When Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett speaks, professional and ordinary investors pay attention. That’s because the “Oracle of Omaha,” as he has become known, has far surpassed the benchmark S&P500 in the returns column for nearly six decades.
While the S&P 500 has delivered an impressive total return, including dividends, of about 34,200% since the mid-1960s, Buffett has overseen a total return on his company’s Class A shares (BRK.A) that exceeds 5,000. 000% approaching! With such stellar outperformance, it’s no wonder tens of thousands of investors flock to Omaha, Neb. every year. come to hear Buffett speak about stocks and the American economy.
It also explains why investors are waiting for Berkshire Hathaway’s quarterly Form 13F filing. A 13F provides a snapshot of what Wall Street’s smartest and most successful money managers bought and sold in the most recent quarter.
While Berkshire’s 13Fs have traditionally been a gold mine for investors, they don’t tell the full story about Warren Buffett’s favorite stocks to buy.
The Oracle of Omaha has spent a small fortune on Berkshire’s core interests
With the preface that I write this down for Berkshire Hathaway files its 13F on Wednesday, May 15. The combination of Berkshire’s past corporate reports, 13Fs and annual letters to shareholders show that Warren Buffett and his investment team have spent a small fortune building many of their core holdings.
Based on Buffett’s admissions at his company’s last annual shareholder meeting, he and his top investment assistants (Todd Combs and Ted Weschler) sold about 13% of their company’s leading position in technology stocks. Apple (NASDAQ: AAPL) for tax purposes in the quarter ending March. This reduced the market value of Berkshire’s stake in Apple to an estimated $144.5 billion, as of the closing bell on May 10.
However, Buffett and his team are sitting on a huge unrealized profit. According to 13F aggregation website WhaleWisdom.com, Berkshire Hathaway is estimated to have a cost base of less than $40 with Apple. This suggests that Buffett & Co. spent approximately $31.3 billion purchasing the shares of Apple they currently own.
The Oracle of Omaha and his crew also spent a lot of money building up Berkshire’s stakes in two integrated energy companies. Chevron (NYSE:CVX) And Western petroleum (NYSE:OXY). Somewhere in the ballpark of $16 billion and $13 billion, respectively, has been invested in shares of Chevron and Occidental – and that’s not counting the $8.5 billion in Occidental Petroleum preferred stock that Berkshire also owns.
Spending a total of $29 billion on energy stocks is a pretty clear indication that Berkshire’s brightest investment minds expect the spot price of crude oil to remain high. After years of underinvestment of capital during the pandemic by major energy companies (including Chevron and Occidental), the global supply of crude oil is limited. With no easy solution in sight, higher spot prices should benefit both companies’ high-margin drilling segments.
Warren Buffett put a good portion of his company’s capital to work as a beverage company Coca-Cola (NYSE:KO) and credit service provider American Express (NYSE:AXP) were added to Berkshire’s portfolio in 1988 and 1991, respectively. Based on a previous annual letter to shareholders, Buffett points out that his company’s cost base for Coca-Cola and AmEx is about $1.3 billion per company.
In his latest annual letter to shareholders, Buffett referred to Coca-Cola and American Express as “unspecified” holding companies. These are companies with particularly strong branding and marketing that benefit from long periods of economic growth.
Warren Buffett has bought more than $77 billion of his favorite stocks since 2018
Collectively, Warren Buffett has invested approximately $63 billion in these five core holdings. While that may sound like a lot of money, it actually pales in comparison to the amount of cash he’s spent buying shares of his favorite stocks over the past six years.
What makes this purchasing activity somewhat mysterious is that it doesn’t show up in Berkshire Hathaway’s quarterly 13Fs. To track buying activity in Buffett’s favorite stocks, you’ll need to dig into the company’s quarterly results.
Towards the end of each quarterly report, just before executive certification, you will find full details of stock buybacks conducted over the past three months. That’s right…the Warren Buffett company has spent more money buying stocks than Apple, Chevron, Coca-Cola, American Express and Occidental. combinedis Berkshire Hathaway!
Before mid-July 2018, Warren Buffett and the late, great Charlie Munger had their hands tied when it came to stock buybacks. Redemptions were only allowed if Berkshire’s shares fell to or below 120% of book value (i.e. no more than 20% above stated book value in the last quarter). At no point did Berkshire’s stock reach this threshold in the 2010s.
On July 17, 2018, Berkshire Hathaway’s board passed new measures that allowed Buffett and Munger to get off the proverbial couch and work their magic. Berkshire’s board has given the green light to share repurchases without a ceiling or end date, as long as:
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Berkshire Hathaway has at least $30 billion in cash, cash equivalents and U.S. Treasuries on its balance sheet; And
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Warren Buffett believes that stocks are inherently cheap.
Since this change was made in July 2018, Warren Buffett has repurchased shares of his own company for 23 consecutive quarters. Including the $2.6 billion spent on buybacks in the first quarter, the Oracle of Omaha has repurchased more than $77 billion of Berkshire stock in less than six years – $14 billion more than was spent on Apple, Chevron combined , Coca-Cola, AmEx, and Occidental Petroleum.
Since Buffett’s company doesn’t pay dividends, a steady share buyback program is an easy way for the Oracle of Omaha to reward his long-term shareholders. Consistently buying back shares and reducing the number of shares outstanding incrementally increases the ownership stake of long-term investors.
Furthermore, companies with stable or growing net income typically see their earnings per share (EPS) rise as the number of shares outstanding decreases. With Berkshire’s cash hoard potentially approaching $200 billion this quarter, Buffett has every reason to continue buying his favorite stocks.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Apple, Berkshire Hathaway, and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Warren Buffett spent more buying this stock than Apple, Chevron, Coca-Cola, American Express and Occidental Petroleum combined! was originally published by The Motley Fool
