In 1973, when conglomerate Berkshire Hathaway (BRK.A) (BRK.B) held its first annual shareholder meeting, a few dozen people attended. Nowadays, you’ll find approximately 40,000 shareholders attending Berkshire’s annual meetings.

The lure for these investors is the chance to hear the Oracle of Omaha, Warren Buffett, offer his nuggets of wisdom on investing and the U.S. economy. Since becoming CEO of Berkshire in 1965, Buffett has overseen a greater than 4,300,000% aggregate return in his company’s Class A shares (BRK.A). This works out to a nearly 20% annualized return spanning six decades, which is why investors are always eager to discover what stocks one of the world’s greatest and revered money managers is buying.

Warren Buffett has steadily added to a handful of core holdings
Generally, mirroring Warren Buffett’s buying and selling activity is pretty simple. Money managers with at least $100 million in assets under management 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 transactions these top asset managers made in the most recent quarter. Berkshire Hathaway is expected to file its 13F after the closing bell on Nov. 14.

Then again, investors don’t have to wait nearly a week to see some of the moves Buffett and his investing lieutenants (Todd Combs and Ted Weschler) have been making.

Thanks to Form 4 filings with the SEC, which are required in instances where a greater than 10% stake is held in a publicly traded company, investors know that Buffett and his team can’t stop buying shares of energy stock Occidental Petroleum (OXY).

In the 22-month stretch between the start of January 2022 and end of October 2023, Berkshire Hathaway has built up a more than 228 million-share stake in oil and gas stock Occidental. Such a large position signals that the Oracle of Omaha expects crude oil prices to remain elevated for the foreseeable future.

Despite some economic data points and predictive indicators suggesting the U.S. could soon be in a recession, a couple of macro factors are working in favor of crude oil. Russia’s war with Ukraine has cast doubt over Europe’s energy supply needs. Meanwhile, multiple years of reduced capital spending by energy companies during the COVID-19 pandemic is limiting the ability to quickly increase global oil supply. As a general rule, when the supply of an all-important commodity is constrained, the price of that commodity tends to be pushed higher.

Occidental Petroleum generates most of its revenue from drilling, and it’s quite sensitive to swings in the spot price of crude oil. If the spot price of oil does head higher, Occidental can expect a sizably positive impact on its operating cash flow.

The Oracle of Omaha also can’t help himself when it comes to tech stock Apple (AAPL). Even though Apple already accounts for 47% of Berkshire Hathaway’s $343 billion of invested assets, he and his team have been purchasing additional shares of the iPhone maker from time to time.

During Berkshire Hathaway’s annual shareholder meeting in May, Buffett referred to Apple as “a better business than any we own.” It’s a particularly strong comment given that Berkshire owns railroad BNSF and insurance company GEICO, which are superstar businesses on their own.

What Apple brings to the table for Berkshire Hathaway is virtually unsurpassed operating cash flow and a rich history of innovation. Although Apple has no intention of abandoning the physical products (iPhone, Mac, and iPad) that have endeared the company with so many consumers, it’s begun focusing more of its attention on growing its services segment. A subscription-driven operating focus should lift the company’s operating margin over time, as well as smooth out the revenue fluctuations often observed when Apple makes big changes to its flagship smartphone.

The Oracle of Omaha has purchased more than $72 billion in shares of this stock
Yet in spite of the popularity of these two stocks, there’s another company that’s hands-down Warren Buffett’s favorite stock to buy.

Don’t get me wrong: The roughly $11.2 billion estimated cost basis in Occidental since the start of 2022, and $36.3 billion estimated cost basis in Apple since the beginning of 2016 aren’t drops in the bucket. However, the more than $72 billion the Oracle of Omaha has used to purchase shares of another stock, which you won’t find in Berkshire Hathaway’s 13Fs, is double the amount spent buying shares of Apple.

This mystery stock can be located by perusing Berkshire Hathaway’s quarterly reports. Near the end of the company’s third-quarter operating results, just prior to reaching the executive certifications, you’ll find the share-repurchase activity. That’s right: The stock Warren Buffett has sunk more than $72 billion into is his own company!

The all-important date for Buffett and his shareholders is July 17, 2018. Prior to this date, buybacks could only be made if shares of Berkshire Hathaway traded at or below 120% of book value (i.e., no more than 20% above book value, based on the most recent quarterly report). With Berkshire Hathaway stock not falling to or below this level for well over a half-decade prior to this date, not a cent of the company’s cash went toward buybacks.

But things changed in a big way on July 17, 2018. The company’s board passed new measures that simplified the share buyback process. As long as Berkshire Hathaway has at least $30 billion in cash, cash equivalents, and U.S. Treasuries on its balance sheet, and both Buffett and executive vice chairman Charlie Munger agree their company’s stock is intrinsically cheap, repurchases can be undertaken in perpetuity.

During the September-ended quarter, Buffett and Munger oversaw the repurchase of 1,899 Class A shares (BRK.A) and 143,675 Class B shares (BRK.B). Collectively, Berkshire’s dynamic duo spent $1,086,610,865 buying back their own company’s shares during the third quarter. This marked the 21st consecutive quarter of buybacks since the board amended the rules governing share repurchases, and pushed collective buybacks to more than $72 billion in about five years.

Since Berkshire Hathaway doesn’t pay a dividend, Warren Buffett’s primary means to reward his shareholders — in case a nearly 20% annualized return covering nearly six decades isn’t enough — is by repurchasing shares of Class A and B stock.

The clearest benefit of buybacks is the steady reduction in outstanding shares. For businesses with steady or growing net income (i.e., Berkshire Hathaway, sans unrealized investment gains and losses), a declining outstanding share count will result in higher earnings per share (EPS) over time. This makes Berkshire Hathaway stock even more fundamentally attractive to long-term investors.

The other benefit to Berkshire’s aggressive buyback program is that it’s slowly but surely increasing the ownership stakes of existing shareholders.

Considering the pullback the broader market experienced in October, I’d be shocked if Warren Buffett and Charlie Munger aren’t buying their favorite stock once again — but we’ll have to wait until February to get that answer.

— Sean Williams

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Source: The Motley Fool