Warren Buffett's Berkshire Hathaway (BRK.A 0.36%) (BRK.B 0.21%) owns a lot of businesses outright, including homebuilders, railroads, and insurers, but it also manages a massive $200 billion stock portfolio that every investor ought to be paying attention to. Why? Because it can take months of buying for a company to represent a meaningful share of Berkshire Hathaway's assets, and that means savvy investors can be handsomely rewarded for following in Warren Buffett's footsteps.
Of course, Warren Buffett doesn't ring a bell to let everyone know when he buys a stock, but Berkshire Hathaway does file a quarterly report with the SEC that discloses his most recent changes. The latest of those 13-F reports was released this week, and it reveals intriguing stocks that Main Street investors can consider buying, too, including Goldman Sachs (NYSE: GS), JPMorgan Chase (JPM -0.40%), and, somewhat surprisingly, the software giant Oracle Corp. (ORCL -1.62%).
IMAGE SOURCE: MOTLEY FOOL.
Betting big on banks
Warren Buffett's been a fan of the banking industry for a long time, and some of his best investments over the past 10 years have been in banks he bailed-out in 2008 during the Great Recession, including Goldman Sachs. In exchange for $5 billion, Buffett got preferred shares in Goldman Sachs yielding 10% and warrants that allowed him to buy millions of Goldman Sachs shares prior to October 2013.
Buffett netted about a 35% return when Goldman Sachs repurchased the preferred stock from him in 2011. His decision to exercise his warrants in 2013 to acquire 13.1 million Goldman Sachs shares has paid off, too, because he didn't have to put up any cash to acquire those shares, and Goldman Sachs' share price is trading at more than $200 as of this writing.
Over the past few years, he's sold some of his shares, but he switched gears and started buying again this summer when share prices slid. In the second quarter, he increased his position in the investment bank by 21%, and in the third quarter, he increased his ownership by another 38%. When all was said and done, Berkshire Hathaway exited September owning 18.3 million Goldman Sachs shares worth about $3.7 billion, making it the investment bank's fourth-largest investor.
Warren Buffett's big bank shopping spree didn't stop there. He also added to existing positions in Bank of America, U.S. Bancorp, and Bank of New York last quarter, and he started a new 6.1 million share position in PNC Financial Services Group. Additionally, after years of admiring JPMorgan's CEO, Jamie Dimon, from afar, he bought 35.6 million shares in the banking giant last quarter, making Berkshire Hathaway JPMorgan's 14th-biggest investor.
| Berkshire Hathaway's Big Bank Buys (shares owned) | ||||
|---|---|---|---|---|
| Company | 9/30/2018 | Shares bought | 6/30/2018 | % Change |
| Goldman Sachs | 18,353,635 | 5,099,145 | 13,254,490 | 38.47% |
| Bank of America | 877,248,600 | 198,248,600 | 679,000,000 | 29.20% |
| US Bancorp | 124,923,092 | 24,229,218 | 100,693,874 | 24.06% |
| Bank of NY Mellon | 77,849,476 | 13,049,100 | 64,800,376 | 20.14% |
| JP Morgan | 35,664,767 | 35,664,767 | 0 | New |
| PNC Financial | 6,087,319 | 6,087,319 | 0 | New |
His willingness to buy so many shares in banks, including JPMorgan, suggests he thinks concerns that rising interest rates will crimp loan demand are overblown. It may also indicate he believes any weakness caused by a slowdown can be offset by expanding margins as net interest margins, or the spread between lending rates and funding costs, increase. For perspective, the net interest margin at all U.S. banks reached a five-year high of 3.3% in Q2.
IMAGE SOURCE: Federal Financial Institutions Examination Council (US), Net Interest Margin for all U.S. Banks [USNIM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/USNIM, November 15, 2018.
Targeting technology
Warren Buffett made big news when he started buying Apple in 2016, but now that Apple has grown into Berkshire Hathaway's largest holding, Berkshire Hathaway has turned its attention to another technology stalwart: Oracle. Berkshire Hathaway bought 41.4 million shares in Oracle worth about $2 billion last quarter, making it Oracle's fourth-largest shareholder.
Unlike Apple, which continues to defy the law of big numbers by posting double-digit revenue growth, Berkshire's interest in Oracle appears to be because of its valuation. In its most recent quarter, Oracle's sales only inched up 2% year over year, after adjusting for currency, and its guidance for this quarter is for 0% to 2% growth.
Oracle made a name for itself by offering on-premises technology solutions to companies, but companies are increasingly embracing off-premises, cloud-based solutions. Oracle is responding with its own cloud services, but growth in its cloud business is being offset by slowing demand for its legacy products.
Oracle's still generating mountains of cash flow, though, and that's allowing it to return a lot of money to its investors. It bought back $10 billion in shares last quarter, and it plans to spend another $12 billion on repurchases in the future. With $60 billion in cash on its balance sheet and $13.7 billion in cash flow last fiscal year, it seems to have plenty of financial wiggle room to continue its shareholder-friendly ways.
It's anyone's guess if Berkshire Hathaway will buy more shares in Oracle because of its cash flow, but it's certainly possible.
Warren Buffett recently sold all of Berkshire's IBM shares, so he's far from overweight in the technology sector, and he has tens of billions of dollars in ready cash he'd like to get invested. Oracle only represents about 1% of Berkshire Hathaway's stock portfolio, too, so it's a pretty small position relative to the portfolio's top holdings.
Nevertheless, Oracle's cloud business has yet to break into the top five in terms of market share, and its slow-growth legacy products are likely to continue weighing down its top line for a while, so investors might want to approach its stock more cautiously than some of those banking stocks.
Overall, I think it might be better to follow Buffett's lead and buy JPMorgan. He's always focused on owning companies that are managed by great people, so his admiration of Dimon and the fact he usually winds up becoming one of the biggest owners of the banks he buys has me thinking he'll be buying more JP Morgan shares this quarter.
