Stocks Buffett Sold: 2022 has been an active year in the stock market, to say the least. As stock prices plummet and the economic landscape is reshaped, investing titan Warren Buffett appears to once again be shaking up the portfolio of his Berkshire Hathaway (BRK.A) investment company.
Unusually for the famous proponent of buying and holding, several of the stocks Buffett has sold this year were only acquired in 2020 and 2021. So, why did Buffett dump these three large holdings?
Verizon (NYSE:VZ) is perhaps the best example of Buffett’s recent foray into short-term holdings. Despite increasing its stake in Q4 2021, Berkshire sold off 99.1 percent of its Verizon holdings in Q1 of this year. This seems to go against Buffett’s long-held positions on buying and holding stocks for long periods of time.
In the case of Verizon, it appears that Buffett may have been using the stock as a rare short-term holding due to low bond yields.
Thanks to the company’s impressive dividend yield of over 5 percent, Verizon was likely a more attractive option for Berkshire Hathaway’s cash. This would seem to explain why Buffett entered and exited his position in Verizon so quickly,
Interestingly, this isn’t the first time Buffett has aggressively entered and exited Verizon. Following the purchase of about 15 million shares in 2014, Berkshire Hathaway divested all of its holdings in Verizon in 2016 at a very modest profit.
In 2020 and 2021, the company once again bought Verizon, building up a stake of over 150 million shares. This in-and-out activity seems to lend weight to the argument that Buffett is using Verizon as a way to generate a return on Berkshire’s cash.
The underlying fundamentals of the business, however, may also have pushed Buffett toward the decision to sell so aggressively. Around the time Berkshire was liquidating its shares, Verizon was also losing large numbers of users. In its Q1 report, Verizon noted that it had lost some 36,000 subscribers.
Overall, it appears that Buffett probably bought Verizon stock with the intention of holding it only until other buying opportunities existed elsewhere. While the short turnaround time on the Verizon position is highly unusual for the noted buy-and-hold value investor, it makes a great degree of sense in this light.
Like many investors, Buffett piled into the pharmaceuticals industry in a big way when COVID-19 bolstered interest in new drug development.
In 2020, Berkshire Hathaway bought about 25 million shares of drug manufacturer AbbVie (NYSE:ABBV). This was followed up by a complete selloff in Q4 and Q1, once again seeming to violate Buffett’s long-term investing views.
Unlike Verizon, there doesn’t appear to be a simple strategic reason for this sale. The stock’s P/E ratios remained low while Buffett sold, making it unlikely that he felt it was overvalued. AbbVie is also a dividend king that yields nearly 4 percent, meaning that it could have contributed a healthy flow of cash for Berkshire.
This leaves two possibilities.
The first is that Buffett believes that post-pandemic earnings in the pharmaceutical industry and at AbbVie will be lower than he projected when he purchased the stock.
In this case, Buffett may have gotten out in front of investor enthusiasm for the industry by selling his shares at a respectable profit before the market priced in lower sales and earnings. The decision appears to have been prescient as AbbVie shares took a sharp hit following the Q1 report due to lower-than-expected revenues.
A second possibility is that the AbbVie position was also a place to park cash until better opportunities came along.
Like Verizon, AbbVie is a relatively stable stock that pays a high dividend, making it a potentially favorable alternative to bonds.
The one problem with this idea, though, is that Buffett sold the bulk of his shares in Q4, before the massive selloff that has defined 2022. Nevertheless, it’s still possible that Berkshire sold these shares in order to position more cash for anticipated acquisitions.
Another possible factor, though, is that Buffett was following classic value investing principles. He most likely bought AbbVie because he perceived that it was priced below its intrinsic value and then sold when he believed it was priced above that value.
Although Warren Buffett is fond of long-term holdings, such short-term turnarounds are fairly common in classical value investing.
Bristol Myers Squibb
Pharmaceutical company Bristol Myers Squibb (NYSE:BMY) is yet another short-term holding that Buffett bought and then sold aggressively.
After buying up a large stake in 2020, Berkshire quickly jettisoned all of its shares. This was in spite of the fact that BMY had, up to that point, been one of its best-performing stocks of the year.
Given that BMY could be on the verge of a breakthrough in cancer treatment drugs, it seems unusual for Buffett to sell it off after already seeing large gains from the stock.
This opens up the possibility that Buffett could have decided against investing in pharmaceuticals altogether. The Oracle of Omaha has always held that investors should buy companies that are within their personal circles of competence.
Buffett’s sudden entry into and exit from stocks like BMY and AbbVie suggests that he may have exceeded his own circle of competence and pulled back into more familiar territory, or that one of his lieutenants is making the decisions.
If this is the case, Buffett’s overreach had a happy ending for Berkshire Hathaway. Both BMY and AbbVie sold at healthy profits. Once again, this points to the possibility that Buffett may have sold because he believed that BMY became overvalued.
In fact, BMY could directly bolster the case for AbbVie being sold due to excess valuation, a general withdrawal from pharma stocks or both.
AbbVie and BMY are similar in many regards, but BMY only yields 2.93 percent in dividends. This takes it out of the range of high-dividend stocks that Verizon and AbbVie represent. Since Buffett treated the two pharmaceutical companies similarly at around the same time, it’s reasonable to suppose that his motivations were the same in both cases.
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