Berkshire’s cash pile could reach $200 billion if Buffett sells shares

Berkshire HathawayThe highly scrutinized cash pile could be as high as $200 billion – more than the whole Hungary’s annual gross domestic product — amid CEO Warren Buffett’s rare sale of some of his favorite stocks.

The Omaha-based conglomerate is likely to say its cash hoard has surpassed the previous record of $189 billion set in the first quarter when it reports second-quarter earnings Saturday morning. Berkshire’s results come at a time when Buffett has discarded winning investments Apple, bank of America And BYDleading some to believe that the Oracle of Omaha is concerned that the bull market is overheating.

“It seems like he wants to de-risk the portfolio a little bit,” Bill Stone, chief investment officer at Glenview Trust Company and a Berkshire shareholder, said early this week. “He is winding down two top holdings, and you don’t get anything that is more economically sensitive than the banks. The market now seems so confident of a soft landing, and it may be taking a more contrarian stance.”

Berkshire has been a net seller of stocks for six consecutive quarters. Notably, Buffett cut his huge Apple bet by 13% in the first quarter for tax reasons, after posting huge profits. Sales could have resumed in the second quarter as the iPhone maker’s shares rose 23% in the period.

Meanwhile, in a surprising move, the conglomerate recently started dumping shares of Bank of America — its second-largest holding, after Apple. Over the past 12 trading sessions, Berkshire has sold $3.8 billion worth of shares of the Charlotte-based bank. (BofA sales began in July and will not be reflected in the second quarter report.)

Buffett’s massive war chest has delivered significant returns thanks to the jump in Treasury yields over the past two years, but with interest rates set to fall from multi-year highs, his growing pile of cash could once again raise questions. If $200 billion in cash were invested at about 5% in three-month Treasuries, it would yield about $10 billion per year, or $2.5 billion per quarter, but those returns are expected to fall once the Federal Reserve begins cutting rates.

“It’s just a question of how long they’re going to be stuck with it,” Berkshire TD Cowen analyst Andrew Kligerman said in an interview, referring to Berkshire’s huge pile of cash.

‘Things are not attractive’

Buffett, who turns 94 at the end of the month, admitted at Berkshire’s annual meeting in May that he is open to putting more capital to work, but that high prices are making him hesitate.

‘I think it’s a fair assumption [cash holdings] will likely reach around $200 billion by the end of this quarter,” the investment icon said at the time. “We would like to spend it, but we won’t spend it unless we think [a business is] doing something that has very little risk and can make us a lot of money… it’s not like I’m on a hunger strike or anything like that. It’s just that… things aren’t attractive.”

Weakness in non-insurance

Investors will also be closely examining Berkshire’s quarterly results BNSF Railroad And Berkshire Hathway Energy utilities, which have recently shown signs of weakness. BNSF is struggling with wage increases and revenue declines, while BHE is under pressure to be held liable for damage caused by wildfires.

“The non-insurance side will weigh on results, whether it’s slow volumes in rail combined with higher labor costs, or utilities, which could post a good quarter, but no one will be excited about that given the liability risks.” ” says TD Cowen’s Kligerman, who recently initiated a hold-rated investigation into Berkshire.

Conversely, Berkshire’s insurance business was a bright spot, with a 185% year-over-year increase in insurance revenue in the first quarter.

Shares of Berkshire are up more than 21% this year, outperforming the S&P 500’s 14% return through Thursday. The conglomerate’s market cap has ballooned to $956 billion, nearly matching the small number US stocks worth $1 trillion or more.