What Did Buffett Just Buy?

In Q1, value investing legend Warren Buffett made several changes to the portfolio of his Berkshire Hathaway conglomerate.

Regulatory filings reveal significant adjustments to several of Berkshire’s key holdings, including the notable sale of about $6 billion in Chevron stock.

While selling outweighed buying at Berkshire for the quarter, the company did make some acquisitions for its portfolio. Here are some of the stocks Warren Buffett is buying in today’s market:

Berkshire Hathaway

For those who have watched Buffett’s activities over the past few years, it will come as no surprise that Q1 saw continuing buybacks of Berkshire Hathaway shares.

During the quarter, about 5,100 of the company’s high-flying Class A shares and 6.2 million Class B shares were repurchased. The cost of the buybacks totaled $4.44 billion.

Share buybacks have been a favorite method for Berkshire to put some of its cash stockpile to work in recent years. Over the last five years alone, Buffett and his longtime business partner Charlie Munger have overseen over $70 billion worth of repurchases.

This indicates that the pair believe Berkshire shares are still trading below fair value. Warren Buffett has also been a staunch advocate of buybacks as a method for companies to reward shareholders, even as public policy shifts to tax repurchasing activity more heavily.

In Q1, Berkshire’s operating earnings increased 12.6 percent year-over-year, much of which was driven by the performance of the company’s wholly-owned insurance businesses. The stock, meanwhile, has appreciated by a relatively modest 6 percent YTD.

These factors may have led to the conclusion that Berkshire was undervalued and driven Buffett and Munger to pour more cash into share buybacks.

Apple

Berkshire also continued to increase its stake in Apple in Q1, buying an additional 20.4 million shares at an average price of $147.55. This purchase increased Berkshire’s existing stake in the technology company by 2.3 percent and brought its total holdings to 916 million shares with a market value of $158 billion.

Although Buffett has historically avoided investing in technology companies, the legendary investor remains bullish on Apple.

During his remarks at Berkshire’s annual shareholder meeting, Buffett stated that Apple was the best business in the company’s portfolio.

Thanks largely to the success and consumer loyalty of the iPhone, Buffett believes that Apple will continue to generate strong profits as its product line matures.

This view is backed by Apple’s position as the single largest holding in the Berkshire equity portfolio. Apple currently accounts for 47.7 percent of Berkshire’s publicly traded holdings.

No other single stock makes up more than 9 percent of the portfolio. Even Buffett’s famous Coca-Cola stake, which has generated returns for Berkshire over multiple decades, makes up just 7.6 percent.

Berkshire’s massive stake in Apple positions it as a prime beneficiary of the company’s growing dividend. Although Apple stock yields just 0.55 percent, management has raised the dividend at a rate of over 6 percent annually over the past three years.

With the payout ratio still below 20 percent, there’s a good chance that Apple’s distributions will continue to increase steadily for the foreseeable future. Even at today’s modest yield level, Berkshire receives well over $800 million in dividends from its Apple stake annually.

Interestingly, Buffett increased his stake in Apple while completely liquidating his stake in Taiwan Semiconductor Manufacturing. Although his remarks about the company have remained largely positive, Buffett says his foreign focus has shifted from Taiwan to Japan. This decision may be based on geopolitical risks associated with China’s aggressive stance toward Taiwan, as well as Japan’s recent economic recovery.

Capital One

One of the new holdings that Berkshire announced in its recent 13F is Capital One Financial Corp, a bank best known for its credit card products. Berkshire purchased 9.9 million shares of the company, investing roughly $954 million.

While a small holding compared to the enormous size of Berkshire’s portfolio, the purchase demonstrated a belief at Berkshire that Capital One was likely to outperform its competitors.

It’s especially noteworthy that Berkshire chose to initiate its position in Capital One even as it trimmed its stakes in two other banks.

The Bank of New York Mellon and US Bancorp both saw their positions in Berkshire’s portfolio shrink as doubts around the banking sector hammered financial stocks in the first quarter.

Bank of America

Another financial institution Buffett has expressed continued confidence in is Bank of America.

In Q1, Berkshire bought an additional 22.8 million shares of the bank’s stock, bringing its total holdings to just over 1 billion shares.

At an average price of slightly over $33, this purchase represented the highest price Berkshire has paid for Bank of America since 2007.

This high price could prove troublesome for Berkshire, as Bank of America’s shares have fallen below $30 amid concerns about the US banking industry. The company’s fundamentals, however, continue to look relatively attractive. At under 7 times cash flow, the price on Bank of America appears quite reasonable.

The bank is also expected to see only a slight drop in earnings this year, which 12-month earnings projected to fall from $3.41 to $3.27. Berkshire continues to benefit from Bank of America’s generous dividend, which has grown at an annualized rate of over 9 percent in the last three years.

US Treasuries

A final piece in Berkshire’s Q1 acquisition puzzle is its ongoing purchase of treasury notes.

In Q1, Berkshire’s net sale of equities totaled more than $10 billion, adding to the company’s already enormous cash reserves. Most of this reserve is known to be held in short-term treasuries, though Buffett remains willing to deploy it for the purchase of undervalued equities or wholly-owned subsidiaries.

Thanks to rising interest rates, Buffett expects to see his company’s income from these investments increase to about $5 billion this year.

With the economy appearing uncertain and many companies still trading above Buffett’s estimation of their intrinsic values, income from US treasuries could be a safe bet for Berkshire’s huge cash position while interest rates remain elevated.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.