The Oracle of Omaha is at it again, making some noteworthy changes in the holdings of his company, Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), thereby altering the outlook of Berkshire Hathaway stock.
For owners of Berkshire Hathaway stock, it’s not necessary to know about its buying and selling; the whole point of BRK.A stock and BRK.B stock is to delegate that stock-picking responsibility to Warren Buffett and his team. For other investors who are trying to obtain trading ideas, however, Berkshire’s quarterly report is always of interest.
Even if neither description fits you, though, you can still learn from Buffett’s moves.
Warren Buffett isn’t nearly as concerned about sector diversification as the average investor is. Rather, he’s known for advising investors to “buy what they know,” and he knows the financial sector very well. That’s why, in the wake of Berkshire’s third-quarter transactions, more than 40% of the funds it’s deployed have been invested in financial names .
Speaking of financial stocks, JPMorgan Chase (NYSE:JPM) and PNC Financial (NYSE:PNC) were two brand-new additions to Berkshire’s portfolio. Buffett and his proteges added 35.6 million shares of the former, and 6.1 million shares of the latter last quarter, according to the fund’s 13F report. Just as interesting, however, is that Buffett upped his stakes in Goldman Sachs (NYSE:GS), U.S. Bancorp (NYSE:USB) and Bank of America (NYSE:BAC) by at least 10% each. These moves leave owners of Berkshire Hathaway stock much more exposed to financial names than they previously were.
The large investments in financial names in general and banking names in particular are a sign that Buffett doesn’t think that rising interest rates will dampen lending activity. Buffett must also believe that, to the extent that lending does contract, the headwind should be offset by the wider profit margins which higher interest rates facilitate.
Perhaps the most curious addition to the BRK portfolio was Oracle (NYSE:ORCL). Though Buffett has largely steered clear of technology names because he doesn’t fully understand them, Berkshire initiated a new, 41 million share position in the database/cloud-computing giant. The stake is worth more than $2 billion.
The decision to buy Oracle stock likely wasn’t Buffett’s call. Not only is Oracle anything but an easy-to-understand name, but it’s not even easy for tech-savvy investors to figure out what Oracle’s competitive advantage is.
The complexion of Berkshire Hathaway stock was also changed by some rather significant selling, and there was no more significant sale than the liquidation of half the fund’s Phillips 66 (NYSE:PSX) position. The transaction lowered the value of Berkshire’s position in the energy company to $1.5 billion.
It’s difficult to determine if Berkshire’s decision to sell shares of Phillips 66 is a reflection of Buffett’s outlook for the company or for the energy industry. Perhaps it’s a bit of both. Just as a reminder though, Berkshire also sold a great deal of PSX during Q2 as well, before oil prices entered a bear market. Specifically, during Q2, Berkshire cut its stake in Phillips 66 by about one-third.
BRK modestly lowered its exposure to airlines last quarter, but, interestingly, Warren Buffett’s investment fund still owns multiple airline stocks, suggesting he continues to have faith in the industry’s long-term prospects.
Berkshire’s stake in Southwest Airlines (NYSE:LUV) was trimmed by roughly 1%, about 2% of its shares in American Airlines (NASDAQ:AAL) were unloaded and 2.6% of Berkshire’s United Continental (NASDAQ:UAL) position was sold. The fund, however, bought some shares of Delta Air Lines (NYSE:DAL) last quarter, and it now owns 65.3 million shares of DAL that are worth about $3.7 billion. Berkshire now owns nearly $11 billion worth of airline stocks, indicating that it remains very bullish on the sector.
The Bottom Line for Berkshire Hathaway Stock
It’s always interesting to learn what actions the legendary investor has taken, though investors looking to mirror his trades may want to take all of this activity with a grain of salt. Buffett’s favorite holding period is “forever,” but he can afford to stick with soured trades for many years while they recover. Most other investors don’t have the luxury of that much time.
Anyone who’s interested in riding Warren Buffett’s stock-picking coattails would be better off simply buying Berkshire Hathaway stock. Not only would buying BRK.B stock enable investors to benefit from Buffett’s investments in real-time rather than waiting multiple weeks to do so, but buying Berkshire Hathaway stock lets smaller individual investors obtain a portfolio that’s split into 48 different trades (as of the end of Q3). That number of positions would be maddening for one person to manage on his or her own.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.