After selling off $430 million of equities in the fourth quarter of 2003 and approximately $150 million in the first quarter of 2004, Berkshire Hathaway (NYSE: BRK.A ) (NYSE: BRK.B ) added stocks worth about $80 million (net of stock sales) to its equity portfolio in the second quarter. Given that Berkshire's equity holdings total more than $36 billion, an increase of $80 million is hardly an overwhelming vote of confidence that the U.S. equity markets have hit bottom. But the moves do indicate that some attractive values may be emerging in beaten-down sectors.
As W.D. Crotty reported on Aug. 17, the biggest move in the Berkshire portfolio was the addition of 8 million shares of Pier 1 Imports (NYSE: PIR ) , currently valued at just more than $141 million. Along with the rest of the retail sector, Pier 1 has been battered, and its attractive valuation and strong balance sheet clearly caught the eye of Berkshire's stock-pickers.
The only other increase in the Berkshire portfolio was American Standard (NYSE: ASD ) , a diversified manufacturer of air conditioners, bathroom fixtures, and brakes. Sexy and exciting? Perhaps not. But the stock has returned more than 44% in the last year in a lackluster market and has significantly outperformed the S&P 500 and the Nasdaq in the last five years. The stock split three-for-one in May, and Berkshire increased its position by about 8%, bringing the total holding to almost $425 million.
Berkshire did continue to make some reductions in its equity portfolio. Holdings of Zenith National Insurance (NYSE: ZNT ) were cut by more than 50%, and holdings in Mueller Industries (NYSE: MLI ) , a maker of copper tubes and fittings, were cut by about 20%. Both of these companies represent only a small portion of the portfolio -- after the reductions, Berkshire held only about 54,000 shares in Zenith worth less than $3 million and just under 2 million shares of Mueller worth about $70 million.
The largest cut in absolute dollar terms was a sale of about 6% of its shares of HCA (NYSE: HCA ) . Berkshire sold off 910,000 shares of the health-care company, valued at approximately $38 million. In addition, Berkshire also made small reductions of less than 1% in its holdings of Gannett (NYSE: GCI ) and Sealed Air (NYSE: SEE ) .
It should come as no surprise that Buffett is looking at the beaten-down retail sector for investment opportunities. Berkshire's moves in the equity market in the next few quarters will be particularly interesting to watch -- Buffett has repeatedly said in the past that he was not finding many attractive opportunities in stocks. But if the market continues to fall, Buffett may start to do more than just nibble, and we could see some more aggressive buying from him soon. Stay tuned.
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Fool contributor Salim Haji lives in Denver. He owns shares in Berkshire Hathaway but not in any of the other companies mentioned.
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