Finance
Here are all six stocks Warren Buffett is selling
For the better part of six decades it has Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett runs circles around the benchmark S&P500. While the S&P 500 has delivered a very respectable total return, including dividends paid, of about 34,500% since the affable “Oracle of Omaha” took over as CEO, Buffett has overseen a total gain in his company’s Class A shares (BRK. A) of more than 4,950,000%.
When you outperform Wall Street’s major stock indexes by this magnitude, you’ll achieve: That’s why about 40,000 people attend Berkshire Hathaway’s annual shareholder meeting hear Buffett talk about stocks, the American economy and his investment philosophy.
However, there are also nuggets of wisdom to be found outside these annual gatherings. Each quarter, institutions with at least $100 million in assets under management must file Form 13F with the Securities and Exchange Commission. A 13F provides investors with a concise snapshot of what Wall Street’s smartest and most successful money managers have been buying and selling.
The interesting thing about Warren Buffett is that he has been a net seller of stocks for six quarters in a row. Based on Berkshire’s 13F, which details trading activity during the first quarter, Warren Buffett was a seller of six stocks.
1. Apple: 116,191,550 shares sold (interest reduced by 12.83%)
The eye-popper during the first quarter was undeniably the recognition that Buffett and his team sold a significant percentage of their top technology stocks. Apple (NASDAQ: AAPL). Despite a second straight quarter of cuts, Apple still accounts for about 40% of Berkshire’s $371 billion in invested assets.
At Berkshire’s annual meeting, the Oracle of Omaha justified this selling activity by pointing to corporate tax rates. Buffett believed it was likely that corporate tax rates would rise in the future from the currently low historical rate of 21%, so it would be wise to lock up some of Berkshire’s capital gains in Apple now. He hypothesized that investors would come to appreciate this decision over time.
But even with this massive reduction, Warren Buffett has full confidence in Berkshire’s top holding company and its CEO, Tim Cook. Cook is the process of overseeing a multi-year transition that has seen Apple focus on higher-margin subscription services. As subscriptions become a larger percentage of total revenue, this will help smooth out the revenue fluctuations seen during iPhone upgrade cycles.
Apple also has the most robust capital return program in the world. Since initiating a share repurchase program in 2013, the company has repurchased a total of $674 billion in common stock. Buffett is a big believer in buybacks, which increase Berkshire’s ownership stake in high-quality companies over time.
2. Paramount Global: entire stake sold (63,322,491 shares)
Media inventory Big global (NASDAQ: PARA) has been completely shut down since the beginning of 2023. Although Berkshire’s 13F shows a share reduction of 88.11% through March 31, Buffett admitted at his company’s annual meeting that he had sold the entire stake at a loss.
Older media companies like Paramount have fallen victim to the ongoing trend of cord-cutting. Paramount has been actively building out its streaming services and content library, but has lost large amounts of money in the process. While it has fairly strong subscription pricing, it doesn’t seem like the company’s streaming business will be profitable anytime soon.
The advertising market was also a challenge. While 2024 offers a recovery year for traditional media networks with political ad spending on the rise, select indicators and monetary-based figures pointing to a recession are not encouraging companies to increase their marketing budgets.
3. HP: entire stake sold (22,852,715 shares)
As with Paramount, the writing was on the wall at that company for personal computer and printing services PK (NYSE: HPQ) received support from Berkshire Hathaway’s portfolio. Shares of HP fell sharply in the fourth quarter, which is often the telltale sign that Buffett’s investment thesis in a company has been broken.
While HP is undeniably cheap based on next-year earnings (a multiple of nine times consensus earnings per share), demand for personal computers (PCs) is taking longer to recover than initially expected. Although demand for PCs spiked during the early stages of the pandemic when people were confined to their homes, a return to ‘normal’ has proven difficult for this important income segment. Unsurprisingly, HP’s revenue is expected to remain stable in 2024.
Furthermore, HP’s capital return program may not have been a success for Buffett and his team. After $4.3 billion in stock buybacks in fiscal 2022 (ending October 31, 2022), HP repurchased just $100 million of stock last year, along with $500 million in the first quarter of the current fiscal year.
4. Sirius XM Holdings: 3,561,146 shares sold (interest reduced by 8.85%)
One of the biggest issues of the first quarter was the decision by Buffett and/or his top investment advisers, Todd Combs and Ted Weschler, to modestly reduce Berkshire’s stake in the satellite radio operator. Sirius XM Holdings (NASDAQ: SIRI) by almost 9% after accrual in the previous two quarters.
Most radio operators rely heavily on advertising revenue, so the aforementioned indicators of potential economic weakness may have forced these sales. In addition, auto sales tend to slow when the economy weakens. Sirius XM expects promotional customers who purchase new cars to become self-paying subscribers. Economic turbulence would slow this process.
Despite these concerns, Sirius XM stock is as cheap as it’s ever been as a publicly traded company (about 8.5 times full-year earnings). Because it makes the majority of its revenue (78% in the first quarter) from subscriptions and not advertising, it is better positioned than terrestrial and online radio operators to weather a recession.
It also doesn’t hurt that some of the key expenses, such as transmission and equipment, tend to be relatively fixed, leading to predictable operating cash flow year after year.
5. Chevron: 3,113,119 shares sold (interest reduced by 2.47%)
The Oracle of Omaha and his investment team have also slightly reduced Berkshire’s stake in the energy giant Chevron (NYSE:CVX) by approximately 2.5%. With Chevron having an aggressive $75 billion stock buyback program in place, this selling activity could simply be intended to keep its stake in the company relatively constant while the oil and gas titan buys back.
While energy stocks have not historically played a major role in Berkshire Hathaway’s investment portfolio, with the $19.3 billion currently invested in Chevron, it is Buffett’s fifth largest holding. This seems to be a pretty clear indication that he and his cohorts expect the spot price of crude oil to remain high.
During the COVID-19 pandemic, global energy companies (including Chevron) were forced to substantially reduce their capital expenditures (capex) for three years due to demand uncertainty. Although the worst of the pandemic has passed and investment spending has returned to normal, global crude oil supply constraints remain. That’s great news for spot crude prices, but also for Chevron’s high-margin drilling segment.
Don’t forget that Chevron is also an integrated energy company. In addition to drilling for oil and natural gas, it operates transportation pipelines, refineries and chemical plants. These supporting segments provide predictable cash flow and help hedge against a downturn in crude oil prices.
6. Louisiana-Pacific: 446,962 shares sold (interest reduced by 6.34%)
The sixth and final stock that Warren Buffett was a seller of in the end-March quarter Louisiana Pacific (NYSE: LPX). This supplier of wood siding products used in the construction and remodeling of new homes had nearly 447,000 shares sold by Berkshire’s brightest investing minds.
Since Louisiana-Pacific is one of Berkshire’s smaller holdings, this selling activity may have more to do with Combs and/or Weschler than Buffett. The Oracle of Omaha’s investment lieutenants are much more active than he is on the trading front, often locking in profits after a few quarters to a few years.
Perhaps the biggest negative for Louisiana-Pacific is rapidly rising interest rates, which have caused mortgage rates to skyrocket. While on the one hand the company is benefiting from strong new home sales as the inventory of existing homes for sale is low, there is the potential that sustainably high mortgage rates will negatively impact the housing market. As long as core inflation (led by shelter inflation) remains stubbornly high, there isn’t really a catalyst that forces the Federal Reserve to initiate a rate easing cycle.
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Sean Williams has positions in Sirius XM. The Motley Fool holds positions in and recommends Apple, Berkshire Hathaway, Chevron and HP. The Motley Fool has one disclosure policy.
Here are all six stocks Warren Buffett is selling was originally published by The Motley Fool
