Just yesterday, Warren Buffett’s latest trades were revealed via Berkshire Hathaway Inc.’s (BRK.B) 13F filing, which is a filing that gives us information on all of the transactions that took place over the first quarter of 2015 — the quarter ending March 31 — in the $110 billion stock portfolio managed by the legendary investor.
This filing can provide some valuable insight into where Warren Buffett thinks the best investments might lie.
[ad#Google Adsense 336×280-IA]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 213,204 shares of Deere & Company (DE)
Purchased 2,593,298 shares of International Business Machines Corp. (IBM)
Purchased 931,850 shares of Phillips 66 (PSX)
Purchased 1,347,104 shares of Precision Castparts Corp. (PCP)
Purchased 1,480,700 shares of Twenty-First Century Fox Inc. (FOXA)
Purchased 3,678,893 shares of U.S. Bancorp (USB)
Purchased 6,834,236 shares of Wells Fargo & Co. (WFC)
Sales
Sold 1,332,183 shares of Bank of New York Mellon Corp. (BK)
Sold 219,101 shares of Charter Communications, Inc. (CHTR)
Sold 473,531 shares of Liberty Global PLC Class A (LBTYA)
Sold 170,000 shares of Mastercard Inc. (MA)
Sold 3,279,490 shares of National Oilwell Varco, Inc. (NOV)
Sold 369,111 shares of Viacom, Inc. Class B (VIAB)
Sold 213,130 shares of WABCO Holdings Inc. (WBC)
Sold 152,000 shares of Visa Inc. (V)
Purchases
Deere & Company (DE) – Purchased 213,204 shares.
This was an addition to an existing and sizable stake, bringing Berkshire’s total stake in Deere up to 17,310,090 shares.
This boosted Berkshire’s position by 1.3%.
Deere & Company manufactures machinery used in agricultural, construction, and forestry applications.
This was a pretty small transaction here, relative to Berkshire’s total portfolio value as well as the value of the position in Deere. However, it’s further indication that Buffett believes in Deere. And why wouldn’t he? Deere is the dominant manufacturer of farming equipment with an incredibly strong brand name.
Deere has seen massive success over the last decade – earnings per share has compounded at an annual rate of 12.71% over that period. However, the company operates in a cyclical industry and various reports have suggested that there’s a saturation of the product already out in the market.
But I believe that Buffett sees the long-term potential, as mechanized farming will only increase in terms of demand as the world requires more food in the future. Besides, you have to love the valuation here. DE shares trade hands for a P/E ratio of just 11.58, which is significantly below both the broader market and DE’s own five-year average P/E ratio.
International Business Machines Corp. (IBM) – Purchased 2,593,298 shares.
This transaction added to an existing position with IBM, bringing the total stake up to 79,565,115 shares.
That’s a 3.4% increase in the position.
International Business Machines Corp. is an information technology company, providing technology-driven solutions to customers globally.
Buffett continues to believe in IBM, which has become one of the four largest investments in Berkshire’s equity portfolio.
The size of the investment in IBM is now a bit over $13.7 billion. Buffett is notorious for his distaste for the tech industry in general, which may be why this massive investment still surprises some.
However, IBM has a lot to like – they’ve managed to adapt to changes in tech over and over again, and they’re doing so once again as they slowly shift away from low-margin hardware offerings to a high-margin and fast-growing services business. IBM continues to invest heavily in mobile, security, and cloud, which could all continue to demonstrate huge growth for the company.
Buffett has long been known to sniff out a value, and you can see that here with IBM. The stock’s P/E ratio is rock bottom at just 11, which is well below IBM’s five-year average P/E ratio. It’s also almost half that of the broader market.
And while IBM’s lack of revenue growth continues to grab headlines, the company has notched huge gains in EPS over the last decade, growing its dividend at a rapid pace in turn. IBM also yields 3% here, so Buffett is paid handsomely to wait until some of Big Blue’s growth initiatives really take hold.
Phillips 66 (PSX) – Purchased 931,850 shares.
This purchase brings Berkshire’s stake in PSX up to 7,499,450 shares, which is an increase of 14.2%.
Phillips 66 is a downstream energy company with operations primarily in refining.
You can see this was quite a boost, an increase of over 14% in Berkshire’s stake.
So there’s obviously some confidence in PSX’s future going forward.
I’ve noted in prior updates that Berkshire is a net seller in terms of its energy positions, but this is the second quarter in a row in which Berkshire added to PSX.
If I were a betting man, I’d bet that Berkshire took advantage of the large drop in PSX’s share price in the middle of January where the stock was available for under $60 per share. It’s since rebounded to just over $81 per share – an increase of about 35% over just four months. The energy sector remains volatile (as evidenced by that large swing in the share price), but PSX remains massively profitable. And this is another case where Berkshire is paid to wait, as PSX currently yields 2.76% after raising its dividend by 12% earlier this month.
Precision Castparts Corp. (PCP) – Purchased 1,347,104 shares.
This is a net add of 47.21%, bringing the total position up to 4,200,792 shares.
Precision Castparts Corp. manufactures metal components and products that provide investment castings, forgings, and fastener systems used in aerospace and power applications.
Apparently, Berkshire sees a lot to like here with PCP, increasing its stake by almost 50%.
Berkshire has been loading up on PCP lately, this purchase coming after BRK added just over 771,000 shares last quarter. This stock took a large tumble in January, and now sits about 10.5% down YTD. I’m assuming Berkshire took that as an opportunity to average down and make a big move here.
The fundamentals here for PCP are incredibly impressive across the board. EPS has grown by an annual rate of 21.33% since fiscal year 2006, which is obviously incredible. The balance sheet is solid. And profitability metrics, including net margin, return on equity, and return on invested capital, are all fantastic. I can see why Berkshire likes this stock. And even though it’s growing at a rapid rate, the stock still seems reasonably valued here with a P/E ratio of 19.8.
Twenty-First Century Fox Inc. (FOXA) – Purchased 1,480,700 shares.
This increased Berkshire’s stake in FOXA by 31.2%, now up to a total of 6,228,097 shares.
Twenty-First Century Fox Inc. is a global diversified entertainment and media companies with operations in cable network programming, television, and filmed entertainment.
I think what we’ve seen over the last few quarters is that Berkshire continues to increase positions in high-quality media companies around the world.
And with assets across film, cable, broadcast television, and animation, FOXA has the goods. Investments in media continue to make a lot of sense to me since it’s unlikely that people will stop consuming entertainment products anytime soon. Quite the contrary, people are more connected to electronic devices than ever before, meaning there’s more access and opportunity for global media companies.
FOXA’s fundamentals are pretty solid, though their operational results aren’t quite as consistent as one might like to see. However, the company has posted pretty excellent results over just the last couple years. FOXA’s assets remain incredibly valuable and attractive in this environment where entertainment and media are more visible than ever.
Meanwhile, the stock appears attractively valued here. The stock is down 11.5% YTD, so we can see why Berkshire took that as an opportunity to make a major move and increase their stake in FOXA by more than 31%.
U.S. Bancorp (USB) – Purchased 3,678,893 shares.
This transaction was an addition to an existing position, bringing Berkshire’s stake in USB up to 83,773,390 shares, which is a 4.6% increase in the size of that position over last quarter.
U.S. Bancorp is a holding company that, through its banking subsidiary, offers general banking business products and services across 25 states in the northern and western United States.
Buffett’s love of big banks has long been known, though USB is a smaller, regional bank. Nonetheless, USB still has some of the qualities that even larger banks enjoy, which includes a well-known brand name and a low-cost deposit base. In a low-rate environment like we’re facing now, a low-cost source of capital is extremely important.
USB, like most larger banks, saw its operations hampered rather substantially during the financial crisis and ensuing Great Recession. However, they posted profit straight through one of the worst economic calamities in a generation, which speaks to their quality and ability to execute.
Meanwhile, they’re now back to raising their dividend regularly and rapidly on the back of profit that’s now larger than it was before the crisis. The stock also seems attractively value here with a P/E ratio of 14.1, and a yield of 2.23% sends plenty of regular dividend cash flow Berkshire’s way.
Wells Fargo & Co. (WFC) – Purchased 6,834,236 shares.
This transaction upped Berkshire’s stake in WFC by 1.5%, now up to 470,292,359 shares.
Wells Fargo & Co. is a diversified financial services company that operates as one of the four largest banks in the US.
As mentioned above, Buffett has large been a huge fan of big banks and the competitive advantages inherent in the industry.
His love for that industry – and big banks – has manifested itself through a massive investment in Wells Fargo. This single stock is now by far the largest holding in Berkshire’s common stock portfolio, now valued at more than $26 billion. Due to the size of this investment and the position in question, I think it’s fair to assume that Buffett was behind this one.
WFC remains one of the leaders in the US banking industry, with a major foothold in real estate – they service more than $2 trillion in residential and commercial loans. Though they had their fair share of troubles during the financial crisis, they actually seem to have benefited from it. They scooped up Wachovia Corp. during the depths of the crisis and the bank is now more profitable than ever – EPS is now almost double what it was a decade ago. The stock is trading on the upper end of its recent valuation, with a P/E ratio of 13.57, but it’s hard to argue WFC’s quality and competitive advantages relating to its massive scale and access to a huge source of low-cost capital.
Sales
Bank of New York Mellon Corp. (BK) – Sold 1,332,183 shares.
This sale reduces Berkshire’s stake down to 20,680,420 shares, which is a reduction of 6.1%.
Bank of New York Mellon Corp. is a global financial services company, providing investment management and investment services.
Berkshire is consistent here, with multiple quarters now where there has been a sale of approximately 1.3 million shares of BK, which seems to be a protracted and planned selling of the position. It’s difficult to really get a read on this one, but my best guess as to the reasoning here would be freeing up of capital for other investments. BK still remains a fairly sizable investment, now coming in at just over $891 million.
I will note that the fundamentals here with BK aren’t nearly as impressive as what the banks that Berkshire recently added to sport. The bank hasn’t bounced back like some of its peers – EPS is actually lower today than it was a decade ago. Margins, return on equity, and return on invested capital are all down significantly last fiscal year compared to a decade ago. I can see why Berkshire continues to reduce its exposure to this bank.
Charter Communications, Inc. (CHTR) – Sold 219,101 shares.
This sale means Berkshire is left with 5,979,136 shares, which is 3.5% less than last quarter.
Charter Communications, Inc. provides cable services throughout the US, and is the fourth largest such provider.
They serve approximately 4.5 million customers across more than two dozen states.
This was a rather small reduction, but it’s perhaps surprising since Berkshire has been aggressively adding to this position over recent quarters. But it’s quite possible there was some profit taking occurring here, as the stock ended Q1 up by 15.9%. This position is still quite large at just over $1 billion in market value.
I’ve been a vocal critic of this investment. I obviously don’t know where the stock price is going to go, but the fundamentals remain poor for CHTR. They haven’t once registered a profit over the last decade, and operating margins have been slowly declining over the last decade. The company is generating free cash flow, but even that is all over the place. This stock remains difficult to recommend.
Liberty Global PLC Class A (LBTYA) – Sold 473,531 shares.
This sale reduced Berkshire’s position by 4.38%, now down to 10,342,793 shares.
Liberty Global PLC, through its subsidiaries, provides various media and telecommunications services, such as video, broadband internet, fixed-line telephone, and mobile telephone services.
This sale is a bit surprising.
Berkshire purchased a little over 415,000 shares just last quarter, so this is a reversal. And the stock hasn’t really moved much over the first quarter, so it’s difficult to really narrow down the reasoning here.
What makes this sale even more surprising is that Berkshire has been aggressively and consistently adding to global media juggernauts over the last year or so, and LBTYA remains one of the larger global players. However, like I’ve mentioned before, I don’t see a lot of compelling reasons to buy and/or own LBTYA here. Profit is routinely non-existent and profitability metrics oscillate wildly.
Revenue, however, continues to grow, which is a bright spot. The top line has grown at a compound annual rate of 15.09% over the last decade, which is very impressive. And the company has generated pretty strong FCF over the last few fiscal years. Some things to like, but nothing particularly exciting about this stock right now.
Mastercard Inc. (MA) – Sold 170,000 shares.
This reduces Berkshire’s stake in MA by 3.15%, now at 5,229,756 shares.
Mastercard Inc. provides payment solutions on a global scale with various services in support of credit, debit, and related payment programs.
Berkshire has been busy building up its position in Mastercard over recent quarters, picking up over 684,000 shares just last quarter.
And Mastercard’s future remains incredibly bright. The vast majority of global transactions are still in cash, which means there is this incredible opportunity for Mastercard and other card networks like it.
This was a rather small reduction, but it could just be a valuation call. The stock’s P/E ratio of 28.71 is well above that of its five-year average ratio, which is 23.7. But this is also one of those rare stocks that I believe justifies its high valuation.
Revenue and EPS are both compounding well into the double digits – EPS has grown at a compound annual rate of 31.15% over the last decade. What’s even crazier is that the company continues to grow at incredible rates even though the base is already large. This is, after all, a company with a market cap of $107 billion. Any dip could present a great opportunity here.
National Oilwell Varco, Inc. (NOV) – Sold 3,279,490 shares.
This transaction reduced Berkshire’s stake substantially, with just 1,978,895 shares left in the common stock portfolio.
This was a reduction of 62.4%.
National Oilwell Varco, Inc. provides equipment and components used in oil and gas drilling operations.
This sale isn’t surprising at all.
I’ve mentioned numerous times now that Berkshire continues to reduce its net exposure to the energy sector as a whole, and they’ve been systematically selling off NOV over the last several quarters now. However, this definitely represents an acceleration in that regard. As such, I wouldn’t be surprised to see BRK completely eliminate its position in NOV next quarter.
I’m a shareholder in NOV and still believe it has a bright future. But the near term is volatile and not particularly exciting. Rig counts are way down and NOV’s book-to-bill ratio remains very poor, meaning they’re relying on their backlog to continue driving revenue. But that backlog will likely only last through the year, so new sales will have to come in at some point there.
NOV is a dominant player in its space, but they’re not completely insulated from slowdowns in their core business. So it doesn’t surprise me that Berkshire wants to move on here and seek out other opportunities with perhaps brighter near-term prospects. I will note, however, that the stock remains quite cheap even on depressed earnings – the P/E ratio is only 9.9 and the stock yields a very attractive 3.59%.
Viacom, Inc. Class B (VIAB) – Sold 369,111 shares.
This transaction reduces Berkshire’s position by 4.3%. Berkshire now owns 8,265,079 shares.
Viacom Inc. is a global entertainment content company, with audiences in 165 countries and territories.
This is another surprising reversal, since Berkshire added over 925,000 shares of VIAB to the common stock portfolio last quarter.
And it doesn’t appear to be a valuation call or profit taking, as the stock is down more than 12% YTD. In addition, Berkshire has actually been moving in the opposite direction over the last year or so, aggressively adding to their stakes in global, diversified media companies.
VIAB is a juggernaut in the media space, with dozens of well-known cable networks and a major film studio under their control. Other than perhaps raising capital, I’m not sure why Berkshire would reduce their position here.
As I’ve noted before, VIAB appears pretty solid across the board. Profit has grown significantly over the last decade. Net margin and return on equity have both improved markedly over the last several years. And the stock offers a nice income component – it yields 2.01% right now. In addition, the valuation appears reasonable. The P/E ratio of 15.65 is notably lower than the broader market. Even better, it’s quite likely that the price right now is lower than what Berkshire paid for its sizable addition in Q4 2014. Not often you can buy in cheaper than Buffett.
WABCO Holdings Inc. (WBC) – Sold 213,130 shares.
This sale knocks Berkshire’s position down to 3,863,195 shares, which is a reduction of 5.2%.
WABCO Holdings Inc. and its subsidiaries is engaged in the manufacture, marketing, and sale of electronic, mechanical, and mechatronic products for the commercial truck, trailer, bus, and passenger car manufacturers.
This was a small reduction of what’s also a small position. WABCO is interesting. Doesn’t get much or any press, but that’s probably reasonable considering that it’s a very small investment for Berkshire and the company has a market cap less than $8 billion. But it’s those small companies that can prove to be the best long-term investments of all since they’re growing from a small base.
This appears to be possibly just a valuation call for Berkshire. The stock finished the first quarter up over 17% and now sports a P/E ratio of over 26. That’s significantly higher than WBC’s recent historical average P/E ratio, so perhaps Berkshire is taking some profit off the table here.
This company has some strange fundamental metrics, with some numbers wildly oscillating from year to year. But, overall, some of their numbers are extremely impressive. Notably, return on invested capital has been over 40% in three out of the last four fiscal years. Definitely a stock to take a good look at, but not at this valuation.
Visa Inc. (V) – Sold 152,000 shares.
This transaction lowered Berkshire’s position to 9,885,160 shares.
This was a reduction of 1.5%.
Visa Inc. is a payments technology company that allows consumers, businesses, banks, and governments in more than 200 countries to use and accept electronic payments.
Like with the MA sale above, this sale is also perhaps a bit surprising.
And like with MA, V has a ton of growth potential with a huge runway ahead of them due to the scale of their network, their ability to take a small cut of transactions around the globe that are processed on their network, and the fact that most transactions around the world are still conducted in cash.
But I think this might be another valuation call, perhaps just reducing exposure slightly in light of what could be an expensive stock. The P/E ratio of 30.44 appears quite high at first, but that’s actually in line with its own five-year average. And I think this is another case of a stock that warrants a pretty rich valuation. The growth is there, the quality is there, and they generate a ton of profit. Furthermore, the fundamentals across the board are excellent. I don’t think this is a cheap stock, but a pullback should be considered as an opportunity.
— Jason Fieber, Dividend Mantra
[ad#sa-income]