Few investors get as much attention on Wall Street as Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett. This is because the Oracle of Omaha has overtaken Wall Street’s benchmark index, the S&P 500many times.
Since Buffett took over Berkshire in the mid-1960s, he has overseen a total return of more than 5,400,000% on his firm’s Class A shares. By comparison, the S&P 500 has increased in value by about 37,000% over the same period, including dividends.
Buffett’s much-discussed recipe for success has included buying stocks in proven companies that offer clear competitive advantages and strong management teams. Most importantly, he looks to the horizon when investing, tending to hold positions in Berkshire Hathaway’s portfolio for years, if not decades.
But the Oracle of Omaha is also a big believer in portfolio concentration, meaning that his best ideas deserve outsized investment capital.
While emulating Buffett’s investing activities has been a profitable strategy for decades, investors will still have to do some unconventional detective work to find his favorite stocks.
Warren Buffett is a terribly selective buyer of shares for almost two years
No later than 45 calendar days after the end of a quarter, institutional investors with at least $100 million in assets under management must file Form 13F with the Securities and Exchange Commission. A 13F provides an easy-to-understand snapshot of which stocks, industries, sectors and trends Wall Street’s top money managers bought and sold during the most recent quarter.
Warren Buffett’s 13Fs for the trailing seven quarters (Oct. 1, 2022 to Jun. 30, 2024) show that he and his top investment advisers, Ted Weschler and Todd Combs, have been shameless sellers, with net stock sales totaling nearly $132 billion. With the Berkshire boss selling about $7.2 billion in Bank of America With the company’s stock down since July 17, it appears to be on track for its eighth straight quarter of net share sales.
However, Form 13Fs have highlighted small pockets of selective buying activity. Buffett, for example, can’t get enough of integrated energy companies Occidental petroleum (NYSE: OXY)Since the beginning of 2022, more than 255.2 million shares of Occidental have been purchased.
While higher spot crude prices are generally good news for all drillers, Occidental is focused on its drilling segment. While its downstream chemical plants can provide some hedge against the downturn in the spot oil price, it relies heavily on higher oil prices to boost operating cash flow from its upstream drilling operations.
Buffett has also been a willing buyer of a property and casualty insurer Fatty (NYSE: CB)Chubb is the company that was revealed in mid-May as the “confidential” stock that Berkshire had been building a position in since the third quarter of 2023.
While the insurance industry is boring, it is also very profitable. When catastrophe losses inevitably occur, insurers have a tangible incentive to raise their customers’ premiums. But even when payouts are low, insurers like Chubb retain extraordinary premium-setting power, since claims and catastrophe events are normal occurrences over the long term.
Unfortunately, Berkshire Hathaway’s quarterly Form 13F filings don’t tell the whole story about Buffett’s favorite stocks to buy.
The Oracle of Omaha has invested nearly $78 billion in a stock close to his heart
Despite Buffett owning $13 billion worth of Occidental stock and nearly $8 billion worth of Chubb, these two stocks are not Buffett’s most beloved stocks.
This “favorite stock” is a company in which the Oracle of Omaha has bought shares for 24 consecutive quarters (a six-year period), ending June 30, 2024, and into which he has invested nearly $78 billion of his company’s money.
To show how much Buffett has faith in his favorite stock, compare this nearly $78 billion investment to the 500 companies that make up the broader S&P 500. As of the closing bell on Sept. 13, 379 S&P 500 companies had a market cap lower than the amount Buffett has sunk into the stock he loves most over the past six years. In theory, Buffett could have bought right away Chipotle Mexican Grill, FedExor Goalbut decided to invest nearly $78 billion in one stock.
The funny thing is that Buffett’s favorite stock to buy is… shares in his own company.
A 13F will not detail stock buyback activity. Instead, investors can typically find Berkshire Hathaway’s buyback activity highlighted just before the executive certifications page in each quarterly report.
Before July 2018, Buffett was only allowed to buy back shares if his company’s stock fell to or below 120% of its book value. Since stocks never fell below this threshold, no shares were bought back.
On July 17, 2018, Berkshire Hathaway’s board of directors changed the rules for share buybacks so Buffett could work his magic. The new criteria state that share buybacks can proceed without an end date or cap, as long as:
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Berkshire has at least $30 billion in cash, cash equivalents and U.S. Treasury securities on its balance sheet; and
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Warren Buffett believes that stocks are inherently cheap.
That second point is open to wide interpretation, giving Buffett ample room to buy back stock whenever he sees fit. With Berkshire’s cash hoard swelling to a record $276.9 billion at the end of June, Buffett has more than enough firepower to continue buying back shares of his own company. The $345 million used for buybacks in the quarter ending June increased the total number of share buybacks since this change in July 2018 to nearly $78 billion.
One of the main reasons the Oracle of Omaha is such a big fan of buybacks is because they encourage long-term investing by incrementally increasing the ownership stakes of patient investors. As the number of outstanding shares declines, each remaining share has a fractionally larger stake in the company.
Furthermore, buybacks have a way of making most tried-and-true companies fundamentally more attractive to investors. Companies with stable or growing net income, such as Berkshire (without unrealized investment gains/losses), should see their earnings per share (EPS) increase over time as the number of shares in the company declines.
While Buffett is bullish on Occidental Petroleum and Chubb, no other company can match his beloved stock, Berkshire Hathaway.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, Chipotle Mexican Grill, FedEx, and Target. The Motley Fool recommends Occidental Petroleum and recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Warren Buffett could have bought any of the 379 S&P 500 companies with nearly $78 billion. Instead, he put it all into his favorite stock. was originally published by The Motley Fool
