There’s little question that Berkshire Hathaway (BRK.A) (BRK.B) CEO Warren Buffett will go down as one of the greatest investors of our time. In the roughly 58 years since taking the reins at Berkshire Hathaway, he’s overseen a greater-than 4,300,000% aggregate return in his company’s Class A shares (BRK.A) as well as doubled-up the annualized total return, including dividends paid, of the benchmark S&P 500 (19.8% vs. 9.9%) as of the end of 2022.

This sustained long-term outperformance, coupled with the Oracle of Omaha’s willingness to share what factors he looks for in an investment, is why investors are eager to see what Warren Buffett is buying and selling. After all, riding Buffett’s coattails has made investors a boatload of money for nearly 60 years.

Following Warren Buffett’s investment activity has been a moneymaking strategy for decades
For the most part, tracking Warren Buffett’s trading activity is easy. Institutional investors and money managers with over $100 million in assets under management (AUM) are required to file Form 13F with the Securities and Exchange Commission (SEC) no later than 45 days following the end of a quarter. A 13F provides a snapshot of what Wall Street’s brightest minds bought and sold in the most recent quarter.

Though we’ll be getting a closer look at Berkshire’s second-quarter 13F on Monday, Aug. 14, previous filings from the Oracle of Omaha show that he and his investment team have been piling into a handful of stocks.

For instance, oil stock Occidental Petroleum (OXY) has been a consistent buy for Buffett and his investing lieutenants, Ted Weschler and Todd Combs, since the start of 2022. Berkshire has purchased more than 224 million shares of Occidental common stock.

Having more than $14 billion invested in the common stock of an energy company suggests that Buffett and his team expect the spot price of oil to remain elevated. The ongoing war in Ukraine, along with more than three years of capital underinvestment by energy majors tied to COVID-19 uncertainties, has created a tight supply market for oil that may keep the West Texas Intermediate Crude price above historic norms.

This is noteworthy given that Occidental Petroleum generates the bulk of its revenue from drilling. Although it’s an integrated operator with downstream chemical plants, it’s far more reliant on its upstream operations for success. If the price of crude oil rallies, Occidental Petroleum should disproportionately benefit.

The Oracle of Omaha, Combs, and Weschler also can’t stop buying shares of Apple (AAPL). As of Aug. 14, Wall Street’s largest publicly traded company by market cap comprised a whopping 45.5% of Berkshire Hathaway’s $366 billion of invested assets.

During Berkshire Hathaway’s annual shareholder meeting, Buffett referred to Apple as “a better business than any we own.” He certainly didn’t make this comment lightly. He values Apple for its phenomenally strong brand, its years of innovation, and the company’s steadfastly loyal customer base.

To add, Warren Buffett is also a huge fan of Apple’s capital-return program. In addition to doling out one of the world’s largest nominal-dollar dividends ($15.1 billion per year), Apple has bought back around $600 billion worth of its common stock since the start of 2013. Not only do buybacks improve earnings per share for companies (like Apple) with steady or growing net income, but they can also increase the ownership stakes of existing investors.

The Oracle of Omaha has spent north of $71 billion buying shares of this stock
But here’s a news flash that may come as a surprise to a lot of investors: Neither Apple nor Occidental Petroleum is Warren Buffett’s most-purchased stock over the past five years. In fact, the company Buffett has piled more than $71 billion into since the start of July 2018 won’t be found in Berkshire Hathaway’s quarterly 13F filings.

To locate the stock that truly has the Oracle of Omaha’s attention, you’ll want to pull up page 53 (slide 54 in PDF format) of Berkshire Hathaway’s Q2 operating results. That’s the page where you’ll find the company’s share-repurchase activity. That’s right…Warren Buffett’s favorite stock to buy is none other than his own company, Berkshire Hathaway. Don’t you love a good plot twist?

Prior to July 17, 2018, Warren Buffett and Executive Vice Chairman Charlie Munger were hamstrung by one specific component of Berkshire Hathaway’s share-repurchase criteria. Specifically, they were only allowed to pull the trigger on buybacks if Berkshire Hathaway’s stock traded at or below 120% of book value — i.e., no more than 20% above its book value, as reported in the most recent quarter. For more than a half-decade leading up to July 2018, the company’s stock never fell below this book value threshold, which meant that Berkshire’s dynamic duo couldn’t conduct any buybacks.

Thankfully, Berkshire Hathaway’s Board of Directors made some adjustments. The new criteria to conduct buybacks that was passed on July 17, 2018 allowed Buffett and Munger to repurchase Berkshire Hathaway stock if:

  • The company has at least $30 billion in cash, cash equivalents, and U.S. Treasuries on its balance sheet.
  • Buffett and Munger agree that the company’s stock is intrinsically cheap.
    If these criteria are met, buybacks can be undertaken with no set cap or timeline.

During the recently completed second quarter, Berkshire Hathaway repurchased 1,042 Class A shares (BRK.A) and 2,354,444 Class B shares (BRK.B). Based on the average purchase price of these buybacks as reported by the company, Buffett and his team oversaw $1,302,648,276.48 in repurchases in Q2.

More impressively, this marks the 20th consecutive quarter that Warren Buffett and Charlie Munger have OK’d the repurchase of Berkshire Hathaway stock. Collectively, more than $71 billion worth of stock has been repurchased in 17 days shy of five years.

The way I see it, Berkshire Hathaway’s mammoth buyback program serves three key purposes. First, it’s a way to reward the company’s long-term investors. Just as Berkshire has seen its stake in Apple grow larger over time due to buybacks, reducing Berkshire’s outstanding share count through buybacks is increasing the ownership stakes of its faithful shareholders.

Second, reducing Berkshire’s outstanding share count via buybacks should increase the company’s earnings per share over time. In other words, it’s making an already fundamentally attractive stock that much more appealing.

The third reason for such an aggressive share-repurchase program is to emphasize the faith Warren Buffett and Charlie Munger have in the company they’ve built over many decades. As I’ve stated previously, Berkshire’s investment portfolio is loaded with cyclical businesses. Since the U.S. and global economy spend far more time growing than contracting, it means Berkshire Hathaway is well positioned to take advantage of domestic and global growth over the long run.

Until Berkshire Hathaway’s 13Fs prove otherwise, Berkshire Hathaway is Warren Buffett’s unquestioned favorite stock to buy.

— Sean Williams

Where to Invest $99 [sponsor]
Motley Fool Stock Advisor's average stock pick is up over 350%*, beating the market by an incredible 4-1 margin. Here’s what you get if you join up with us today: Two new stock recommendations each month. A short list of Best Buys Now. Stocks we feel present the most timely buying opportunity, so you know what to focus on today. There's so much more, including a membership-fee-back guarantee. New members can join today for only $99/year.

Source: The Motley Fool