We knew Warren Buffett occasionally pared his stake in Apple (NASDAQ:AAPL) stock, usually for tax purposes. But no one was prepared for him to slash his stake in half.
The Oracle of Omaha revealed in his Berkshire Hathaway (NYSE:BRK-A, BRK-B) earnings filing that his stake in the tech giant had dropped to fewer than 400 million shares. Apple’s value at the end of the quarter was just $84.2 billion, meaning Buffett shed just over 49% of his position. It’s still his largest holding. But where it once accounted for half of Berkshire Hathaway’s portfolio, it’s now just 28% of the total.
Shares of Apple tumbled 5% on the news. While it recovered some lost ground, Apple remains 9% below its all-time high reached only a few weeks ago. But Apple wasn’t the only stock he sold. Additionally, Buffett cut his stake again Bank of America (NYSE:BAC), his second largest position.
He did buy more shares of Occidental Petroleum (NYSE:OXY), but Buffett was once again selling more stock than he was buying. He now has a cash hoard worth $277 billion. He’s either preparing for a market crash or planning on making a big purchase – a really big one.
Either way, be on the lookout for more Warren Buffett stocks to sell in Berkshire Hathaway’s portfolio. Let’s examine three companies that could be next.
Capital One Financial (COF)
Although several stocks could be on the chopping block, most are de minimis holdings that won’t move the needle. Capital One Financial (NYSE:COF), on the other hand, is one in which Buffett has a $1.7 billion position. Sure, that accounts for only 0.6% of the portfolio. But as Senator Everett Dirksen is supposed to have once said, a billion here, a billion there, and pretty soon you’re talking real money.
If Buffett’s massive sale of Apple stock was in anticipation of a market crash, then it would make sense to dump Capital One Financial. It is one of the most exposed credit card companies on the market, and it is acquiring Discover Financial Services (NYSE:DFS). That will make it even more unprotected to a rising tide of delinquencies and defaults.
The Federal Reserve said total consumer credit outstanding stood at over $5 trillion at the end of June. In comparison, student loans amounted to $1.7 trillion and auto loans stood at just under $1.6 trillion. The consumer is nearing their limit, and if the economy hurtles into recession, credit card companies will be left holding the bag. That makes Capital One Financial a Warren Buffett stock to sell.
Kraft Heinz (KHC)
Buffett has never been hot on Kraft Heinz (NYSE:KHC), admitting the investment was a mistake. “I was wrong in a couple of ways about Kraft Heinz,” he told CNBC in 2019. “We overpaid for Kraft.” Though he did offer the caveat that he believes the company is “still a wonderful business.”
Buffett helped private equity firm 3G Capital Management engineer taking control of H.J. Heinz in 2013. He then maneuvered the ketchup maker to acquire Kraft Foods two years later. But he misjudged its value, paying about $100 billion for tangible assets when it used around $7 billion.
So, it is not the Kraft Heinz business that is the problem, just the price he paid for it. Still, it has been a money-losing bet for Buffett. Over the past decade, it has lost almost 7% in total return. Even though the Oracle of Omaha pulls in around a half-billion dollars annually in dividend checks, KHC stock is the seventh biggest position in Berkshire Hathaway representing around 4% of the total. The $11.5 billion parked in Kraft Heinz could be deployed somewhere better.
Japanese Banks
Buffett owns a passel of Japanese banks. I’m not sure he would actually sell them because he is not the sort of investor to bail at the first hint of trouble. But it is notable that the Japanese banking system in part caused the market tremors last week.
Five Japanese banks shares are in Berkshire Hathaway: Itochu (OTCMKTS:ITOCF, ITOCY), Marubeni (OTCMKTS:MARUF), Mitsubishi (OTCMKTS:MSBHF), Mitsui (OTCMKTS:MITSF) and Sumitomo (OTCMKTS:SSUMF, SSUMY). Buffett highly respects their management and has said U.S. bankers could learn a thing or two from their Japanese counterparts.
The problem for the Japanese banking system is the yen carry trade. That’s when investors borrow money in a low-interest rate country like Japan and invest in currencies in high-rate countries like the U.S.
But, Japan is raising its interest rates just as the U.S. is set to lower them. Unwinding all those trades created havoc as the Japanese central bank struggled to maintain equilibrium. All five of Buffett’s banks tumbled hard. While they did regain some losses, several are still down by double-digit percentages from where they traded a month ago.
Mitsui, Sumitomo and Marubeni are all down at least 13% from that time, making the Japanese banks Warren Buffett stocks to sell.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
