The stock market came roaring back during the third quarter, and Warren Buffett busied himself by adding and selling a number of stakes in Berkshire Hathaway's (BRK.B) portfolio.
The most notable theme of the three months ended Sept. 30 was the continuing saga of Berkshire's shrinking bank stocks. Buffett has been cutting the holding company's position in banks for multiple quarters, but he really doubled down in Q3. In just about every other case, the selling was just the trimming of a position, although Buffett did dump one stock in its entirety.
Most interesting, as always, is what Warren Buffett was buying. With the COVID-19 pandemic gripping the world, perhaps it shouldn't come as a surprise that Berkshire Hathaway added a handful of pharmaceutical stocks to its portfolio. Buffett also picked up a telecommunications company and a rare initial public offering (IPO).
We know what the greatest long-term investor of all time has been up to because the U.S. Securities and Exchange Commission requires all investment managers with more than $100 million in assets to file a Form 13F quarterly to disclose any changes in share ownership. These filings add an important level of transparency to the stock market and give Buffett-ologists a chance to get a bead on what he's thinking.
When Buffett starts a new stake in some company, or adds to an existing one, investors read into that as a vote of confidence. But if he pares his holdings in a stock, it can spark investors to rethink their own investments.
Here's the scorecard for what Warren Buffett was buying and selling during the third quarter of 2020, based on the most recent 13F that the company filed on Nov. 16. And remember: Not all "Warren Buffett stocks" are actually his picks. Some smaller positions are believed to be handled by lieutenants Ted Weschler and Todd Combs.
Current price and holdings data is as of Nov. 16. Sources: Berkshire Hathaway's SEC Form 13F filed Nov. 16, 2020, for the reporting period ended Sept. 30, 2020; and WhaleWisdom.
Axalta Coating Systems
- Action: Reduced stake
- Shares held: 23,420,000 (-2% from Q3)
- Value of stake: $519.2 million
Axalta Coating Systems (AXTA, $28.30) took a small trimming during the third quarter.
Axalta, which makes industrial coatings and paints for building facades, pipelines and cars, joined the ranks of the Buffett stocks in 2015, when Berkshire Hathaway purchased 20 million shares in AXTA from private equity firm Carlyle Group (CG). The stake makes sense given that Buffett is a long-time fan of the paint industry; Berkshire Hathaway bought house-paint maker Benjamin Moore in 2000.
Berkshire remains Axalta's largest investor, holding 10% of the shares outstanding.
The company, which makes industrial coatings and paints for building facades, pipelines and cars, is the belle of the ball when it comes to mergers and acquisitions suitors. The company has rejected more than one buyout bid in the past, and analysts note that it's a perfect target for numerous global coatings firms.
It'd also be a little easier to digest than it was at the start of the year. AXTA shares remain down about 7% year-to-date.
Apple
- Action: Reduced stake
- Shares held: 944,295,554 (-3% from Q2 2020)
- Value of stake: $109.36 billion
Warren Buffett has said that he doesn't think of Apple (AAPL, $120.30) as a stock. Rather, Buffett thinks of it as Berkshire's third business – and considering the size of Berkshire's stake, those are hardly empty words.
But even the Oracle of Omaha has to keep a star investment like Apple in check.
Buffett cut his Apple stake by 3% in Q3, possibly because it just keeps getting bigger and bigger. Even after shedding 36.3 million shares, Apple accounted for almost 48% of Berkshire's total portfolio value, up from 44% in Q2.
Warren Buffett took his first bite in early 2016, and the iPhone maker has since become Berkshire Hathaway's single-largest holding.
At more than 944 million shares, BRK.B remains Apple's third-largest investor. The holding company owns 5.4% of all AAPL shares outstanding. Only Vanguard and BlackRock – giants of the passively managed index fund universe – hold more Apple stock.
DaVita
- Action: Reduced stake
- Shares held: 36,095,570 (-5% from Q2)
- Value of stake: $3.09 billion
Buffett once again trimmed its position in DaVita (DVA, $113.14), which was unchanged for years until recently. BRK.B snipped 1% of its stake in the kidney care provider and dialysis center operator earlier in 2020. Then it cut another 5% in Q3.
DaVita serves patients via more than 3,000 dialysis centers in the U.S. and nine other countries. Aging baby boomers and a graying population in many developed markets should provide a strong, secular tailwind.
Berkshire disclosed its initial position in DaVita during 2012's first quarter. Given that DVA was a large position of Ted Weschler's Peninsula Capital in his pre-Berkshire days, it wasn't unreasonable to assume that it was his pick. Weschler confirmed as much in 2014.
DaVita's shares have underperformed the S&P 500 by about 7 percentage points since Q1 2012, so it's not terribly surprising that Berkshire is slowly unwinding its stake.
Liberty Global Class A
- Action: Reduced stake
- Shares held: 18,010,000 (-6% from Q2)
- Value of stake: $378.4 million
Liberty Global Class A (LBTYA, $22.50) and Liberty Global Class C (LBTYK, $21.85) are two of several Berkshire bets on communications and media companies whipped up by billionaire dealmaker John Malone.
Liberty Global bills itself as the world's largest international TV and broadband company, with operations in seven European countries. Berkshire's investment in the Class A shares dates to the fourth quarter of 2013. It picked up the Class C shares, which have no voting power, in the first quarter of 2014.
However, in Q3, Warren Buffett trimmed a bit of his Class A stake, shedding 1.6 million shares, or roughly 6% of the position.
Rumors had the company buying Univision for $9 billion, but CEO Mike Fries shot that down. That said, Liberty Global did extend its international partnership with Netflix (NFLX) earlier in 2020.
Liberty Latin America Class A
- Action: Reduced stake
- Shares held: 378,390,000 (-6% from Q2)
- Value of stake: $18 million
Berkshire has made several de facto bets on legendary pay-TV mogul John Malone. Liberty Latin America Class A (LILAK, $11.70) and Liberty Latin America Class C (LILAK, $11.72) shares are the smallest of those.
Liberty Latin America provides cable, broadband, telephone and wireless services in Chile, Puerto Rico, the Caribbean and other parts of Latin America. Liberty Global, the multinational telecommunications company in which Berkshire also holds a stake, issued tracking stock of its Latin American operations in 2015, then spun off those operations entirely in 2018.
Buffett trimmed his holdings of Class A shares by 6%, or roughly 160,000 shares, in Q3.
M&T Bank
- Action: Reduced stake
- Shares held: 2,919,613 (-35% from Q2)
- Value of stake: $268.9 million
M&T Bank (MTB, $126.92) is a regional bank that operates more than 700 branches in eight states, including New York, Maryland and New Jersey, as well as Washington, D.C.. It has been profitable year after year for decades, and it also has been a reliable dividend payer.
These qualities have endeared Warren Buffett to the bank for a very long time. After all, Buffett has a soft spot for well-run, unassuming businesses. And he frequently cites the importance of management talent when it comes to deciding where to invest.
He certainly was a fan of M&T Bank's late CEO. In 2011, Buffett recommended that Berkshire Hathaway shareholders read M&T's annual reports, which were written by Robert Wilmers, chairman and CEO from 1983 until his death in 2017. "Bob is a very smart guy and he has a lot of good observations," Buffett said.
No wonder, then, that MTB had been a member in good standing of Berkshire Hathaway's equity portfolio since 2001.
But his affection for MTB, like other bank stocks, has waned greatly in 2020. Buffett cut his position by 15% during the second quarter, and he hacked away another 35% during Q3 – nearly 2.5 million shares in two quarters.
Barrick Gold
- Action: Reduced stake
- Shares held: 12,000,000 (-42% from Q2)
- Value of stake: $337.3 million
Warren Buffett is the farthest thing from a gold bug. "It doesn't do anything but sit there and look at you," he's been known to say. But holding gold as an asset class isn't the same thing as investing in a gold miner such as Barrick Gold (GOLD, $25.86).
Buffett first bought GOLD in Q2, which was seemingly out of character. But there's a difference between owning gold and owning GOLD.
True, mining stocks are sensitive to the price of whatever commodity they are digging out of the ground. But at least they produce something: cash flow. In the case of Barrick, it even pays a small dividend.
Nevertheless, Buffett curbed BRK.B's holding by more than 40% just a quarter after entering. The remaining position accounts for just 0.15% of the portfolio, making it a negligible Berkshire holding.
Wells Fargo
- Action: Reduced stake
- Shares held: 127,380,440 (-46% from Q2 2020)
- Value of stake: $3.0 billion
Warren Buffett clearly is tired of Wells Fargo (WFC, $24.90) the nation's fourth-largest bank by assets.
Wells Fargo, which has been in the Berkshire portfolio since 2001, has turned into a weight around Buffett's neck since 2016, when numerous scandals bubbled to the surface. The bank opened millions of phony accounts, modified mortgages without authorization and charged customers for auto insurance they did not need.
The cleanup process has been slow, and it has claimed not one but two CEOs. WFC stock, meanwhile, has lagged its peers for quite some time.
Buffett has sold off Wells Fargo shares in numerous quarters since the start of 2018. While most of the previous sales appeared to be routine paring on the position to keep it below a regulatory 10% maximum ownership threshold for banks, Buffett dumped more than 55 million shares, or nearly 15% of his position, at the end of last year. In Q2, he jettisoned 85.6 million shares, or more than a quarter of the remaining stake.
In the third quarter, Berkshire cut the position by another 46%.
PNC Financial Services
- Action: Reduced stake
- Shares held: 1,919,827 (-64%)
- Value of stake: $211 million
Buffett's bank-stock dump continued with PNC Financial Services (PNC, $126.29). Berkshire's position fell by 3,430,759 shares, or 64%, in Q3.
It's quite the reversal of fortune for PNC, which looked like it was gaining favor in the Berkshire Hathaway portfolio.
Warren Buffett began investing in PNC, the nation's sixth-largest bank by assets and second-largest regional lender, during the third quarter of 2018. Buffett upped Berkshire Hathaway's stake by another 4% in Q1 2019. And he added another 6%, or 526,930 shares, to start this year.
But times change. Buffett lopped off 3.9 million shares, or about 41%, from his PNC position in Q2, then reduced it by almost two-thirds in Q3.
Buffett had long been comfortable with investing in the banking business. At the 1995 Berkshire Hathaway annual meeting, he said the industry "falls within our circle of competence to evaluate." But 2020's pain in the financial sector has forced the Oracle's hand.
JPMorgan Chase
- Action: Reduced stake
- Shares held: 967,267 (-95% from Q2)
- Value of stake: $93.1 million
Buffett has been paring back on bank stocks for several quarters now, and JPMorgan Chase (JPM, $117.30), the nation's largest bank by assets, was very much in his crosshairs in Q3.
Buffett cut Berkshire's stake by 95%, selling 21.2 million shares. JPM now accounts for just 0.04% of Berkshire's portfolio, down from 1.03% a few months ago. It's such a slim position that BRK.B is essentially done with the bank.
Buffett first bought a stake two years ago, but apparently it didn't go according to plan. Part of the original attraction for JPMorgan is because of Warren Buffett's professed admiration for CEO Jamie Dimon. The two have partnered with Jeff Bezos, chairman and CEO of Amazon.com (AMZN), to form a health care initiative intended to improve coverage and lower costs. Dimon and Buffett also have teamed up to decry the practice of giving quarterly profit forecasts, saying "short-termism is hurting the economy."
But banks have fallen out of Uncle Warren's favor, so much of the JPM stake had to all but go.
Costco
- Action: Exited stake
- Shares held: 0
- Value of stake: $0
Costco (COST, $379.79) wasn't a large part of Berkshire's portfolio, but it was long-held name. The warehouse club joined the ranks of the Buffett stocks way back in the first quarter of 2001, to be precise.
In the third quarter, however, Buffett decided to get out of the Costco business completely, selling the entirety of Berkshire's 4,333,363 shares.
Costco was never more than roughly 1% of the portfolio's total value, but the move was nonetheless unexpected. Buffett was quite happy with the company last year, when he extolled Costco's Kirkland store-branded products on CNBC.
Perhaps it was time to get out while the getting was good. Costco stock is up nearly 33% in 2020.
Liberty Latin America
- Action: Added to stake
- Shares held: 1,430,197 (+4% from Q2 2020)
- Value of stake: $11.6 million
As we mentioned before, Berkshire unloaded a little bit of its Liberty Latin America stake by dropping some Class A shares during Q3.
But he also added about 67,000 shares, or 4%, to his position in the company's Class C shares.
Whatever the reason for these opposing tweaks, the initial appeal of John Malone's properties is obvious: Malone is a pioneer in the telecom industry and a multibillionaire himself who has created outsize value for shareholders over his long career.
Game knows game.
General Motors
- Action: Added to stake
- Shares held: 80,000,000 (+7% from Q2 2020)
- Value of stake: $2.37 billion
Warren Buffett first took a stake in General Motors (GM, $42.13), the world's fourth-largest auto manufacturer by production, in early 2012. And he must've seen something he liked. He upped Berkshire Hathaway's holdings in 2018 and 2019, and he has just added to the pile again.
Buffett bought an additional 5.3 million shares in Q3, which brought his total to a cool 80 million shares on the dot.
The GM stake now accounts for 1% of Berkshire's portfolio and keeps the holding company's place as the automaker's fifth-largest shareholder. Berkshire's stockpile now accounts for 5.5% of all GM shares outstanding.
General Motors has always looked like a classic Buffett value bet. After all, there are fewer American brands more iconic than GM. He also has sung the praises of CEO Mary Barra on several occasions.
"Mary is as strong as they come," Buffett has said. "She is as good as I've seen."
It looks like General Motors is finally starting to return the favor. The stock is beating the market in 2020, and that's despite GM suspending its dividend in late April.
Bank of America
- Action: Added to stake
- Shares held: 85,092,006 (+9% from Q2 2020)
- Value of stake: $1.01 billion
Bank of America (BAC, $27.58), the nation's second-largest bank by assets, remains the crown jewel of Uncle Warren's financial sector holdings.
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 firm, 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 added to Berkshire's already large position by buying more than 85 million shares. The stake in BAC, worth $24.33 billion, accounts for 10.6% of the holding company's total portfolio value.
Kroger
- Action: Added to stake
- Shares held: 24,978,439 (+13% from Q2)
- Value of stake: $847 million
In a sign of conviction, Berkshire increased its position in Kroger (KR, $32.30) by 13% in the third quarter.
Berkshire Hathaway's initial stake in supermarket titan Kroger, entered in Q4 2019, was a little bit of a head-scratcher. Many long-term investors have soured on traditional supermarket chains in a world where Walmart (WMT), Amazon.com and other large firms are vying to rule the grocery space.
But KR isn't taking the fight lying down. Believe it or not, it's one of the largest retailers in the world. Kroger has roughly 2,750 retail food stores operating under such banners as Dillons, Ralph's, Harris Teeter and its namesake brand, as well as 1,575 gas stations and even 170 jewelry stores under banners including Fred Meyer Jewelers and Littman Jewelers.
Kroger also is an excellent dividend growth stock, upping the ante in June by 12.5% to 72 cents per share quarterly. That's roughly in line with its five-year dividend growth rate of 12%.
Pfizer
- Action: New stake
- Shares held: 3,711,780
- Value of stake: $136.2 million
Pfizer (PFE, $37.33) is the first of several big, blue-chip pharma stocks that Warren Buffett recently added to his stable of stocks.
It's a tiny position compared to the other new stakes, however. Berkshire Hathaway bought 3.7 million shares worth $136.2 million. That accounts for a minuscule 0.06% of Berkshire Hathaway's total portfolio value.
Pfizer is best-known for blockbuster drugs such as Lipitor (for cholesterol) and Viagra (for erectile dysfunction) that long ago lost their patent protections, but it has a stocked pipeline. Investments in research and development, along with acquisitions, have resulted in several hit drugs on the market, including Ibrance, to treat breast cancer; blood thinner Eliquis; and Xeljanz, a treatment for rheumatoid arthritis.
Also, Pfizer, along with partner BioNTech (BNTX), is among the frontrunners in the race to develop a COVID-19 vaccine.
The pharmaceutical giant shines as a long-term holding, thanks in part to the healthy dividend stream. Pfizer has paid uninterrupted dividends since 1980 and hiked its payout every year since 2010.
T-Mobile US
- Action: New stake
- Shares held: 2,413,156
- Value of stake: $276.0 million
Berkshire Hathaway acquired a small stake in wireless communications company T-Mobile US (TMUS, $128.65), with 2.4 million shares worth $276 million. The stake equates to just 0.12% of Berkshire Hathaway's total portfolio value.
T-Mobile is certainly a much more attractive investment since it closed its $26 billion merger with Sprint in April. The deal created a real No. 3 wireless company whose total subscribers are at least within the same ballpark as Verizon (VZ) and AT&T (T).
The T-Mobile investment gives Berkshire Hathaway more exposure to the telecommunications sector. And in a way, it pairs nicely with Apple (AAPL), which is the holding company's biggest stake.
Snowflake
- Action: New stake
- Shares held: 6,125,376
- Value of stake: $1.54 billion
Cloud infrastructure unicorn Snowflake (SNOW) executed a blockbuster initial public offering (IPO) in September, and Warren Buffett was in on it.
The chairman and CEO of Berkshire Hathaway has never been a fan of IPOs. He's said so, on the record, and has notably turned up his nose at some of the most heavily hyped stock market debuts.
Nonetheless, he found himself involved in Snowflake's red-hot offering.
Snowflake is a cloud-data warehousing company that plays in a roughly $55 billion annual market – a market that's expanding. The firm boasts 3,100 customers, 56 of which were each responsible for generating around $1 million in revenues within a 12-month period.
Snowflake is generating a lot of hype because it offers a way for companies to run their software on various cloud platforms, be they provided by Amazon.com (AMZN), Microsoft (MSFT) or Google parent Alphabet (GOOGL), to name just three.
Bristol-Myers Squibb
- Action: New stake
- Shares held: 29,971,194
- Value of stake: $1.81 billion
Warren Buffett's third-quarter bet on Big Pharma included buying almost 30 million shares in Bristol-Myers Squibb (BMY, $64.50) worth $1.81 billion.
BMY beefed up in a big way a year ago when it acquired pharmaceutical giant Celgene, and that has to be a big part of the attraction to this stock. The deal brought in a pair of blockbuster multiple myeloma treatments: Pomalyst and Revlimid, the latter of which also treats mantle cell lymphoma and myelodysplastic syndromes.
That's kind of par for Bristol-Myers' course. A long track record of successful acquisitions has kept the pharma company's pipeline primed with big-name drugs over the years. Among the better-known names today are Coumadin, a blood thinner, and Glucophage, for type 2 diabetes.
Merck
- Action: New stake
- Shares held: 22,403,102
- Value of stake: $1.86 billion
Warren Buffett also unveiled a new position in Merck (MRK, $80.18), a member of the Dow Jones Industrial Average. Berkshire Hathaway bought 22.4 million shares in the third quarter worth nearly $1.86 billion.
Central to Merck's fundamental performance is Keytruda, a blockbuster cancer drug approved for more than 20 indications. Additionally, MRK has a favorable patent setup with no key brands losing marketing exclusivity until 2022. Keytruda is on patent until 2028.
As for Merck's dividend, it's reliable and growing. The payout had been rising by a penny per share for years, but now it's starting to heat up. MRK upgraded its payouts by 14.6% in 2019, then followed that up with a nearly 11% improvement for 2020.
AbbVie
- Action: New stake
- Shares held: 21,264,316
- Value of stake: $1.86 billion
Berkshire Hathaway's largest new healthcare bet in Q3 was a 21.3-million, $1.86 billion stake in biopharmaceutical firm AbbVie (ABBV, $98.36).
AbbVie is best known for blockbuster drugs such as Humira and Imbruvica, but analysts are also optimistic about the potential for Rinvoq and Skyrizi, which treat rheumatoid arthritis and plaque psoriasis.
And let's not forget that ABBV is a big hit with long-term dividend investors.
The pharmaceutical company is a Dividend Aristocrat, by virtue of having raised its dividend for 48 consecutive years. Even better, its current dividend yield is one of the highest in the S&P 500, and the company has raised the payout at a 20% rate over the past five years. Its current yield of 5.3% is several times better than the S&P 500 average of about 1.6%.
AbbVie is a dirt-cheap value stock, too, trading at just 8.4 times expected earnings.
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