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All Contents © 2019The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| November 15, 2018
Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B, $216.03), took a few more bites of Apple (AAPL) stock in the most recent quarter. But the big news is that he’s bonkers for bank stocks.
Berkshire Hathaway added to or bought new stakes in five of the nation’s largest commercial banks in the third quarter ended Sept. 30. The holding company also made bets on investment banking, custodial banking and insurance.
In addition to finding value in select pockets of the financial sector, the Oracle of Omaha also made a surprising new bet on a technology stock.
The world’s greatest value investor made several noteworthy moves in the third quarter, according to a new Berkshire Hathaway 13F regulatory filing. (Large investors such as Berkshire are required to disclose their holdings to the Securities and Exchange Commission every three months.) The biggest changes to Berkshire’s portfolio came in the form of additional stakes and new investments as the company seeks to deploy a hoard of cash that stood at more than $100 billion at the end of the September quarter. But Berkshire also did a little trimming.
Since it can be instructive to see what Buffett has been up to, we took a closer look at what Berkshire has been buying and selling. Keep in mind that not all “Warren Buffett stocks” are actually his picks – some smaller positions are believed to be handled by lieutenants Ted Weschler and Todd Combs.
That said, here are the most notable recent changes to Berkshire Hathaway’s stock holdings.
Data is as of Nov. 14, 2018. Sources: Berkshire Hathaway’s SEC Form 13F filed Nov. 14, 2018, for the reporting period ended Sept. 30, 2018; Fintel Financial Intelligence; S&P Global Market Intelligence; CNBC\'s Berkshire Hathaway Portfolio Tracker.
Action: Added to stake
Shares held: 252.4 million (+0.2% from Q2)
Value: $47.3 billion
Berkshire Hathaway made a relatively small addition to its stake in Apple (AAPL, $186.80), picking up another 522,902 shares. Warren Buffett disclosed on CNBC in August that he “bought just a little (more)” during the third quarter.
Buffett told CNBC that he loves the power of Apple’s brand and its ecosystem of products (such as the iPhone and iPad) and services (such as Apple Pay and iTunes). “I do not focus on the sales in the next quarter or the next year,” he said. “I focus on the ... hundreds, hundreds, hundreds millions of people who practically live their lives by (the iPhone).”
With a stake of more than 5.3%, Berkshire Hathaway is Apple’s third-largest shareholder after fund firms Vanguard Group and BlackRock (BLK) – the company behind iShares exchange-traded funds – according to data from S&P Global Market Intelligence.
That stake might have been a painful holding over the past month, as Apple has dropped just about 20% from its Oct. 3 peak.
Shares held: 65.5 million (+2.9% from Q2)
Value: $3.7 billion
Warren Buffett continues to be tinker with Berkshire’s holdings in the airline industry. Berkshire bought another 1.9 million shares in Delta Air Lines (DAL, $56.43), upping its stake by 2.9%.
Berkshire’s holdings in the carrier are worth $3.7 billion. Buffett began investing in Delta and several other airlines in 2016 after decades of shunning the industry, though he has peeled back a little from some of his other holdings, which we’ll cover in a bit.
It has been quite a reversal. Berkshire Hathaway is now Delta Air Lines’ top shareholder. It owns 65.5 million shares, or 9.6%, of DAL’s shares outstanding – though that position hasn’t done much in 2018, with a barely positive performance.
Shares held: 77.8 million (+20.1% from Q2)
It may not be a household name, but Bank of New York Mellon (BK, $48.23) is a big deal in financial services, and Berkshire Hathaway can’t seem to get enough of it.
Bank of New York Mellon is a custodian bank that holds assets for institutional clients and provides back-end accounting services. Its roots actually go all the way back to 1784, when Bank of New York was founded by a group including Alexander Hamilton and Aaron Burr.
Warren Buffett added to Berkshire’s stake in BK by 20.1%, or more than 13 million shares, in the most recent quarter. With a total of 77.8 million shares, or 7.9% of all shares outstanding, Berkshire Hathaway is Bank of New York Mellon’s largest investor.
Shares held: 124.9 million (+24.1% from Q2)
Value: $6.6 billion
Warren Buffett bought another 9.8 million shares in U.S. Bancorp (USB, $54.00) – the nation’s fifth-largest bank by assets and its biggest regional bank – in the third quarter.
Berkshire Hathaway is U.S. Bancorp’s biggest shareholder at 7.7% of all shares outstanding. Vanguard and BlackRock are the second- and third-largest investors in the firm, respectively, according to S&P Global Market Intelligence.
Analysts at Sandler O’Neill Research, who rate shares at “Hold,” say, “our sense is that a number of investors have turned to this name as a sturdier defensive name in the most recent bank stock swoon.” USB recently bolstered one of its defensive qualities – on Sept. 18, the company announced it had the green light to increase the dividend by 23%.
Shares held: 877.2 million (+29.2% from Q2)
Value: $23.6 billion
Warren Buffett made a major addition to Berkshire Hathaway’s stake in Bank of America (BAC, $27.21). The holding company bought more than 198 million additional shares in the nation’s second-largest bank by assets.
Buffett’s interest in BAC dates back to 2011, when he swooped in to shore up the firm’s finances in the wake of the Great Recession. In exchange for investing $5 billion in the bank six years ago, Berkshire received preferred stock yielding 6% and warrants giving Berkshire the right to purchase BofA common stock at a steep discount. (The Oracle of Omaha exercised those warrants in 2017, netting a $12 billion profit in the process.)
Buffett has been building Berkshire’s stake ever since. The holding company is BAC’s largest investor, owning 8.9% of its outstanding shares.
Shares held: 18.4 million (+38.5% from Q2)
Warren Buffett bought another 5.1 million shares in Goldman Sachs (GS, $202.49), raising Berkshire Hathaway’s stake in the Wall Street investment bank by 38.5%.
Berkshire first picked up its stake in Goldman Sachs during the financial crisis in 2008. Buffett paid $5 billion for preferred shares and warrants to purchase common stock. The preferred shares, which Goldman redeemed in 2011, came with a dividend yield of 10%. Berkshire bought another $2 billion in Goldman stock when it exercised the warrants in 2013.
Buffett has parlayed the original investment into a 4.9% stake in Goldman Sachs worth $3.7 billion. Berkshire now is the bank’s fourth-largest shareholder.
Action: New stake
Shares held: 3.5 million
Value: $432.3 million
Berkshire Hathaway disclosed a new position in Travelers Cos. (TRV, $123.04). Travelers – a Dow Jones Industrial Average component that boasts the country’s second-largest commercial property casualty insurance writing business – was down roughly 9% for the year-to-date through Nov. 14.
The new position of 3.5 million shares, worth about $432.3 million, is small by Berkshire’s standards, but it’s in keeping with Buffett’s bullishness on the financial sector.
With 1.3% of Travelers shares outstanding, Berkshire Hathaway is the insurer’s ninth-largest shareholder, according to data from S&P Global Market Intelligence.
Shares held: 6.1 million
Value: $805.7 million
In another bullish move for the bank sector, Berkshire Hathaway bought a new stake in PNC Financial (PNC, $134.13). The Pittsburgh-based regional financial services firm ranks as the nation’s sixth-largest bank by assets.
The new position makes Berkshire the 11th largest shareholder in PNC with 1.3% of the bank’s shares outstanding.
Shares in PNC were off 7% for the year-to-date through Nov. 14, before Berkshire disclosed its holdings. Shareholders received a little relief this year, however, in the form of a 27% dividend hike this summer.
Shares held: 41.4 million
Value: $2.1 billion
His ardor for Apple notwithstanding, Warren Buffett has traditionally avoided technology stocks. His big bet on International Business Machines (IBM), which Berkshire dumped earlier in 2018, was a bust.
So it’s certainly noteworthy that Berkshire bought a new position in computing giant Oracle (ORCL, $48.84). The enterprise software and cloud-computing company – whose products and services include the Oracle Cloud, Java, Oracle AI and Internet-of-Things offerings – now counts Berkshire Hathaway as its fifth-largest investor.
Berkshire’s new stake of 41.4 million shares, worth about $4.1 billion, gives it 1.1% of Oracle’s shares outstanding. Buffett likely is expecting more out of ORCL than the paltry 3% gains it has put up so far in 2018.
Shares held: 35.7 million
Value: $3.8 billion
Berkshire Hathaway’s big third-quarter bet on the financial industry included a new $3.8 billion stake in JPMorgan Chase (JPM, $107.33), the nation’s largest bank by assets.
The new position gives Berkshire about 1% of the firm’s shares outstanding, making it JPM’s 12th largest investor, according to S&P Global Market Intelligence. More interestingly, Berkshire now has stakes in four of the five largest banks by assets, including top holdings in BAC, USB and Wells Fargo (WFC).
Followers of Warren Buffett will be keen to see if Berkshire continues to add to its JPM stake in the quarters ahead. Shares in the bank were up less than 1% for the year-to-date through Nov. 14 before Berkshire disclosed its new position.
Action: Trimmed stake
Shares held: 56.0 million (-0.9% from Q2)
Value: $2.9 billion
Buffett began investing in airline stocks in 2016 after decades of shunning the industry. As stunning as reversal was, he’s still picky, as his latest moves show.
Berkshire trimmed its position in Southwest Airlines (LUV, $52.48) ever so slightly in the most recent quarter, reducing its stake by just less 1%.
That’s not to say Buffett has given up on the carrier, despite its roughly 20% year-to-date losses. Hardly. Berkshire Hathaway still holds more than 56 million shares in Southwest, worth $2.9 billion. And Berkshire is the second-largest shareholder in LUV, with just under 10% of the airline’s shares outstanding.
Shares held: 442.4 million (-2% from Q2)
Value: $22.7 billion
Warren Buffett trimmed Berkshire Hathaway’s stake in Wells Fargo (WFC, $42.26), but like with Southwest, that doesn’t mean he’s soured on the nation’s third-largest bank by assets.
Rather, as Buffett has explained in the past, Berkshire aims to keep its ownership of Wells Fargo’s shares outstanding to just under 10% in order to avoid triggering regulatory restrictions imposed by the Federal Reserve.
Wells Fargo suffered a series of setbacks over the past two years stemming from its phony accounts scandal and other black eyes. But Berkshire remains WFC’s largest shareholder, with a total of 442.4 million shares, or 9.4% of the bank’s shares outstanding.
Shares held: 43.7 million (-2.2% from Q2)
Value: $1.6 billion
Warren Buffett also lowered the altitude on Berkshire’s stake in American Airlines (AAL, $38.11) during the third quarter. The holding company trimmed its stake in the airline by 2.2%.
The sales reduced Berkshire’s ownership to 43.7 million shares worth about $1.6 billion.
Although Berkshire jettisoned 1 million shares over the course of the quarter, it remained the second-largest shareholder in American Airlines, with 9.5% of its shares outstanding. Unfortunately, AAL has been a drag on Berkshire’s performance, as shares have lost more than a quarter of their value so far in 2018.
Shares held: 26.0 million (-2.6% from Q2)
Value: $2.4 billion
United Continental Holdings (UAL, $91.79) is another one of Buffett’s four big original bets on the airline industry, and although he remains committed to the name, he did pull back on the throttle in the most recent quarter.
Berkshire Hathaway cut its holdings in the carrier by 2.6% in the third quarter to 26 million shares. The stake is worth about $2.4 billion at current market prices.
The good news? Well, for one, the company posted a nearly 30% jump in profit for its most recent quarter thanks to higher fares and robust travel demand. Also, Berkshire Hathaway still is a major UAL owner – at 9.5%, it’s the carrier’s second-largest investor.
Shares held: 15.4 million (-55.6% from Q2)
Value: $1.5 billion
Berkshire Hathaway continued to cut bait on oil refiner Phillips 66 (PSX, $95.60). The holding company unloaded another 15.4 million shares in the third quarter.
Buffett first started selling PSX in the first quarter of the year to keep its ownership below 10% and avoid triggering a regulatory headache. The purchaser of the stock in Q1 – for $3.3 billion – was none other than Phillips 66.
It’s not clear what’s driving the latest selling, however. Berkshire Hathaway is the fourth-largest shareholder in PSX, but with just 3.3% of its shares outstanding, it’s far from the 10% regulatory threshold. And the collapse in oil prices that led most energy stocks (including Phillips 66) lower didn’t take hold until after the third quarter.
Action: Exited stake
Shares sold: 1.4 million
Warren Buffett is officially done with Walmart (WMT, $101.53).
Berkshire Hathaway sold the majority of its holdings in the world’s largest retailer back in 2016 and has been trimming its position ever since. And as of the end of the third quarter 2018, Berkshire completely exited its position.
Berkshire, which first ventured into Walmart stock in 2005, had amassed more than 60 million shares by the end of 2015. That amounted to a sizable 2% ownership stake.
The main reason Buffett abandoned Walmart? It’s losing out to Amazon.com (AMZN), David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business who studies Buffett and is a Berkshire shareholder, told Kiplinger in 2017.