Berkshire Hathaway’s Portfolio Moves In The First Quarter
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Berkshire Hathaway’s (BRK/A, BRK/B) first-quarter 13F was filed on May 16. This filing gives us a quarterly opportunity to observe what two of the greatest investors, Warren Buffett and Charlie Munger, and their team are doing within Berkshire’s publicly traded equity portfolio. Berkshire has a large stable of wholly-owned entities, so this is just a slice of their investments. Berkshire’s first-quarter earnings report, summarized here, provided more information about the operating companies.

This analysis looks at the Berkshire portfolio across a host of measures including 12-month forward estimated: price-to-earnings (P/E), price-to-sales (P/S), return-on-equity (ROE), enterprise value-to-earnings before interest, taxes, depreciation and amortization (EV/EBITDA), price-to-book (P/B), dividend yield, debt-to-EBITDA, and long-term earnings-per-share growth consensus estimates.

Berkshire’s $364 billion very concentrated investment portfolio consists of 49 companies, five stocks more than last quarter. The top 5 holdings account for over 75% of the total portfolio. The top five holdings are Apple

(AAPL), Bank of America

(BAC), American Express

(AXP), Chevron

(CVX), and Coca-Cola

(KO). Due to these significant holdings plus Kraft Heinz (KHC), the portfolio is significantly overweight technology, staples, consumer staples, and financials relative to the S&P 500. This portfolio includes no industrials or utilities, but Berkshire’s wholly-owned entities include a large railroad, Burlington Northern Santa Fe, and multiple regulated utilities and pipelines.

Because the 13F does not include international stocks, Berkshire Hathaway announced the acquisition of about 5% of five Japanese trading companies at the end of August 2020, and these holdings are not part of this analysis: Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. Ltd., and Sumitomo Corp. Buffett indicated that these were intended to be long-term holdings, and Berkshire may increase its stake to 9.9%.

Overall, the portfolio analysis reflects a slightly cheaper valuation than the S&P 500 while having better profitability (ROE) and similar debt levels. The long-term (next 3 to 5 years) consensus earnings-per-share growth rate is expected to be lower than the S&P 500.

In the quarter, there were eight new purchases in order of highest market value bought to lowest: Occidental Petroleum

(OXY), H

P Inc. (HPQ), Citigroup

(C), Paramount

Global (PAR

A), Celanes

e (CE), McKesso

n (MCK), Markel (MKL) and Ally Financial

(ALLY). The new positions in Occidental and HP Inc. were known before this filing since Berkshire disclosed a greater than 10% stake earlier in the year. A deeper analysis of the probable reasons behind the Occidental purchase can be found here. Berkshire is now the largest holder of Paramount Global stock, with over 11% of the shares.

Abbvie (ABBV), Bristol-Myers Squibb (BMY), and Wells Fargo

(WFC) were eliminated from the portfolio in the first quarter. Berkshire had been reducing its holdings in all three in the past quarters. The theme of reducing exposure to pharmaceutical stocks is complete; many were purchased in the third quarter of 2020.

Berkshire reduced their holdings of Kroger

(KR), Store Capital (STOR), Verizon (VZ), and Royalty Pharma (RPRX). The Kroger and Royalty Pharma positions were also reduced in the previous quarter.

Berkshire added to its holdings of Apple (AAPL), Chevron (CVX), Activision Blizzard

(ATVI), General Motors

(GM), RH (RH), Liberty Media – Formula One (FWONK), and Floor & Decor-A (FND). The Chevron holding has now been increased for three straight quarters, and the purchases have been significant enough to make it Berkshire’s fourth-largest publicly traded holding. Microsoft

(MSFT) announced a deal to buy Activision for $95.00 per share in cash on January 18, 2022. Buffett discussed the increase in the Activision holding and noted that it was a merger arbitrage opportunity, betting that Microsoft will complete the acquisition. Floor & Decor was a new purchase in the third quarter of 2021, and the position was also increased in the fourth quarter. Berkshire’s stake in RH was also raised in the fourth quarter of 2021.

Berkshire added approximately $40 billion in stock holdings to their publicly traded portfolio in the first quarter. It is also notable that most investments were made in two energy companies, Occidental and Chevron. Buffett and Munger have had a strong history of buying stocks when they receive better-than-fair value for their purchases. Responding to a question at the annual meeting about market timing, Buffett said, “Berkshire has not been good at timing. It’s been reasonably good at figuring out when it’s getting something good for the money. If anything, they sometimes want it to stay cheap so they can generally buy more if they like it.” While it remains unclear if this is a sign that the sharp sell-off in stocks could be over soon, it does indicate that there seem to be more opportunities available, according to two of the most astute investors.

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