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 2020 — 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.

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!

Please keep in mind this list is for informational purposes only, and is not a recommendation to buy any specific stocks.

Purchases

Purchased 21,264,316 shares of AbbVie Inc. (ABBV) – NEW POSITION
Purchased 85,092,006 shares of Bank of America Corp. (BAC)
Purchased 29,971,194 shares of Bristol-Myers Squibb Co. (BMY) – NEW POSITION
Purchased 5,319,000 shares of General Motors Company (GM)
Purchased 146,177 shares of Liberty Latin America Ltd. Class C (LILAK)
Purchased 3,038,360 shares of Kroger Co. (KR)
Purchased 22,403,102 shares of Merck & Co., Inc. (MRK) – NEW POSITION
Purchased 3,711,780 shares of Pfizer Inc. (PFE) – NEW POSITION
Purchased 6,125,376 shares of Snowflake Inc. (SNOW) – NEW POSITION
Purchased 2,413,156 shares of T-Mobile Us Inc. (TMUS) – NEW POSITION

Sales

Sold 36,326,710 shares of Apple Inc. (AAPL)
Sold 650,000 shares of Axalta Coating Systems Ltd. (AXTA)
Sold 8,918,701 shares of Barrick Gold Corp. (GOLD)
Sold 4,333,363 shares of Costco Wholesale Corporation (COST) – SOLD OUT
Sold 2,000,000 shares of Davita Inc. (DVA)
Sold 21,241,160 shares of JPMorgan Chase & Co. (JPM)
Sold 1,300,000 shares of Liberty Global PLC Class A (LBTYA)
Sold 1,616,561 shares of M&T Bank Corporation (MTB)
Sold 3,430,759 shares of PNC Financial Services Group Inc. (PNC)
Sold 110,202,265 shares of Wells Fargo & Co. (WFC)

Purchases

AbbVie Inc. (ABBV) – Purchased 21,264,316 shares. 

This is a new position for Berkshire Hathaway.

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

I applaud this move. The only thing I’m wondering is, what took Berkshire Hathaway so long?

This has been low-hanging fruit for some time now. It was in the mid-$60s last fall, which was an incredible long-term opportunity.

But the secret is out, and the stock has moved up. In fact, it’s up significantly since I highlighted the stock as recently as November 1.

Even near $100/share, though, I don’t think the stock is expensive. And Berkshire Hathaway likely got in at an advantageous valuation last quarter.

As I lay out in the linked article above, AbbVie is one of the very best pharmaceutical businesses out there. The debt load is high. And the reliance on Humira is concerning. But this company is a powerhouse.

Plus, it yields well over 5%. That’s a very juicy yield in this low-rate world.

I like this stock very much under $100.

Bank of America Corp. (BAC) – Purchased 85,092,006 shares.

This transaction increased Berkshire Hathaway’s stake by 9.2%, now up to 1,010,100,606 shares.

Bank of America Corp. is a multinational investment bank and financial services holding company.

There’s no doubt that Warren Buffett was squarely behind this purchase.

This was a sizable purchase, which is the first giveaway.

Moreover, there’s the fact that this position is one of the biggest in Berkshire Hathaway’s common stock portfolio – worth almost $28 billion as of the time of this writing.

Buffett is definitely captaining this particular ship.

Banks have been cheap. Perhaps too cheap. And with this bank’s scale and quality, it’s an obvious move for Buffett in many ways.

Even after a bit of a recent run, the stock still looks like an attractive long-term investment.

The stock trades hands for a P/E ratio of below 14. It’s right at book value. And it yields 2.6%.

Low interest rates that almost seem like a permanent feature of the US economy are a big headwind. But the low valuation seems to discount that issue as more of an indefinite situation.

Bristol-Myers Squibb Co. (BMY) – Purchased 29,971,194 shares.

This is a new position for Berkshire Hathaway.

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.

Like AbbVie, this is a stock that has appeared to be pretty cheap for a while now. And it’s made an aggressive move up in recent weeks.

The global pharmaceutical companies are appealing for two reasons.

First, these businesses make a ton of money. They may as well own printing presses right now.

Second, the pharma stocks aren’t expensive. With the broader market actually up in a year in which the world is dealing with a global pandemic and earnings are down, value has arguably never been more difficult to find.

Indeed, to that first point, Bristol-Myers Squibb is showing more than $11 billion in free cash flow over the last 12 months.

To the second point, the current P/CF ratio is almost half of its three-year average.

This stock doesn’t offer the monster yield that ABBV does – the yield on BMY is about 2.8% here – but there’s a good amount of income to be had here.

General Motors Company (GM) – Purchased 5,319,000 shares.

Berkshire Hathaway now owns 80,000,000 shares, up by 7.1% over last quarter.

General Motors Company designs, manufactures, markets, and distributes vehicles and vehicle parts. They also provide related financial services.

The auto business is tough.

You have brutal competition, high fixed costs, thin margins, and a need to constantly develop new iterations of your product.

But Berkshire Hathaway clearly sees something to like here.

It might be the valuation.

The stock has been cheap for some time now. When a stock is trading for less than 5 times cash flow, they don’t have to do much in order to produce solid long-term returns. Plus, it’s yielding more than 3.5% here.

Notably, this stock seems to have finally broken out of a longstanding price range. It’s been bound between about $25 and $35 for years. But it looks like it’s firmly broken through $40 – and it could be headed much higher, if the company continues to execute properly.

Kroger Co. (KR) – Purchased 3,038,360 shares.

This transaction increased Berkshire Hathaway’s position by 13.8%, now up to 24,978,439 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.

This buy follows up a purchase of 3 million shares last quarter.

You really couldn’t ask for a better-positioned business during a global pandemic.

Food never goes out of style. But there’s been a significant increase in demand for groceries during a time in which consumers have had to spend much more time at home. That has worked out tremendously for the likes of Kroger.

Surprisingly, the stock isn’t up much on the year.

It started off 2020 at just under $29/share. It’s now coming up on $32/share.

It could be that a lot of investors are unsure of how much of a lasting positive impact Kroger will see from all of this.

There’s also the competition and thin margins to worry about.

However, this stock remains really cheap.

With a P/E ratio below 10 and a yield of 2.25%, this is a classic value play for Berkshire Hathaway.

Merck & Co., Inc. (MRK) – Purchased 22,403,102 shares.

This is a new position for Berkshire Hathaway.

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

This is another move that I applaud.

I think it’s a fantastic long-term investment. In my view, Merck offers a rare combination of both quality and value in this market.

KeyTruda is a blockbuster. The fundamentals across the board are excellent. Simply put, this business is firing on all cylinders.

Yet the stock isn’t.

It’s well off of its 52-week high – in a market that’s actually up on the year. And it’s not like the stock was expensive at $92/share.

As I recently noted in my analysis of this stock, I think it’s worth closer to $100/share.

This stock offers quality, value, and even income. It yields right about 3%, which is certainly better than what the broader market offers.

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

This is a new position for Berkshire Hathaway.

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

We can all see a clear trend here: Berkshire Hathaway was busy scooping up shares in large pharma businesses throughout last quarter.

I must say, Warren Buffett must have been reading my mind.

I was highlighting pharma stocks throughout the quarter as some of the very best long-term opportunities out there, factoring in the lack of pandemic impact, strong fundamentals, low valuations, and high yields.

Pfizer is another example of that. I highlighted the stock as an undervalued dividend growth stock of the week back in July. It was priced lower then, but I think this stock is still attractively valued.

What’s interesting about these pharma investments is that I do believe Warren Buffett was behind them.

I base that opinion on the fact that these four pharma stocks are worth almost $6 billion combined. That’s more in the neighborhood of Warren Buffett than it is Todd Combs or Ted Weschler.

And that makes sense.

As I said in last quarter’s update on Berkshire Hathaway’s moves, I think Buffett is in “legacy mode” now.

At 90 years old and with many decades of success behind him, there’s no reason for Buffett to go out on a limb. I’m confident he’s spending more time thinking about passing the baton in good condition than trying to still run toward the finish line himself.

With that in mind, the big pharma stocks here are not risky gambles.

They’re large businesses producing throwing off tons of cash flow and trading for attractive prices. This is right in Buffett’s wheelhouse.

Snowflake Inc. (SNOW) – Purchased 6,125,376 shares.

This is a new position for Berkshire Hathaway.

Snowflake Inc. is a cloud-based data-warehousing company that offers cloud-based data storage and analytics services.

Whereas the big pharma stocks are right in Buffett’s wheelhouse, Snowflake really isn’t.

Based on the type and size of this investment, as well as the fact that Berkshire got in before the late September IPO, makes me think that it was either Combs or Weschler behind this investment. Buffett has long been critical of the idea of buying IPO issues, and I see no reason for him to change his tune now.

That said, this stock has shot up like a rocket. Whoever was behind this investment has already made a nice chunk of money for Berkshire Hathaway.

The IPO price was $120. The stock is now around $240. That’s an extremely quick double.

Tech stocks in general have had tremendous demand throughout 2020, as the pandemic has left investors scrambling for safe businesses that can continue to produce growth in a highly uncertain environment.

With more people suddenly working from home, changes that were already taking place have suddenly been accelerated to a great degree.

This has had the effect of pushing some stocks into what could be deemed bubble territory.

It remains to be seen whether or not that can be said of this particular stock, but a $66 billion valuation on a business that did less than $300 million in revenue last year is extreme.

T-Mobile US Inc. (TMUS) – Purchased 2,413,156 shares.

This is a new position for Berkshire Hathaway.

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

This is a relatively small investment by Berkshire Hathaway standards, leading me to believe that Combs or Weschler was behind this move.

It appears to be a prescient investment, at least in terms of the short term.

This stock spent much of last quarter around the $100 level. It’s now coming up on $130. So it does appear that Berkshire Hathaway got in at an advantageous level.

In a market that’s saturated with mature incumbents, T-Mobile US has been agile and able to grow.

This business has grown rapidly over the last few years. The market is rewarding that.

On the other hand, that’s also pushed the valuation up. Most basic valuation metrics are well above their respective recent historical averages, which is something to be aware of.

Furthermore, this is the only major US telecom stock that doesn’t pay a dividend. So if you’re an investor who, like me, enjoys receiving your fair share of growing profit, this stock doesn’t work.

Sales

Apple Inc. (AAPL) – Sold 36,326,710 shares. 

This sale reduced Berkshire Hathaway’s position down to 944,295,554 shares, which is 3.7% lower than last 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 might be a bit of a surprise.

Apple is by far Berkshire Hathaway’s largest common stock position.

Berkshire Hathaway’s stake in Apple has a current value of over $112 billion. That single investment accounts for almost half of the entire stock portfolio.

I do know that either Todd Combs or Ted Weschler originally initiated the position in Apple for Berkshire Hathaway, at which time Buffett got wind and decided to jump in with both feet first.

So this could be a situation where it was one of the lieutenants lightening up on, or completely liquidating, their position in Apple. That would be to raise cash and rotate it into a more attractive investment. They both manage much smaller amounts of money than Buffett, and this restriction means they have to be very careful with their allocation.

I simply find it unlikely that Buffett would peel off such a small percentage of this massive position that he obviously feels incredibly confident about.

The only thing to maybe not like about this stock at this particular juncture is the valuation.

The stock has more than doubled since its pandemic-induced springtime low. And with a P/E ratio of over 35, it’s not a cheap stock. Just about every basic valuation metric you can look at is elevated.

But if you got into this world-class business at a cheaper price, I think you hold on and let them continue to make money for you over the long run.

Axalta Coating Systems Ltd. (AXTA) – Sold 650,000 shares.

This sale reduced the position by 2.7%, now down to 23,420,000 shares.

Axalta Coating Systems Ltd. manufactures coatings for vehicles and industrial applications.

This was a small reduction on a rather small position.

This is an interesting, if confounding, position in the portfolio.

I’m not quite sure that I get the appeal.

Revenue is basically flat since FY 2011. EPS has been lumpy. Margins are thin. And the balance sheet is shaky.

Likewise, the stock is flat over the last five years.

The business seems to be spinning its gears, from what I can see.

Perhaps Berkshire Hathaway sees this as an acquisition candidate for one of the larger coatings players, but it just doesn’t have that same sheen (pun intended) of quality that Berkshire Hathaway is usually known for.

Barrick Gold Corp. (GOLD) – Sold 8,918,701 shares.

Berkshire Hathaway now owns 12,000,000 shares, which is a 42.6% reduction.

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

As I noted in the prior quarter’s update on Berkshire Hathaway’s portfolio, it’s almost certainly Combs or Weschler behind this investment.

I also noted that I see this as more speculation than investing. And I haven’t changed my view on that.

In the end, this investment got way more press than it deserved. It’s a relatively tiny investment by Berkshire Hathaway standards. And I can’t imagine that Buffett had anything to do with it.

Still, when you see “Berkshire Hathaway” and “gold” in the same sentence, people want to talk about that.

There hasn’t been much of a big move in the stock between quarters.

So it might be a case where the speculation isn’t working quite as expected, especially since vaccines are coming and things might be returning to normal sooner rather than later. As such, it’s not a surprise to see one of the lieutenants lighten up on this bet.

Costco Wholesale Corporation (COST) – Sold 4,333,363 shares. 

Berkshire Hathaway has completely sold out of this position.

Costco Wholesale Corporation is an American-based retailer operating a chain of membership-only warehouse clubs.

This investment goes back to 2000, pre-dating both Combs and Weschler.

So it was Buffett behind the initial investment. And it was likely Buffett behind the sale.

This move surprises me.

The stock is expensive. There’s no doubt about it. I mean, we’re talking about a stock trading hands for over 40 times earnings. Costco is known for bringing the deals in their warehouse stores, but the stock isn’t as generous.

However, the business is firing on all cylinders. And then some.

Both EPS and FCF have tripled over the last decade. Revenue is up twofold. There’s even been modest margin expansion in a very stingy environment. I don’t know how you could run the business any better.

In my view, any sizable dip in this stock should be looked at as an opportunity for long-term investors.

But it looks like Buffett has decided to take his 10x profit and walk away happy.

Davita Inc. (DVA) – Sold 2,000,000 shares. 

This sale dropped Berkshire’s stake by 5.2%, now down to 36,095,570 shares.

Davita Inc. is a healthcare company that provides kidney dialysis services for patients suffering from chronic kidney failure or end-stage renal disease.

This was a fairly small move that saw Berkshire Hathaway just slightly peel back from this business.

They might be regretting that, with the stock off to the races since November began. It’s up 25% over the last month (as of the time of this writing).

However, Berkshire Hathaway still owns more than $4 billion worth of the stock. With Davita sporting a market cap of less than $13 billion, Berkshire Hathaway is a substantial stakeholder in this business.

In fact, it wouldn’t surprise me at all to see Berkshire Hathaway buy this entire business out at some point. It would be a drop in the ocean as it pertains to Berkshire Hathaway’s massive cash hoard of over $130 billion.

As a dividend growth investor, the lack of a dividend from Davita perturbs me. It doesn’t fit my investing needs.

But if you’re unconcerned over reliable and rising dividends from the businesses you invest in, Davita has been a long-term winner. I see no reason why that won’t continue.

JPMorgan Chase & Co. (JPM) – Sold 21,241,160 shares. 

Berkshire Hathaway reduced this position by 95.6%. It’s now at 967,267 shares.

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.

With such a large sale on such a large position, we can find ourselves with no doubt that Buffett was the architect of this move.

If there’s a theme that we can take away from this quarter, it’s one of a move toward Big Pharma combined with a move away from Big Banking. Other than the modest add to the Bank of America position, Berkshire Hathaway spent much of last quarter shedding its exposure to large banks.

I can understand some of the other moves, but I’m a bit shocked at the big sale of such a prime bank.

JPMorgan Chase is arguably the best bank of them all. Jamie Dimon is widely regarded as one of the best bank managers in the world, if not one of the best executives in any industry.

The bank continues to operate exceedingly well throughout the health crisis, and the stock has gone on a bit of a run since the calendar turned to November.

I argued the merit of this stock as a long-term investment back in May. The stock was below $90 then. But even up here north of $115, I think the worst-case scenario is that it’s a wonderful business selling for a fair price.

Buffett’s big bets on banks have held Berkshire Hathaway back over the last few years. But I’d argue that was more of an issue around timing and overall exposure than the quality or value of the businesses themselves. In my view, Buffett was previously too aggressive in this space.

For investors out there who aren’t already overly exposed to financials, I think some of these big banks like JPMorgan Chase are appealing as long-term investments.

M&T Bank Corporation (MTB) – Sold 1,616,561 shares. 

This sale dropped Berkshire Hathaway’s stake by 35.6%, now down to 2,919,613 shares.

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

Another bank. Another sale. This relates to the aforementioned theme that played out this past quarter for Berkshire Hathaway.

Just about everything I said about JPMorgan Chase can be applied to M&T Bank, at least in the broader sense. JPMorgan Chase is obviously a much, much larger bank with more complex operations.

Again, I think Berkshire Hathaway’s issue with banks has had more to do with the overall size of that bet. At the right percentage of a well-diversified and high-quality portfolio, cheap banks operating at a high level make a lot of sense.

But if you’ve found yourself too exposed to this one area of the market, it’s difficult in a low-rate and uncertain environment like this one to get aggressive.

I will say, this stock offers a 3.5% yield and pretty cheap valuation. The business doesn’t have to reinvent the wheel in order to keep shareholders happy over the long run.

PNC Financial Services Group Inc. (PNC) – Sold 3,430,759 shares. 

Berkshire Hathaway reduced this position down to 1,919,827 shares, which is a 64.1% reduction over last quarter.

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.

The theme for this quarter continues. Out with the banks. In with pharmaceutical companies.

Personally, I don’t see it as an either-or proposition. I think both high-quality banks and high-quality pharmaceutical companies are both attractive in this market, especially with so much attention and capital piled up in high-flying tech businesses with very little fundamental excellence to support lofty valuations.

As I noted above, however, Berkshire Hathaway arguably got in over their skis with the overexposure to banks in general. It’s less of an issue with these stocks specifically, and more of an issue with portfolio positioning. I can’t imagine Berkshire Hathaway shareholders will take too much issue with the tweaking.

For the rest of us mere mortals without the problem of having billions of dollars wrapped up in banking, some of these quality financial stocks offer a solid combination of quality and value. This stock would be one of them.

Wells Fargo & Co. (WFC) – Sold 110,202,265 shares. 

Berkshire Hathaway brought this position down by 46.4%, now down to 127,380,440 shares.

Wells Fargo & Co. is one of the four largest banks in the US, with diversified financial offerings across retail, commercial, and corporate banking services.

Here’s what I said in last quarter’s update on Berkshire Hathaway’s stock moves:

“Buffett is clearly slowly selling out of Wells Fargo. It wouldn’t surprise me if Berkshire Hathaway is no longer a shareholder by the end of 2020, marking the end of an era.”

Indeed, that’s playing out right on cue. It’s likely that Berkshire Hathaway will slowly sell out of their remaining Wells Fargo shares throughout the fourth quarter of 2020.

I’m somewhat surprised that they didn’t sell out of the stake completely in the third quarter. That might be a situation where Buffett is finding it difficult to accept such a low price on the shares. The stock has been cut in half compared to where it started off 2020. While this bank has suffered from a number of self-inflicted wounds, the pandemic has ravished bank shares in a way that nobody saw coming and isn’t anyone’s fault.

The valuation on Wells Fargo is so cheap, and the expectations surrounding the bank are so low, that it’s basically acting as a coiled spring right now. Any sign at all that they’re really turning things around will likely see this stock finally show some real life. That bodes well for current investors holding on for the long term.

In the meantime, Buffett’s patience ran out a while back. And he’s decided that Bank of America is the horse he’d rather be on in this sector.

-Jason Fieber

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