now up to 18,353,635 shares.
Goldman Sachs Group Inc. is a global investment banking institution.
This was a pretty big move. And it follows up on a purchase of more than 2 million shares in Q2 2018.
This might just be a valuation call.
The stock started out 2018 at over $250/share. It spent much of Q3 languishing around $230/share.
But get this – the stock is now even cheaper than what Buffett probably picked up shares at. This stock is now hovering at just over $200/share. So if you’re interested in this one, it seems like a favorable moment to get in with Buffett.
It’s trading at book value. The multiple for revenue is just 2.4, which is well below the five-year average of 2.8. And it’s yielding 1.58% right now, which is notable for a stock that rarely yields much. The five-year average yield, for perspective, is just 1.0%.
Operationally, there’s not much to dislike about Goldman Sachs. The brand is as relevant as ever. And it’s a FCF machine. Profitability is robust. And it’s long been known as a well-run enterprise, coming out of the financial crisis looking much better than most of its peers.
JPMorgan Chase & Co. (JPM) – Purchased 35,664,767 shares.
This is a new position for Berkshire.
JPMorgan Chase & Co. is a global investment bank and financial services company. It’s the largest bank in the United States.
Do you notice a trend?
Yep. Buffett has been going heavy on banks lately.
It’s not a surprise. He’s long had a particular affinity for banks. And with rates clearly rising, it seems like an advantageous time to get in.
Although this is a new position for Berkshire Hathaway, Buffett has noted on multiple occasions that he actually owns shares in JP Morgan in his personal stock account (separate from the common stock portfolio he oversees for Berkshire).
This is a bank I should have invested in a long time ago. Totally whiffed on it.
But if you’ve missed out like me, don’t worry too much. There still appears to be an opportunity here. After all, Buffett just got in with Berkshire’s money. That’s saying a lot.
The stock has barely budged over the course of 2018, even while the bank continues to mint money quarter after quarter.
I wouldn’t say the valuation appears especially compelling right now – most multiples are more or less in line with their respective recent historical averages – but the valuation also doesn’t appear especially expensive. To me, it’s a high-quality stock trading for a fair price, and you can do a lot worse than that.
JP Morgan has performed extraordinarily well over the last decade. EPS, for example, has nearly quintupled over the last 10 years. They’re truly in a class of their own.
And they have one of the best managers in the world in Jamie Dimon. Although his age is a slight concern, the company has noted that Dimon plans to stick around for years to come, which is reassuring.
Oracle Corporation (ORCL) – Purchased 41,404,791 shares.
This is a new position for Berkshire.
Oracle Corporation is a global technology company focused on database management systems, enterprise software products, and enterprise cloud solutions.
This is an interesting position for Berkshire, although it’s unclear as to whether or not Buffett was behind this move. It could have just as well been one of his lieutenants.
It’s a relatively small play for Berkshire, with the position’s market value coming in at just over $2 billion.
Berkshire has been a little hit-and-miss when it comes to technology, and Oracle is facing some of the same questions that International Business Machines (IBM) is – which is a holding that Buffett admittedly got wrong. While IBM has a legacy mainframe business that they’re trying to get out from under, Oracle has looked at growth issues of its own – revenue, EPS, and FCF are essentially flat since FY 2012.
Like IBM, Oracle runs a significant buyback program. And they’re taking aggressive moves to get their business positioned correctly for the 21st century.
Also like IBM, it’s a clear value play.
The company’s sales and cash flow both feature multiples well below the industry averages, respectively.
It’s impossible to know exactly when Berkshire picked these shares up, but I can say that the current price (under $49/share) is similar to the levels it held throughout much of Q3 2018. So if this is a stock that interests you, it looks like you can get in at a similar price and valuation to that of Berkshire.
PNC Financial Services Group Inc. (PNC) – Purchased 6,087,319 shares.
This is a new position for Berkshire.
PNC Financial Services Group Inc. is a bank holding company and financial services corporation.
Yet another bank. If there’s anything that’s a clear trend throughout this update, it’s that Berkshire is going heavy on banks and financial services firms right now. That’s clear.
What’s perhaps a bit interesting about this bank in particular, however, is the fact that it’s a new position. Also, it’s a regional player. Berkshire, probably due to its immense size, has long preferred national banks. However, PNC bank sports a market cap over over $60 billion, so this isn’t some backwater bank.
In my view, this regional bank hasn’t operated quite as spectacularly as some of Berkshire’s other picks in this sector, but there’s no doubt that PNC is running a quality bank and operating at a high level.
The numbers across the board range from very good to excellent. Revenue is flat from FY 2009, although rising rates serve as a tailwind to this and almost every other bank. Meanwhile, profitability across the board has been markedly improved in recent years.
The valuation is cheap in the sense that banks in general seem cheap here; however, this stock in particular isn’t in any way materially cheaper than others. It’s just in a cheap sector.
It’s worth mentioning that the stock’s current price of just over $134/share is lower than what it spent almost the entirety of Q3 2018 at. Unless Berkshire picked up all of these shares during a very short period in early July, investors can probably get in even cheaper than Berkshire right now.
US Bancorp (USB) – Purchased 24,229,218 shares.
This transaction increased Berkshire’s stake up to 124,923,092 shares. That’s 24.1% higher than the prior quarter.
US Bancorp is the nation’s fifth-largest bank, with branches located in 25 states in the Western and Northern United States.
This is a quasi-national bank that operates regionally. It’s quite a large bank, though, with a market cap over $87 billion.
This is another stock that I wish I would have bought a long time ago. It’s a world-class operator across the board.
Let’s just look at some numbers here.
Revenue has compounded by 4.63% per year over the last decade, while EPS has a CAGR of 9.05% over that same period.
Sure, these won’t blow your doors off. But they’re great numbers in banking. What’s really great is, US Bancorp has been incredibly consistent from year to year. It’s just been this slow, steady march upward. Fundamentally, it’s an exceptional bank.
Like JP Morgan, the valuation appears neither especially cheap nor expensive. But this is the kind of high-quality stock you buy at a good price and then just sit on for years. Seeing as how Berkshire has owned this bank for many years now, they’ve been doing that very same thing.
The P/B ratio is at 2.0 right now, which is just slightly above the bank’s own five-year average of 1.9. The P/E ratio of 13.46 is a bit below the five-year average P/E ratio of 14.0, though. It’s also yielding a very comfy 2.74%, which is more than 50 basis points higher than its own five-year average.
All in all, it seems right about fair. Perhaps a little better. I doubt anyone would regret buying this stock for the long term, right now.
Travelers Companies Inc. (TRV) – Purchased 3,532,688 shares.
This is a new position for Berkshire.
Travelers Companies Inc. is a holding company that, through its subsidiaries, provides commercial and personal property and casualty insurance products to individuals, businesses, government units, and associations.
I bought this stock years ago. It’s nice to see Berkshire join me!
Travelers is, in my opinion, one of the best insurers out there.
They have their ups and downs (cataclysmic weather of late has been an issue), but they manage their businesses very well over the long run.
I argued not too long ago that this stock appears worth over $140/share, and it looks like Buffett & Co. agree with that undervalued sentiment.
Sales
American Airlines Group Inc. (AAL) – Sold 1,000,000 shares.
This sale reduced Berkshire’s position by 2.2%. The position is now at 43,700,000 shares.
American Airlines Group Inc. is a major US airline carrier.
This comes after Berkshire sold 1.3 million shares in Q2 2018.
I’m not sure we can read too much into this, as Buffett has publicly discussed their buying and selling of airlines directly correlated to Berskire’s desire to not own more than 10% of any single airline.
Indeed, Delta is a much larger airline by market cap, which probably explains the divergence here.
As it sits, Berkshire owns approximately 9.5% of American Airlines. But with the airline buying back its own stock, Berkshire may need to revisit this position and sell more shares in the future.
Charter Communications Inc. (CHTR) – Sold 163,200 shares.
Berkshire now owns 7,340,985 shares after this transaction, which is a reduction of 2.2% over the prior quarter.
Charter Communications, Inc. provides cable services throughout the US, and is the fourth largest such provider.
They’ve been reducing their stake throughout the year.
To me, this looks like profit taking.
I was admittedly a bit surprised to see Berkshire get into this business in the first place, only because the fundamentals weren’t that great across the board.
But Buffett has long been highly interested in media companies (with that interest arguably only exceeded by financial institutions).
That said, this company has rapidly improved itself since becoming the parent company of Time Warner Cable and Bright House Networks in mid-2016. The stock has reflected that, moving up from the low $200s to just over $300 (where it’s now sitting).
This might just be a situation where Berkshire sees better opportunities for this capital.
Phillips 66 (PSX) – Sold 19,296,490 shares.
This transaction dropped Berkshire’s stake by 56.0%. The position is now down to 15,433,024 shares.
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. That saw Berkshire reduce its stake in the refiner by 35 million shares in Q1 2018.
That sale, per a statement by Buffett, was purely driven by the desire to eliminate the regulatory requirements that come with ownership levels above 10 percent.
But Berkshire then sold an additional 10,960,378 shares in Q2 2018. Now the sale of more than 19 million shares in Q3.
It’s clear by now that these sales aren’t driven by a desire to stay under 10% ownership. If anything, Berkshire is slowly selling out of its entire position.
I’m not entirely sure why that is. Phillips 66 has been running a very tight ship for years now. Recent numbers have been exemplary across the board.
Valuation might have played a role in this, though, as the stock spent a good chunk of Q3 in the ~$120s. It’s now at just over $95/share.
That big downward move on the stock has come alongside volatile energy pricing, although Phillips 66 as a company has been posting some incredible results straight through. Stock goes one way. Business goes another. Happens all the time.
And that downward move has brought the stock into what I see as a pretty attractive valuation.
Most basic valuation metrics look great when lined up against their respective recent historical averages – the P/CF ratio of 8.7, for example, is substantially below its three-year average of 12.6.
The yield is now sitting at 3.35%, which is as high as I can remember it being. The five-year average yield on this stock is only 2.5%. So there’s a big disconnect here.
I’ve been holding this stock for years. It’s treated me very well. That run into the $120s might have been a little much (and Berkshire saw this, too), but it’s a different story now below $95/share.
All that said, Berkshire seems to be getting out of the business altogether. A cheaper valuation might convince them to stay (or even reverse course), though.
Sanofi SA (SNY) – Sold 3,701,012 shares.
Berkshire completely sold out of this position.
Sanofi is a multinational pharmaceutical company based out of Paris, France.
This wasn’t a large position for Berkshire, so it doesn’t really move the needle either way.
I will say, however, that I’m not sure what took Berkshire so long to get out of this one. Sanofi hasn’t exactly been lighting the world on fire. The last decade has been unimpressive across the board.
You could have bought this stock for its current price (~$45/share on the NYSE) back in 2005. Not great.
Southwest Airlines Co. (LUV) – Sold 500,000 shares.
This sale reduced Berkshire’s stake by 0.9%. The position now sits at 56,047,399 shares.
Southwest Airlines Co. is a major domestic airline carrier.
I’m just going to take Buffett’s word that these airline moves are purely based around staying under 10%. There’s not much more to say, especially considering how small this transaction was.
United Continental Holdings Inc. (UAL) – Sold 700,000 shares.
This sale dropped Berkshire’s stake by 2.6%, with that position now coming in at 25,984,542 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.
See above for my remarks on the airline sales.
Wells Fargo & Co. (WFC) – Sold 9,652,058 shares.
Berkshire now owns 442,361,700 shares after this sale, which is a reduction of 2.1% over the prior 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 sale’s reasoning mimics the reasoning behind the moves with the airlines – Buffett has repeatedly noted that Berkshire doesn’t want to own more than 10% of Wells Fargo due to the onerous regulation that it would face if that event were to come to pass.
Berkshire is now comfortably under 10%, but Wells Fargo continues to buy back its own stock at prodigious rates. The bank bought back over 146 million shares in Q3, for context. So that’s a lot for Berkshire to keep up with in order to keep its ownership stake in line with its target.
For regular investors who don’t have to worry about being under that 10% threshold (I’m talking to everyone other than Buffet here), I will say that this stock appears to be one of the more attractive big US banks.
The valuation metrics across the board indicate cheapness, and the bank continues to move past some of the recent scandals that have plagued it and set its reputation back a bit. A 3.30% yield on a high-quality bank is extremely difficult to find.
I last covered Wells Fargo back in April, arguing it’s worth over $58/share. This stock is a buy, in my opinion.
Walmart Inc. (WMT) – Sold 1,393,513 shares.
Berkshire sold out of this position completely.
Walmart Inc. is an American multinational retail chain that operates more than 11,000 stores across more than 27 countries.
This position was purely ornamental. Berkshire started selling out of Walmart years ago (something they arguably shouldn’t have done), but they kept this small number of shares around for whatever reason. Could have been tax considerations. I’m unsure.
Either way, it’s a non-story that doesn’t move the dial for Berkshire or its shareholders.
-Jason Fieber
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