Warren Buffett is arguably the best investor on the planet, and his penchant for picking winners for long-haul portfolios makes it worth paying attention to the stocks he's buying for his Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) portfolios. Fortunately, big investors like Buffett are required to file a 13F report with the SEC every quarter that shows what they've been up to.
A big win that's getting bigger
Back in 2012, Warren Buffett told investors that Steve Jobs called him a few years prior with questions on how best to spend Apple's cash war chest. Buffett told Jobs to buy back Apple's stock, but Jobs didn't.
It took a while, and a sell-off, but Warren Buffett has finally followed his own advice and taken a big (and growing) stake in Apple for Berkshire Hathaway.
Apple shares showed up in Berkshire Hathaway's portfolio last year, and at the time, Buffett said the shares had been bought by one of his lieutenants. Maybe so, but Berkshire's position in Apple has grown steadily since then, and now it's Berkshire Hathaway's sixth largest holding, by value.
So far, buying Apple shares has proven savvy. In the wake of worry over slowing iPhone sales, shares hit a low of $90 last May. Today, they're at $135.
It's anyone's guess how long Apple will remain in Berkshire Hathaway's portfolio, or if Berkshire Hathaway will buy more shares this year, but there are reasons why investors might want to look for a chance to pick up shares in the company, too. Apple iPhone sales bounced back to growth last quarter, and management's plans to double services sales by 2020 could provide a lot of margin-friendly support to Apple's bottom line.
Investors may also benefit from any tax reform that allows the company to repatriate some of the $200 million-plus in cash it holds overseas. And investors should probably expect that Apple's dividend payment is going higher, not lower, in the coming years. Currently, shares yield 1.7%.
One of the most surprising stocks that Warren Buffett has bought in the past year is airline stocks, including Delta Air Lines, Inc. In the past, Buffett has called airline stocks terrible investments, but he appears to have changed his mind -- in a very big way.
In the third quarter, Berkshire Hathaway acquired roughly $1 billion worth of American Airlines, Delta Air, and United Continental stock. After the news of those purchases broke, Buffett told CNBC that he had picked up shares in Southwest, too.
The scattershot approach to airlines could mean that Buffett's bet is less stock specific and more driven by the potential for travel to pick up alongside economic growth. With unemployment low, wages beginning to climb more quickly, and corporate friendly tax reform on deck in Washington, D.C., there's reason to think that the travel industry could benefit from rising demand.
If so, then Warren Buffett's decision to bulk up his position in airlines stocks in the fourth quarter could be smart. In the quarter, Berkshire Hathaway's stake in Delta Air Lines sky-rocketed 847%. That 60 million-plus share stake in Delta Air Lines is worth more than $3 billion, which makes it Berkshire Hathaway's biggest airline investment.
Delta Air Lines has said it wants to return 70% of its annual free cash flow to investors. Considering the company's recent history of big dividend increases and the fact that share buybacks are wrapping up soon, investors might be getting some good news from management in the near future. The company has increased its dividend payout by 237.5% since 2013, including a 50% increase last May. Given that Delta's payout ratio is only 15.9%, it wouldn't be a surprise if another large dividend increase comes again this year.
Couple the potential rewards of a rising dividend with the potential for growing travel demand to support airfares and load factor, and maybe airlines aren't as terrible of an investment as they used to be.
Getting in on grains
Warren Buffett is also betting that Bayer's planned megamerger with grains giant Monsanto passes muster with regulators. Berkshire Hathaway's portfolio includes 8 million shares of Monsanto as of Dec. 31.
As a refresher, Bayer inked a deal to buy Monsanto last year for $128 per share in cash. However, this merger would create a global giant in seeds and crop protection, and that may create a lot of obstacles to overcome if the two hope to get government approvals. According to number crunchers at Bloomberg, the odds of this deal closing were about 40% on Valentine's Day.
Those odds could understate the likelihood of this happening, however, given that the mood in Washington, D.C. has become far less anti-business since November's election. In January, Bayer and Monsanto executives may have helped their cause by offering promises to boost jobs and spend $8 billion in the U.S. if the deal closes.
If the deal goes through, then the all-cash nature of this acquisition could make Monsanto's stock worth owning in portfolios. Monsanto's currently trading at around $109, which is a 17% discount to the offer price.
Even if the deal doesn't close, Monsanto won't walk away completely empty-handed. Bayer's on the hook to pay Monsanto a $2 billion break-up fee if the merger falls through. Even so, this one isn't your typical buy-and-hold Warren Buffett buy, so investors might be better off looking elsewhere.
Todd Campbell owns shares of Apple. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.