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 fourth quarter of 2020 — the quarter ending December 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.

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 4,268,766 shares of AbbVie Inc. (ABBV)
Purchased 3,364,822 shares of Bristol-Myers Squibb Co. (BMY)
Purchased 48,498,965 shares of Chevron Corporation (CVX) – NEW POSITION
Purchased 8,555,578 shares of Kroger Co. (KR)
Purchased 4,267,825 shares of Marsh & McLennan Companies, Inc. (MMC) – NEW POSITION
Purchased 6,294,333 shares of Merck & Co., Inc. (MRK)
Purchased 24,200 shares of RH, Inc. (RH)
Purchased 2,828,844 shares of T-Mobile US Inc. (TMUS)
Purchased 146,716,496 shares of Verizon Communications Inc. (VZ) – NEW POSITION

Sales

Sold 57,160,000 shares of Apple Inc. (AAPL)
Sold 12,000,000 shares of Barrick Gold Corp. (GOLD) – SOLD OUT
Sold 7,500,000 shares of General Motors Company (GM)
Sold 967,267 shares of JPMorgan Chase & Co. (JPM) – SOLD OUT
Sold 146,177 shares of Liberty Latin America Class A (LILAK)
Sold 2,919,613 shares of M&T Bank Corporation (MTB) – SOLD OUT
Sold 3,711,780 shares of Pfizer Inc. (PFE) – SOLD OUT
Sold 1,919,827 shares of PNC Financial Services Group Inc. (PNC) – SOLD OUT
Sold 5,352,318 shares of Suncor Energy, Inc. (SU)
Sold 823,834 shares of U.S. Bancorp (USB)
Sold 74,956,573 shares of Wells Fargo & Co. (WFC)

Purchases

AbbVie Inc. (ABBV) – Purchased 4,268,766 shares. 

This purchase brought Berkshire Hathaway’s position up to 25,533,082 shares, which is a 20.1% increase over the prior quarter.

AbbVie Inc. is a global pharmaceutical company with a particular focus on immunology and oncology.

I like this move. A lot.

AbbVie is a powerhouse pharmaceutical company. While still heavily reliant on a single drug (Humira), they’ve transformed themselves into a bona fide healthcare leviathan after acquiring Allergan last year.

I noted AbbVie’s appeal in an article posted back in November, which happens to coincide with when Berkshire Hathaway added to their stake.

The stock has climbed to my estimate of intrinsic value since then, reducing its appeal somewhat.

However, the stock still yields 5% here. And it’s not like it’s overly expensive.

This stock continues to look like a very strong long-term idea in this market.

Bristol-Myers Squibb Co. (BMY) – Purchased 3,364,822 shares.

Berkshire Hathaway now owns 33,336,016 shares, which is a 11.2% increase over last 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.

Yet another pharma play. Yet another move I applaud.

I covered this stock very recently, noting the opportunity in its high quality and low valuation back in January.

There’s no need to repeat myself. I’ll only note that the stock remains below the ~$70 level, which is what I think the stock is worth.

Chevron Corporation (CVX) – Purchased 48,498,965 shares.

This is a new position for Berkshire Hathaway.

Chevron Corporation is an integrated global energy company, with exploration, production, and refining operations across the world.

Based on the size of the position (north of $4 billion in market value), it seems likely that Buffett is behind this one.

This is an interesting play for Berkshire Hathaway.

I say that because the stock has recovered most of its losses from the pandemic-induced crash in March 2020 – it’s up handily from its 52-week low of $51.60.

Also, I would go so far as to say that Berkshire Hathaway (or should I say, Buffett) doesn’t have a great record in the oil patch. I’ve noticed a lot of O&G investments and disposals over the years seemingly mistimed or confusing in their nature.

All that said, the stock still has a ways to go before it gets to its pre-pandemic high.

Meanwhile, the stock sports a very juicy 5.5% yield that the company is deeply committed to. And that’s a dividend that’s been growing for 33 consecutive years.

This might be an inexpensive way for Berkshire Hathaway to play the reopening of the economy. A resurgence in economic activity will surely increase demand for energy products, which in turn would benefit the likes of Chevron.

Kroger Co. (KR) – Purchased 8,555,578 shares.

This purchase increased Berkshire Hathaway’s stake by 34.3%, which is now up to 33,534,017 shares.

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.

In my view, this is a classic Buffett play.

It’s a high-quality, profitable, scaled-up, easy-to-understand business that pays a growing dividend (which Buffett can collect and redeploy back into investments).

And in an expensive stock market, this stock looks surprisingly cheap. It’s actually down over the last five years – it just can’t seem to catch a wave.

The P/E ratio is below 10, the yield is over 2%, and the dividend continues to grow like clockwork. This is right in Buffett’s wheelhouse.

On the other hand, this is a very competitive business with extremely thin margins. Plus, its large size might work against it in some ways. And I think that’s what holds the valuation in check.

Marsh & McLennan Companies, Inc. (MMC) – Purchased 4,267,825 shares. 

This is a new position for Berkshire Hathaway.

Marsh & McLennan Companies, Inc. is a global professional services firm that provides a range of advisory and consulting services.

The size of this position (well under $1 billion) leads me to believe that it’s unlikely that Buffett orchestrated the investment.

But that doesn’t make it any less worthwhile. Quite the contrary, if anything.

In fact, Buffett has gone on record to say that his lieutenants are actually outperforming him in the portfolio.

This is a great business that has a fantastic long-term track record.

The great thing about consultancy businesses is that they tend to have fairly impressive margins and ROIC. After all, it’s not like cash flow is being drained by factories or machinery. This is not a capital-intensive business model.

Revenue is up by about 50% over the last decade. EPS has doubled. The dividend has doubled. The balance sheet isn’t severely encumbered. And the valuation isn’t overly demanding.

If you’re interested in yield, though, this stock might not get the job done – it yields only 1.6% here.

But this is a very interesting investment that should do well over the long run.

Merck & Co., Inc. (MRK) – Purchased 6,294,333 shares. 

This purchase brings Berkshire Hathaway’s stake up to a total of 28,697,435 shares, an increase of 28.1%.

Merck & Co., Inc. is a leading global pharmaceutical company that produces a range of medicines, vaccines, and animal healthcare products.

I really like this move.

I actually did a fully analysis on Merck back in the summer, concluding that shares are worth almost $100/share.

With the stock currently well under $80, I would argue this is a great long-term investment opportunity.

RH, Inc. (RH) – Purchased 24,200 shares. 

Berkshire Hathaway increased its position size by 1.4%.

RH, Inc. is a holding company that, through its subsidiary, offers a range of high-end home furnishing products across multiple retail channels.

Based on the size of this transaction, as well as the position itself, it’s likely that Combs or Weschler is behind this one.

This stock has gone on an epic run since bottoming out last March.

The 52-week low is $73.14. The stock is now sitting at just under $485.

As the work-from-home trend continues to play out, home furnishings businesses should continue to prosper. It’s a very logical deduction.

People are buying houses, going after larger spaces, spending more time at home, and want quality furnishings.

Perhaps the only thing to dislike about this stock is the valuation.  After that big run, the stock looks anything but cheap.

I’d argue that competitor Williams-Sonoma, Inc. (WSM) looks like a better buy at this point in time.

T-Mobile US Inc. (TMUS) – Purchased 2,828,844 shares

This transaction brought Berkshire Hathaway’s position up to 5,242,000, which is a 117.2% increase over the last quarter.

T-Mobile US is a telecommunications company providing wireless voice and data services in the United States.

Again, this being a smaller position in the portfolio, I’d say that it’s unlikely Buffett made this investment.

Again, though, that doesn’t make it any less important. That’s certainly true if you’re a Berkshire Hathaway shareholder. And since Buffett hand-picked both Combs and Weschler, their moves are just as insightful as Buffett’s.

Berkshire Hathaway initiated their stake in T-Mobile US in Q3 2020. And they quickly followed that up, more than doubling the size of their investment.

They obviously like what they see.

I can see why.

The company has been printing some great numbers of late.

In a staid industry where top-line growth is hard to come by, T-Mobile US consistently pumps out revenue growth. I think that says a lot about the attractiveness of the business from both an investor’s standpoint and a consumer’s standpoint.

That said, this growth does come at a cost. The stock is not cheap.

But if you’re looking for a cheaper telecom play with some income attached to it, Berkshire’s other big telecom investment might be more suitable.

Verizon Communications Inc. (VZ) – Purchased 146,716,496 shares. 

This is a new position for Berkshire Hathaway.

Verizon Communications Inc. is a multinational telecommunications conglomerate that provides a range of products and services across voice, data, and entertainment.

As I just alluded to, this is the other big telecom investment.

And when I say big, I mean it: Berkshire Hathaway’s splash into Verizon is worth more than $8 billion.

That tells us two things.

First, it’s almost a sure thing that Buffett made this move.

Second, Berkshire Hathaway has utmost confidence in Verizon as an investment.

In my view, this is the big story. It’s a massive investment and a new position. Even for Berkshire Hathaway, $8 billion is a lot of cash to plunk down on a stock all in one go.

It’ll be interesting to see whether Buffett or one of his lieutenants come out ahead in the telecom game, as Buffett has clearly put his share of the chips on Verizon instead of T-Mobile US.

Personally, I like Verizon.

It’s much cheaper, first of all – the cash flow multiple is only 5.7, rather than the 16.2 P/CF ratio you see from T-Mobile US stock.

And it also pays out a juicy, growing dividend.

The stock yields 4.4%. And this is a dividend that’s been growing for 16 consecutive years.

As a dividend growth investor, the choice is really quite clear. But Berkshire Hathaway will profit from both businesses.

Sales

Apple Inc. (AAPL) – Sold 57,160,000 shares. 

This sale reduced Berkshire Hathaway’s position down to 877,135,554 shares, which is a 6.1% reduction over the prior quarter.

Apple Inc. is a designer and manufacturer of consumer electronic devices, including smartphones, computers, tablets, smartwatches, and TV boxes. The company also provides a number of complementary and supportive services across apps, music, file storage, and payment.

This minor sale follows up a sale of just over 36 million Apple shares in Q3 2020.

It might surprise some investors, as Apple is by far Berkshire Hathaway’s largest position in their common stock portfolio.

But I don’t think it should be all that surprising.

This move strikes me as prudent risk management.

The position is so large that any kind of unfortunate and unforeseen problem with Apple would impact Berkshire Hathaway in a very large and direct way. Lowering their risk by shrinking their large exposure to one business makes sense.

Moreover, Apple stock has been on a huge run.

It’s up an incredible 64% over the last year alone – this on a business that has a market cap of over $2 trillion. It defies gravity in some ways.

I don’t see much of a takeaway here.

Berkshire Hathaway still has a huge position in Apple and still clearly believes in the business long term.

For mere mortal investors that don’t need to manage risk on a position worth over $100 billion, staying the course is probably the best thing to do.

Barrick Gold Corp. (GOLD) – Sold 12,000,000 shares.

Berkshire Hathaway completely sold out of their position.

Barrick Gold Corp. is a leading international mining company that mines for gold and copper in 13 different countries.

Berkshire Hathaway significantly reduced their stake in Barrick Gold in Q3 2020, so the writing was on the wall here.

This struck me as an odd investment for Berkshire Hathaway to make in the first place.

However, it was a small investment. And now they’re completely out of it. It’s really a non-story.

General Motors Company (GM) – Sold 7,500,000 shares. 

This sale dropped Berkshire Hathaway’s stake by 9.4%, now down to 72,500,000 shares.

General Motors Company is a multinational corporation that designs, manufactures, markets, and distributes vehicles and vehicle parts, and also provides financial services.

Berkshire Hathaway has been in GM for quite a while. And this was a pretty sizable reduction.

If they’re looking to slowly get out, I would suspect that they’d be selling even heavier now.

Buffett has always noted that if you like a stock at one price, you should like it even more at a lower price.

Likewise, if you want to sell out of a stock at one price, you should be even more enthusiastic about selling at a higher price.

Indeed, GM’s stock is already up almost 30% in 2021 alone.

I’m not quite sure what the impetus behind the sale was. But if they’re starting to head for the exits, it wouldn’t surprise me to see them sell more aggressively in Q1 2021.

JPMorgan Chase & Co. (JPM) – Sold 967,267 shares. 

Berkshire Hathaway completely sold out of this position.

JPMorgan Chase & Co. is a financial holding company that operates as one of the largest financial institutions in the United States, with over $2.5 trillion in assets. They offer various financial products and services across traditional retail and commercial banking, asset management, and investment banking.

This isn’t surprising.

After all, Berkshire Hathaway has been slowly selling out of banks for some time now.

As I’ve noted before, I think this is all about Buffett starting to hand over more capital and investment responsibilities to Combs and Weschler.

If that transition is playing out, as I think it is, it would make sense for Berkshire Hathaway to slowly get out of some of Buffett’s legacy investments. This makes room for the younger guys. Besides, one could argue that Buffett got way too aggressive with banks in the past anyway.

That said, I’m not following Buffett on this one.

I actually think high-quality banks still look good here. Now, that’s if you didn’t go crazy with the banks in the past – like Buffett did.

If your portfolio has room for high-quality banks like JPMorgan Chase, they look like strong long-term investment ideas.

I say that even after some of these banks have gone on a big run recently.

To wit, I wrote up JPMorgan Chase last May when the stock was below $90. It’s now coming up on $150.

The stock certainly isn’t as cheap as it once was. But the banks got absurdly cheap. Compared to the market, banks still look inexpensive.

M&T Bank Corporation (MTB) – Sold 2,919,613 shares. 

Berkshire Hathaway sold out of this position.

M&T Bank Corporation is a regional American bank that operates more than 700 branches, mostly throughout the Northeast region of the United States.

Berkshire Hathaway reduced their stake in M&T Bank by almost 36% in Q3 2020. With the aforementioned shift in portfolio leadership and capital allocation, it’s not at all surprising that another bank investment is sold off.

But almost everything I just said about JPMorgan Chase can apply to M&T Bank. They’re not in the same class in terms of size or scope, certainly.

Rather, what I’m trying to say is this: I think investors would be wise to refrain from drawing too many conclusions about bank stocks based on what Berkshire Hathaway is doing. This goes for all of the bank stock sales.

Pfizer Inc. (PFE) – Sold 3,711,780 shares. 

Berkshire Hathaway sold out of this position.

Pfizer Inc. is a global pharmaceutical company that discovers, develops, and manufactures a range of healthcare products.

This is an odd one.

Whereas Buffett is almost legendary for his long-term investment time frame, his lieutenants seem to be much more sensitive to time frames.

This is an example of that new paradigm.

Berkshire Hathaway initiated their stake in Pfizer in Q3 2020.

One quarter later, they completely sold out.

I’d imagine that Berkshire Hathaway is putting a lot of time into analyzing these investments. So to put that time in, allocate capital, then just get out altogether only months later strikes me as strange. Especially when we’re talking about Berkshire Hathaway.

Nonetheless, it’s not like Berkshire Hathaway has soured on Big Pharma – they were busy buying up the likes of AbbVie and Merck during the quarter.

Rather, it looks like they soured on Pfizer specifically.

It could be poor stock performance that led to this move. The stock is flat over the last year. It just can’t seem to catch traction, even after its big headline-grabbing COVID-19 vaccine win.

But I see that lack of traction as more of an opportunity than anything else.

I wrote this stock up in the summer, and I estimated the intrinsic value at just over $41/share.

I see it as a cheap, high-yield pharma play with limited downside.

PNC Financial Services Group Inc. (PNC) – Sold 1,919,827 shares.

Berkshire Hathaway sold out of this position.

PNC Financial Services Group Inc. is a bank holding company and financial services corporation that operates almost 2,300 branches across 21 states and the District of Columbia.

Another bank stock. Another sale.

No surprise at all.

Berkshire Hathaway sold off almost 65% of its PNC Financial Services stake in Q3 2020. So it would have been natural to conclude that they were going to sell off the rest in the very next quarter.

But everything I said about the other bank stock sales applies to this bank stock sale.

Berkshire Hathaway has a unique situation that doesn’t apply to regular investors who are still building out their portfolios.

If I’m looking to buy stocks right now, banks generally remain appealing as long-term investment ideas.

Suncor Energy, Inc. (SU) – Sold 5,352,318 shares. 

Berkshire Hathaway’s position is now at 13,849,207 shares, which is a 27.9% reduction over the prior quarter.

Suncor Energy, Inc. is a Canadian integrated energy company.

It’s interesting that Berkshire Hathaway initiated a stake in Chevron at the same time they were busy reducing their investment in Suncor.

This is a great move, in my opinion.

Personally, I’ve never liked Suncor Energy. They’re heavily exposed to Canadian oil sands. That exposure positions them poorly in the marketplace, as the oil sands have high development costs and result in a product that is less appealing.

I simply don’t see an investment case for Suncor Energy at all.

As a dividend growth investor, I view the US supermajors as much more attractive. I also think some of the pipeline companies are ripe for investment.

U.S. Bancorp (USB) – Sold 823,834 shares. 

This sale dropped Berkshire Hathaway’s position by 0.6%, which is now at 131,137,998 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.

This continues the theme of bank sales that clearly played out over the course of Q4 2020 for Berkshire Hathaway.

Again, I don’t see this as an indictment on bank stocks. It’s instead an acknowledgement that Buffett is exerting less and less control over the portfolio’s capital and management.

I noted this stock’s undervaluation back in August, when the stock was under $37. It’s now near $50.

Obviously, I’m a fan of U.S. Bancorp. I think it should do very well for shareholders over the long run, although the valuation has become much less attractive than it was only six months ago.

Wells Fargo & Co. (WFC) – Sold 74,956,573 shares. 

This reduction dropped Berkshire Hathaway’s position to 52,423,867 shares, which is 58.8% less 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.

Berkshire Hathaway has been systematically selling out of this longtime investment for quite a while now. The only reason it’s taking so long is, it was once a very large position for the firm. Berkshire Hathaway has had to slowly move out of it in order to minimize unfavorable changes to the stock price.

Everything I said earlier about Berkshire Hathaway, Buffett, and bank stocks can be repeated once again.

However, there are two big differences here.

First, Wells Fargo has generally performed pretty poorly over the last five years when compared to its peers. I say that in terms of both the business and the stock.

But the second noteworthy piece of information here is, it was announced on February 17 that the U.S. Federal Reserve accepted the bank’s overhaul plan related to the asset cap that was imposed on WFC since February 2018. The asset cap is one of the controls that is really keeping the business and the stock from performing better. Now that the bank is getting out of the “penalty box”, the future looks a lot brighter.

Not surprisingly, the stock popped by more than 5% on February 17. And I suspect that could be the start of more gains to come.

If you’re a long-term Wells Fargo shareholder, it might be wise to do the opposite of Berkshire Hathaway in this case and hold on while the bank finally starts to turn a corner.

— Jason Fieber

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