What Stocks Are The Rich Buying? Warren Buffett raised a few eyebrows after his investment vehicle, Berkshire Hathaway (BRK.B), released its latest quarterly earnings report.
The legendary investor made some significant changes to his portfolio, with a few important stake increases – and few decreases – worthy of note.
In this article, we’ll examine the companies the Oracle of Ohama has been buying and selling during the first three months of 2021, and a few that remain favorites on the Berkshire Hathaway portfolio.
Verizon Communications Inc. (VZ)
It should come as no surprise that Verizon Communications (VZ) was a big addition to the Berkshire Hathaway (BRK.A) stable of tech companies at the start of this year. The telecoms carrier has a growing reputation as a solid dividend stock, and its fundamentals aren’t too bad either.
The company definitely falls in the mold of a classic Buffett business choice: a slow and steady grower, while also, at current prices, somewhat undervalued.
And over the last quarter Berkshire signaled its faith in Verizon by adding 8.25% to its holdings, bringing its total share count in the firm to 158.8 million. This is on top of an already huge 151% increase in its Verizon position initiated at the end of 2020.
Verizon has a very attractive high yielding dividend. The company’s payout has grown nicely over the last five years, with its yield standing at a solid 4.3% right now.
The firm has taken on some additional debt recently, mainly due to its funding needs arising from a $53 billion spending bill incurred from its purchase of C-Band spectrum. But the telecoms sector is generally considered to be a safe and stable industry and pretty much recession-proof, and so the dividend should be expected to keep on paying out for the foreseeable future.
Bank of America Corporation (BAC)
While Warren Buffett hasn’t added to his position of Bank of America stock this year, the financial company still remains one of his most cherished belongings. Indeed, the bank represents Berkshire’s second largest holding, worth approximately $42 billion, making up over 14% of its entire portfolio.
And Bank of America’s inclusion on Buffett’s list of favorite stocks is even stranger when you consider that he’s been selling much of his stake in other bank and finance companies lately too.
But his belief in BAC has been well justified: the bank’s stock is up over 70% the last twelve months, and the dividend alone from the company is projected to be worth $743 million over the course of 2021.
American Express Company (AXP)
Another company that’s been kept steady on Berkshire’s books is payment processor giant American Express (AXP). And, although its holdings haven’t increased recently, Warren Buffett said the company, along with Coca-Cola, will be held “permanently”. That’s some endorsement, if ever there was one.
Still, the credit card issuer is another high-performing stock for the Berkshire Hathaway portfolio, having appreciated over 30% in price during 2021 alone. However, the company – like many other credit issuers – suffered throughout the coronavirus emergency, with depressed customer spending habits taking a toll of its business.
That said, the company managed to deliver an earnings per share of $6.10 over the previous twelve months, and the firm estimates a 2022 return of $9.10 if all goes to plan. Its last quarter results were also uplifting, confounding analyst per share earnings expectations of $1.61 with a beat of $2.74, and seeing demand for new cards not far off where it was before the COVID-19 outbreak.
As pre-pandemic spending levels get back to normal, American Express is likely to be one of the many winners of this renewed consumer optimism.
Chevron Corporation (CVX)
Berkshire Hathaway (BRK.A) has never been shy of dropping a stock when it thinks it’s made a poor decision. And California-based multinational energy company Chevron is no exception.
Having made an initial investment of $4.1 billion in the oil and gas firm only last year, Warren Buffett seemingly got cold-feet over the move fairly quickly, and set about cutting his stake in Chevron by more than 50% in the first quarter of 2021.
The decision to buy Chevron was a big deal at the time, and it made for some puzzled headlines, not least because the outlook for the hydrocarbon market was still pretty mixed. However, those headlines were eclipsed after news broke that Berkshire had orchestrated a shock reversal in the company stake.
Yet, it’s still too early to figure out why Buffett changed course with regard to Chevron; it could just as well have to do with Berkshire building up financial reserves for a significant acquisition in the future than it does with any negative feelings toward the firm.
But whatever it is, further investment into the company by Buffett and Berkshire looks very unlikely.
U.S. Bancorp (USB)
Chevron isn’t the only company to get the Buffett scalpel in the first quarter of 2021, with U.S. Bancorp also having its holdings reduced – albeit by a slight margin of just 1.11%.
The stock is still the sixth largest holding on Berkshire Hathaway’s portfolio of companies, and the Buffett-led investment firm remains the bank’s biggest single investor. But Bancorp is another reliable dividend-generating asset, and so it seems a little strange that the Oracle of Omaha would cut this stock over any other.
US Bancorp is having a decent year, especially with its share price growing 66% the last twelve months, and it beating on earnings expectations to boot. The firm did miss on revenue, however, but all further analyst predictions have been revised upwards in the previous 90 days – and its 2-year forward price-to-sales ratio of 3.89 looks very attractive.
But investors shouldn’t be alarmed: Berkshire sold off a large chunk of its Bancorp stock back in 2020, taking the company out of its top-10 holdings. But, in the meantime, the firm has found favor again, and its status as one of Buffett’s most solid picks isn’t under any immediate threat just yet.
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.