The world's top long-term investor, Warren Buffett, just unveiled his most recent buys, and the stocks he added to Berkshire Hathaway's (NYSE: BRK-A)(NYSE: BRK-B) portfolio might surprise you. The Oracle of Omaha's penchant for picking great investments makes his quarterly updates must-know news, so here are the top stocks he's betting his money on now.
A foot on the gas
Warren Buffett went into the fourth quarter owning over 52 million shares in General Motors (GM +3.42%), but apparently that wasn't enough. He increased his stake in the automotive giant by 19.8 million shares last quarter, bringing his total position north of 72 million shares. That's enough for Berkshire Hathaway to crack into the top five largest owners of General Motors stock.
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Buffett's growing interest in GM could stem from the company's significant investment in electric vehicles and autonomous driving and a restructuring announced in November. GM plans to double its investment in next-generation vehicles and self-driving cars over the next two years, and it expects to generate $6 billion in annual savings due to its restructuring.
The restructuring will mean GM's financials take a short-term hit, but the long-term payoff from the savings makes that hit worthwhile. The company aiming to become a leader in next-generation vehicles is supported by plans to launch a self-driving taxi service in 2019, and last month it announced Cadillac will be its lead electric vehicle brand, positioning it to challenge companies like Tesla in the luxury segment.
Increasing Berkshire Hathaway's position in GM last quarter is already paying off. On Feb. 6, GM reported net income of $8.1 billion in 2018, including a $2 billion profit in Q4 because of surging truck and SUV sales. The company expects its adjusted earnings per share will be between $6.50 and $7 in 2019, and that suggests the company will kick off plenty of investor-friendly free cash flow to support its operations this year.
A big bet on banks gets bigger
Warren Buffett helped save the banking industry during the Great Recession, but it wasn't until Q3 2018 that he stepped up to include banking giant JPMorgan Chase (JPM 0.79%) as a Berkshire Hathaway top holding.
JP Morgan is headed by Jamie Dimon, perhaps the most respected leader in financial services. Dimon successfully navigated JPMorgan through the recession and economic recovery, and Buffett is on record saying that Dimon's quarterly letters are a must-read for investors.
In the fourth quarter, Buffett increased his stake in JPMorgan from 35.7 million shares to 50.1 million shares. As a result, Berkshire Hathaway is now a top 10 shareholder with a position worth nearly $5 billion. Clearly, Buffett's playing the long game with this stock, because JPMorgan's fourth-quarter profit of $1.98 was $0.23 shy of industry watchers' forecast. Still, JPMorgan's consumer and community banking net revenue was up 13% year over year to $13.7 billion in the quarter, and its total revenue companywide hit a record $111.5 billion in 2018. Net income for the year was a staggering $32.5 billion.
JPMorgan has tentacles intertwined throughout finance, but Buffett's commitment stretches beyond owning its shares. Last year, Berkshire Hathaway announced it's working with JPMorgan and Amazon.com to revolutionize healthcare in America. As part of that effort, the three companies founded a nonprofit to disrupt healthcare to provide their companies and others with savings. Oh, and let's not forget, Berkshire Hathaway portfolio manager Todd Combs sits on JPMorgan's board of directors.
Check out the latest GM and JPMorgan earnings call transcripts.
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And an oil bet, too
Warren Buffett likes to dabble in oil. He doesn't typically buy oil stocks and hold onto them forever. Instead, he likes to opportunistically buy and sell them when the timing is right. The latest energy stock that's fallen into his favor is Suncor Energy (SU 1.97%), an integrated energy company that explores for and produces crude oil and natural gas. Suncor Energy also transports and refines crude oil into gas and chemicals.
Berkshire Hathaway acquired 10.8 million Suncor Energy shares last quarter, but its $301 million position is relatively modest given the size of its portfolio, so it wouldn't be too surprising if it was buying more shares this quarter.
The company likely landed on Buffett's radar because of the fire sale that was going on in oil stocks last quarter. Suncor Energy didn't escape that sell-off unscathed. Its shares tumbled from a peak of $42 in August 2018 to a low of $26 the day before Christmas. It seems that discount price was too low for Berkshire Hathaway's managers to ignore.
There's good reason to believe Suncor's shares fell too far, too fast. Its Fort Hills oil sands play started producing oil early last year and is expected to have a 40-year life span. Therefore, short-term declines in oil prices probably shouldn't be extrapolated too far into this company's future, especially since declining oil prices didn't dent Suncor's financial results very significantly last quarter. On Feb. 6, Suncor announced that total fourth-quarter production was a record 831,000 barrels of oil equivalent per day, and fourth-quarter revenue was a respectable $8.94 billion. It posted a net loss because of fair value writedowns, but its operating cash flow was still over 3 billion Canadian dollars in the quarter.
As evidence of its conviction in its future, Suncor upped its dividend by 17% earlier this month, and that gives it a dividend yield above 5.1%. Also, Suncor's board of directors approved a CA$2 billion share buyback, suggesting Buffett isn't the only one who thinks this company's shares are a bargain.
