Recently, Berkshire Hathaway (NYSE:BRK.B) released its most recent holdings. While Buffett hasn’t been making any particularly large transactions, he has made several smaller transactions that are worth keeping an eye on.
Buffett is among the wealthiest people in the world and is known as one of the best money managers in the world, and as a result, his actions are closely watched by investors. Furthermore, a lot of investors believe that following Buffett’s moves can make you a lot of money.
Before I look at what he has been doing with his money, let’s keep a couple of things in mind. First, Warren Buffett is no longer making all of the decisions at Berkshire Hathaway. Todd Combs and Ted Weschler are both managing small (relatively speaking) portions of Buffett’s portfolio. One way to tell who’s doing what is to look at the size of the transactions. If a portfolio holding is in the billions of dollars, then it is probably Buffett. Smaller holdings are usually picked by Buffett’s protégés.
Second, Buffett is not infallible. The best way to look at Buffett’s holdings is to use the list as a starting point for your own research. If you want to simply follow Buffett, then your best bet is to simply buy Berkshire Hathaway. But keep in mind that these shares have an imbedded “Buffett premium,” meaning that shareholders are willing to pay a premium for Buffett’s expertise and his ability to take profits and dividends from one of his companies and employ it elsewhere without paying taxes. When Buffett dies or retires (he’s 83 now), the stock will fall.
With this in mind, let’s take a look at a couple of Berkshire’s Q2 transactions.
First, Berkshire added about $340 million worth of IBM (NYSE:IBM). This is not a huge transaction for Buffett, but he is adding this to an already substantial stake now valued at over $13 billion. Buffett has been buying shares of IBM for a couple of years now despite his general aversion to technology stocks. He is convinced that the company will be able to generate strong returns that grow steadily over time. The shares trade at just 12 times earnings, making them substantially cheaper than the rest of the market. However, investors should keep in mind that IBM has been showing weak revenues as it is transitioning away from its hardware business and into higher margin and high growth businesses such as cloud-computing. This will pay off long-term, but it is restricting the company’s growth in the near-term, and the stock could have some downside risk from here.
Second, Buffett has been buying Wal-Mart (NYSE:WMT). While he only bought a small position in the second-quarter, I suspect that he has been buying more recently as the stock has been weak. Wal-Mart is definitely a Buffett pick as Berkshire’s stake is $4.4 billion, and Wal-Mart is one of the companies that he has owned for a long time. The shares trade at about 15 times earnings, which is inexpensive relative to other retail stocks. The company has shown signs of declining same-store sales recently and investors have been selling off shares. But the company remains highly profitable and it is pursing growth initiatives in emerging markets and by opening smaller stores in the U.S. The stock isn’t going to rocket higher, but sentiment is bad enough so that the stock is worth buying on weakness.
Finally, Buffett has been adding shares of Suncor (NYSE:SU) — a Canadian oil company — while selling shares in ConocoPhillips (NYSE:COP) and its recent spinoff Phillips 66 (NYSE:PSX). This is an interesting move and it probably reflects Suncor’s higher growth and the fact that Canada has a lower — 15 percent — corporate tax rate than we have in the U.S. (35 percent). Investors should also note that these positions are comparatively small with respect to Berkshire’s Exxon Mobil (NYSE:XOM) position.
Disclosure: Ben Kramer-Miller is long Exxon Mobil.