We take a look at which stocks the world’s most famous investor recently bought and sold
Every quarter, almost like clockwork, analysts pay close attention to the trade activity of none other than Warren Buffett. The legendary investor’s views are followed by a chorus of investors looking for guidance in a market where it is often challenging to predict the next big trend.
In the June quarter, Buffett’s Berkshire Hathaway (NYSE: BRK.B) was a net seller of stocks to the tune of roughly US$8 billion. Is this reason to reassess the current state of the stock market?
We certainly don’t think so, but the fundamental investor’s trades make for interesting reading.
Buffett Adds Homebuilders, Occidental, Capital One
Buffett and his team made three new additions to the Berkshire portfolio in the second quarter of the year:
D.R. Horton (NYSE: DHI): 5,969,714 shares purchased
Lennar (NYSE: LEN): 152,572 Class B shares purchased
NVR (NYSE: NVR): 11,112 shares purchased
At a market value of approximately US$810 million, the trio, each a homebuilder, account for a small portion of Berkshire’s investment portfolio, representing less than a quarter of a percent of all assets.
One of the likely reasons Buffett has sought exposure to this segment of the market is because of unfolding changes in the mortgage market.
A prominent headwind for the housing market, rising interest rates have pushed 30-year fixed-rate mortgages above 7%. However, estimates put the number of mortgages with an interest rate below 4% at 62%, thereby discouraging home owners from adding existing stock to the market.
This has contributed to a shortage of new listings for existing homes. Given the shortage, prospective homebuyers who can afford a new mortgage are vying for fewer options, leading to a recent bounce in new home sales.
Earnings forecasts for homebuilders were upgraded recently - D.R. Horton recently guided for higher margins and home production volumes - and this helped the trio significantly outperform the S&P 500 across the course of the June quarter. Meanwhile, despite subdued industry activity, the cohort continues to generate profits and free cash flow, while drawing cheaper valuations compared with the benchmark index.
Elsewhere, The Oracle from Omaha added to holdings in two existing stocks, Occidental Petroleum and Capital One, bolstering the firm’s exposure to oil prices and higher borrowing rates respectively:
Occidental Petroleum (NYSE: OXY): 12,422,073 shares purchased
Capital One Financial (NYSE: COF): 2,549,030 shares purchased
Buffett Sales Headlined By Chevron, General Motors
Berkshire Hathaway reduced its exposure to the following stocks in Q2:
Activision Blizzard (NASDAQ: ATVI): sold 34,781,660 shares
Chevron (NYSE: CVX): sold 9,287,475 shares
Celanese (NYSE: CE): sold 39% of its holdings, down to US$666 million
General Motors (NYSE: GM): sold 18,000,000 shares
Globe Life (NYSE: GL): sold over 60% of its holdings, down to US$290 million
In terms of key movements here, Microsoft is in a legal tussle to acquire video game developer Activision Blizzard, so it is likely Buffett sees further upside elsewhere.
Berkshire also probably favoured exposure to Occidental Petroleum over Chevron given it is one of the firm’s largest holdings, with a near 30% stake in the business, and since its fortunes are more closely tied to the spot price of crude oil.
Buffett also dumped 18 million shares in General Motors last quarter. After first taking a stake in the business back in 2012, Berkshire has been unloading shares in the legacy automaker since 2Q 2022, with the stock effectively going nowhere over the last 10 years.
Meanwhile, the investment conglomerate exited the following three holdings:
McKesson Corp (NYSE: MCK)
Marsh & McLennan (NYSE: MMC)
Vitesse Energy (NYSE: VTS)
None of these holdings were overly influential names within the Berkshire investment portfolio, with McKesson acquired across the first two quarters of 2022, while Marsh & McLennan was acquired across a six-month period over 2020 and 2021. In the case of Vitesse Energy, the holding was a byproduct of an asset spin-off from Jefferies.
Buffett Buys Back Berkshire Shares
Despite the emphasis on Buffett’s new homebuilding shares, and a top-up in the likes of Occidental Petroleum and Capital One Financial, none of these names were actually the investment titan’s largest share purchase in the second quarter. In fact, Berkshire’s largest share purchase was its own shares.
This is a regular, if not ongoing move by Warren Buffett, who has bought shares in Berkshire Hathaway over 20 consecutive quarters. During the most recent quarter, a total of 1,042 Class A shares (NYSE: BRK.A) and 2,354,444 Class B shares (NYSE: BRK.B) were purchased.
The total value of these purchases was estimated at slightly more than US$1.3 billion. As such, it was nearly double the US$700 million purchase of D.R. Horton shares accumulated during the same period. Berkshire’s share buybacks total more than US$71 billion over the last five years, which is more than the market cap of over 75% of S&P 500 companies.
Buffett has long spoken about the virtues of buying back shares in Berkshire, citing the benefits for earnings per share over time, conviction in the firm’s long-term growth outlook, and the relative valuation appeal compared with other opportunities on the market.
With Berkshire shares near an all-time high, who could disagree with the success of that strategy?