Each quarter, the biggest investors and financial holdings companies are required to report their holdings to the SEC using the form 13-F (or D or G). These forms, which are made public soon after filing, can be interesting sources of information, giving us a peek at the investing decisions being made by some of the biggest and most successful investors.
No company's 13-F filing gets more scrutiny than that of Berkshire Hathaway Inc. (BRK.B -0.26%) (BRK.A -0.30%). And that stands to reason, considering that Warren Buffett, widely considered the best investor of our time, continues making Berkshire's biggest capital allocation decisions.
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This quarter, Berkshire continued to sell shares of Phillips 66 (PSX -0.35%), the refining, midstream, and petrochemicals giant. After selling about $1.4 billion in shares last quarter, Berkshire has cut its stake in Phillips 66 by more than 80% in less than a year. Let's take a closer look at what's happened.
From top holding to small potatoes
If we rewind just a couple of years, Phillips 66 had become one of Berkshire's bigger holdings. At the peak, Berkshire owned more than 80 million shares of the refining giant, giving it a nearly 16% stake in the company and making it the single biggest shareholder. It held that amount of the company for more than a year before starting to reduce its stake in the first quarter of 2018.
After last quarter, Berkshire had bigger investments in at least 20 other companies, and Phillips 66 made up less than 1% of the Berkshire stock portfolio.
Why is Berkshire selling?
I'm not going to try to read Buffett's mind here, but there are some concerns that refiners may not see the same level of profitability in the next couple of years as they have in the past year or so.
Phillips 66's business results have been phenomenal over the past year. Like many refiners with a big U.S. presence, the company has seen its earnings and cash flows skyrocket as the spread between U.S. crude and international crude prices has widened. At the same time, its joint-venture petrochemicals business has continue to perform well.
However, the market's recent reaction has been one that seems to indicate it thinks the near future won't bode quite so well for refiners as the differential between U.S. and overseas oil narrows. It's possible that has played some role in the decision to significantly cut the Berkshire stake in Phillips 66.
At the same time, the Berkshire move could be less about concerns that refiners will struggle and more about a shift in capital to a segment Buffett has always done well in: banking. Last quarter, Berkshire added more than $10 billion to investments in five banks it already held significant stakes in.
What should investors do?
As a starting point, I think it's a mistake to blindly act based on what any other investor does. That's especially true regarding 13-F data, since it covers trades that might have been made as long as four months ago. Furthermore, there's no knowing what Buffett's motivation was. And he's not managing your portfolio.
Making the case for Phillips 66, I can only say that it remains a solid value. Its share price has fallen more than 18% since the period covered in this 13-F filing. Shares now trade for a single-digit earnings multiple, and its dividend yield is back above 3%.
If you're looking for a solid, relatively diversified energy investment with a predictable dividend, Phillips 66 certainly checks those boxes. It's also more insulated from oil and gas swings, since it's not a producer, and its cash flows are relatively stable since refined products demand doesn't swing a lot, while its midstream and petrochemicals segments also generate steady cash flows.
Buffett's decision to sell so much of the company over the past year is notable, but don't let his actions poison the well. Philips 66 remains a very well-run, cash-cow business that has done well for its shareholders. I would expect that to continue over the long term.
