Berkshire Hathaway’s Q3 2024 Portfolio Changes

Berkshire Hathaway’s (BRK/A, BRK/B) 13F for the third quarter was filed after the market closed on November 14. This filing gives us a quarterly opportunity to observe what Warren Buffett and his investment team of Todd Combs and Ted Weschler are doing within the sector. Berkshire’s publicly traded stock portfolio. Berkshire has a large group of wholly owned entities, but this report gives us the details of the US listed equity portion of their investments. Recently, Berkshire’s third-quarter results were released, which included important information about its extensive portfolio of wholly owned operating companies and announcements of the decline in Apple (AAPL) and Bank of America (BAC) shares. A deep dive into the third quarter earnings report is available here.

Berkshire’s $266 billion investment portfolio consists of 40 companies, down one from last quarter. Berkshire was again a net seller of publicly traded stocks during the quarter. The top five holding companies, in order of size, are Apple (AAPL), American Express (AXP), Bank of America (BAC), Coca-Cola (KO) and Chevron (CVX). The top 5 investments account for more than 71% of the total portfolio, compared to 76% in the first quarter. It is striking that despite Apple’s enormous sales, the investment portfolio remains highly concentrated, with almost 90% of the assets in the top ten.

Although the news was already known from the earnings releases, the most surprising information was that Berkshire Hathaway sold more than $20 billion of its stake in Apple (AAPL) in the third quarter, after losing 90 billion in the first half of the year. billion dollars had been reduced. Before the first sale, Apple shares made up more than 50% of the listed portfolio, but are now around 26%. The continued cuts were a shock, as Buffett said at the annual meeting that Apple is an even better company than the longstanding Berkshire stocks of American Express (AXP) and Coca-Cola (KO).

Thanks to the top five holdings, plus Occidental Petroleum (OXY) and Kraft Heinz (KHC), the portfolio remains significantly overweight in financials, consumer staples, and energy versus the S&P 500. The Berkshire portfolio was overweight in technology due to the huge Apple shares. stock, but recent selling has pushed the technology to an underweight position. Berkshire controls 27% of the outstanding shares in Occidental, which, combined with Chevron, results in a significant overweight in the energy sector. A deeper analysis of the likely reasons behind the Western purchase can be found here. Berkshire has only one small holding company in the industrial sector and no real estate companies or utilities. However, Berkshire’s wholly owned properties include a major railroad, Burlington Northern Santa Fe, and multiple regulated utilities and pipelines.

Because the 13F does not include international stocks, Berkshire Hathaway initially announced the acquisition of approximately 5% of five Japanese trading companies in late August 2020. These holdings are Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. Ltd., and Sumitomo Corp. Buffett announced in April 2023 that Berkshire had increased its stake in these companies to 7.4%. Buffett indicated that these were intended as long-term investments, and Berkshire could still increase its stake to 9.9%.

Berkshire has added two new holding companies, Domino’s Pizza (DPZ) and Pool Corporation (POOL). Both were relatively small additions of 0.2% and 0.05% of the portfolio respectively. Domino’s Pizza operates franchised and company-owned pizza stores in the U.S. and internationally. Pool Corporation distributes pool-related products worldwide. Pool Corporation was a COVID-era darling and remains about 38% below its 2021 high.

Berkshire expanded its positions in Heico Corporation (HEI/A) and Sirius XM Holdings (SIRI). Part of Sirius

Floor & Decor Holdings (FND) was eliminated from the portfolio in the quarter, after being phased out the previous quarter.

Within the financial sector, Berkshire has scaled back its Capital One Financial (COF), Bank of America (BAC) and NU Holdings (NU). Warren Buffett is considered one of the greatest bank stock investors ever. The reduction in exposure to the banking sector is therefore notable, but 42% of the equity portfolio remains in financial companies.

As previously noted, Berkshire has reduced its stake in Apple (AAPL). In addition, Charter Communications (CHTR) and Ulta Beauty (ULTA) were shortened. It is striking that Ulta Beauty was newly added to the portfolio last quarter.

This analysis looks at the Berkshire portfolio against a variety of measures, including estimates for the next twelve months: price-to-earnings ratio (P/E), price-to-earnings ratio (P/S), return on equity ( ROE), enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA), price/book value (P/B), dividend yield, current debt/EBITDA, current free cash flow yield, current operating margin and consensus growth estimates of earnings per share in the long term.

Overall, Berkshire’s portfolio analysis reflects a cheaper price-to-earnings ratio than the S&P 500, while improving profitability as measured by return on equity and operating margin with similar debt levels. The long-term consensus EPS growth rate (over the next three to five years) is expected to be lower than that of the S&P 500. Buffett’s preference for high-quality companies that generate significant cash flows is reflected in better profitability metrics combined with superior FCF cash flow return.

Berkshire was a net seller of stocks in its portfolio for the eighth consecutive quarter, with net sales of more than $34 billion in publicly traded stocks. Between the stock sales and the cash generated by Berkshire’s operations, the company has amassed a record level of cash and equivalents of more than $300 billion. Perhaps more telling is that Berkshire Hathaway’s cash hoard relative to its size stands at 28%, the highest level since at least 1990. At the annual meeting, Buffett said there were few significant opportunities to invest the money at an attractive expected return: “But under Given the current circumstances, I don’t mind building up the cash position at all. I think when I look at the alternative of what’s available in the stock markets, and I look at the makeup of what’s happening in the world, we find it quite attractive.” Buffett’s actions indicate that this view still holds true.