Like most billionaire investors, the third quarter was a time to add to existing positions, close or reduce some other holdings and buy a few new names for the 49-stock, $250-billion portfolio. The quarterly changes to Warren Buffett stocks remain an obsession for many investors.
Think about it.
According to MutualFunds.com, only three U.S.-listed mutual funds have more assets than Berkshire’s equity portfolio: Vanguard Total Stock Market Index Fund (MUTF:VTSMX) at $921.4 billion, Vanguard 500 Index Fund (MUTF:VFINX) at $557.0 billion and Vanguard Total Bond Market Index Fund (NYSE:VBMFX) at $293.4 billion.
Now, you could buy one of these mutual funds, and you’d pay no more than $1.50 in annual fees per $1,000 invested. Not a big hardship.
Or you could buy Berkshire Class B shares commission-free and get a small piece of all 49 stocks plus a ton of good private businesses in every sector of the economy.
For me, it’s not a tough choice.
- Snowflake (NYSE:SNOW)
- Pfizer (NYSE:PFE)
- Kroger (NYSE:KR)
- General Motors (NYSE:GM)
- Costco (NASDAQ:COST)
- Wells Fargo (NYSE:WFC)
- Barrick Gold (NYSE:GOLD)
Keep in mind that the names on this list aren’t necessarily recommendations to buy. They are Warren Buffett stocks to watch in 2021. Happy investing.
Warren Buffett Stocks for 2021: Snowflake (SNOW)
Berkshire jumped a little deeper into tech stocks during the third quarter by adding Snowflake to its roster. Buffett purchased 6.1 million shares of the cloud-based platform provider.
Berkshire invested in two tranches.
The first saw Buffett buy $250 million of SNOW at $120 a share in a private placement. Also, Berkshire bought an additional four million shares at the debut price of $253.93, for a total investment of $1.27 billion or an average price of $207.33.
It’s widely thought that either Todd Combs or Ted Weschler was behind the idea to buy into the initial public offering. However, you can be sure that Buffett gave his blessing as it’s the holding company’s 20th-largest position.
A little more than two months later, Berkshire’s 2.2% stake in Snowflake is up 48% through Nov. 25 and worth approximately $1.88 billion.
Whoever was responsible for the purchase should take a bow. Heading into 2021, investors will want to keep an eye on its pathway to profitability. It had an operating loss of $358.1 million in the 2019 fiscal year.
It’s a keeper as long as Berkshire owns it.
The Berkshire brain trust hardly went on a limb with its addition of Pfizer in the third quarter. WhaleWisdom.com says the company bought 3.91 million shares of its stock. Berkshire’s 13F says it bought 3.71 million shares. CNBC’s Berkshire Hathaway portfolio tracker has it at the latter, so I’ll go with that.
Needless to say, it represents half of 1% of Berkshire’s $250-billion portfolio. It’s a drop in the bucket. It’s possible the powers that be believe an investment in one of the likely novel coronavirus vaccine winners is a good idea in combination with a Biden victory.
Buffett paid approximately $36.70 a share for Pfizer stock. As I write this, it really hasn’t made any money off its investment. I’m sure that once Pfizer gets the emergency use authorization tag — it’s meeting with the Food and Drug Administration on Dec. 10 — investors will pile into the stock.
However, as is customary with Berkshire’s regulatory filings, not everything done during the quarter is public knowledge at this point. The Pfizer bet may turn out to be larger.
It’s a safe bet with a healthy 4.2% dividend yield.
The one thing about a pandemic is that people still have to eat. Grocery stores continue to serve Americans and that means higher sales.
In the third quarter, Buffett added a little over three million shares to its existing Kroger holdings. That brings its total to slightly less than 25 million shares. On a market value basis, Kroger’s Berkshire’s 24th-largest holding at $805.6 million as of Nov. 25.
Buffett’s 13% increase in Kroger stock appears to be another conservative bet to protect against any economic damage done by the pandemic. Kroger has expected to release its third-quarter results on Dec. 3. They’re likely to be very healthy.
The grocer’s Simple Truth private label store brand has been attracting new customers during the pandemic. In fiscal 2019, the brand contributed $2.5 billion in revenue. That will move higher in 2021.
The only downside to Kroger is that it’s facing a lot of negative public relations right now because it failed to reinstate its hero pay while authorizing a $1 billion stock repurchase program in September.
Either Kroger will cave, and that will hurt earnings, or the company will hold its ground, and shoppers will boycott its stores.
I don’t think it’s enough for Buffett to care, but it’s worth watching heading into 2021.
General Motors (GM)
The other stock to consider that Buffett added to in the third quarter is Mary Barra-led GM. The holding company added 5.3 million shares during the quarter, increasing its position in the automaker by 7% to 80 million.
With the addition, GM is the 10th-largest holding in Berkshire’s portfolio. Its $3.6-billion position gives it a 5.6% stake in the company. With a big push into electric, this could turn out to be one of Buffett’s better long-term bets.
InvestorPlace’s Chris Lau recently made some great points about why investors ought to buy GM stock. Clearly, Berkshire supports his viewpoint.
“[I]n preparation for its pivot into EVs, GM plans to add 3,000 tech jobs. Investors should no longer look at GM as just an ICE supplier,” Lau wrote on Nov. 24. “Instead, its investments in engineering, design and IT will accelerate its push into EV significantly.”
How significantly? GM says that 40% of its vehicles sold in the U.S. in five years will be electric.
“We are resolved as a management team to move even faster to expedite the transition to EVs,” Barra said in a statement.
Buffett might be 90, but he’s able to see the writing on the wall. Electric is the future.
Berkshire closed out its Costco position in the third quarter selling 4.3 million shares. Based on a share price that gained more than 15% during the quarter, it’s likely that Buffett sold its shares late in the quarter.
According to WhaleWisdom.com, Berkshire first owned Costco stock in Q1 2001, paying an average of $39.25 a share.
Can you say profit-taking?
The truth is, Costco was never a huge position in the Buffett portfolio. Go back five years and it owned the same 4.3 million shares. At the time, they accounted for less than half a percent of Berkshire’s $127-billion portfolio.
Like Kroger, it’s a nice defensive position.
Further, if you look at its valuation — a price-to-sales ratio of 1.04, much higher than its five-year average of 0.70 — there’s an argument to be made that a possible recession in 2021 could make Costco stock a lot cheaper to own.
I doubt that Buffett will buy back in, but you never know. Long-term, I like Costco a lot, but you’ll want to give yourself a longer runway to gains than you might normally consider.
Wells Fargo (WFC)
Whatever hold Wells Fargo had on Warren Buffett has quite possibly been permanently destroyed as a result of the bank’s refusal to hire a CEO that wasn’t tied to Wall Street and big banking.
“They just have to come from someplace [outside Wells] and they shouldn’t come from Wall Street,” Buffett told The Financial Times in 2019.
“There are plenty of good people to run it [from the Wall Street banks], but they are automatically going to draw the ire of a significant percentage of the Senate and the US House of Representatives, and that’s just not smart.”
In the third quarter, Berkshire reduced its stake in WFC by 46%, selling 110.2 million shares, lowering the number of shares held to 127.4 million. More importantly, it moved Wells Fargo out of Berkshire’s top five holdings.
At the end of December, Wells Fargo was worth $18.6 billion based on 321.9 million shares. Its market value today is less than $4 billion.
If you own Wells Fargo and think it’s going to come out of its tailspin. Think again; if Buffett unloads the rest of his shares in the fourth quarter or early in 2021, lookout below.
This is a definite sell.
Barrick Gold (GOLD)
Has the price of gold peaked? Buffett probably thinks so.
In the third quarter, Berkshire lowered its holdings in Barrick Gold by 42%, selling 8.9 million shares during the quarter. Now holding 12 million shares, it is the 32nd-largest holding at $274.8 million, representing less than 1% of the entire portfolio.
Berkshire only bought the gold miner’s stock in the second quarter at prices averaging $26.94 a share. It’s likely Buffett sold the stock toward the end of the quarter when prices were hovering around $30.
Down 21% in the past three months, gold prices have fallen off as the world gets closer to a post-Covid world where vaccines such as Pfizer’s makes it possible to carry on with the economy. As China and the U.S. recover in 2021, I find it hard to imagine Buffett hanging on to the defensive play.
If you own GOLD, I would follow Buffett’s lead and sell while gold prices remain reasonably high.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.