Warren Buffett is the planet's third-richest person, according to Forbes' annual ranking. His $82.5 billion net worth makes him the wealthiest investor in the world. Clearly, he knows a thing or two about picking the best stocks, and fortunately, his company -- Berkshire Hathaway (BRK.A -0.15%) (BRK.B -0.07%) -- is required to share his most recent buys every quarter.
Berkshire Hathaway's latest list was released this week, and his biggest buys may surprise you. Here's what he's betting his billions on now.
Making up for lost time
Buffett made billions of dollars saving the U.S. financial system from disaster exiting the Great Recession. For example, a $5 billion investment in Bank of America (BAC -3.37%) in 2011 nabbed him preferred stock and warrants that allowed him to acquire 700 million shares in 2017 at the bargain-basement price of $7.14 per share.
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One banking stock Buffett didn't invest in at the time was JPMorgan Chase (JPM -1.41%), the largest U.S. chartered commercial bank by assets, according to the Federal Reserve Board. Buffett has long-admired JPMorgan CEO Jamie Dimon, and he's on record saying that Dimon's letters to shareholders are must-reads for everyone.
Although Buffett didn't take advantage of JPMorgan's recessionary price tag, he did finally begin buying shares in the bank during the third quarter of 2018. He exited last September owning 35.6 million shares, enough to make Berkshire Hathaway JPMorgan's 14th-largest shareholder.
He's continued to increase his stake since then. Berkshire Hathaway increased its position to 50.1 million shares in the fourth quarter, and in the first quarter, that position increased to 59.6 million shares worth an estimated $6 billion. It appears Buffett isn't the least bit concerned that a trade war with China or the possibility of higher interest rates will derail JPMorgan's financials.
In 2018, JPMorgan's revenue was a record $111.5 billion, and its net income was an impressive $32.5 billion. That momentum continued in Q1, with management reporting a 4.7% year-over-year increase in revenue to $29.9 billion. Net income in the quarter totaled $9.2 billion. Both were records, so Buffett's optimism is understandable.
That wasn't the only bank he bought
JPMorgan has fast become one of Berkshire Hathaway's biggest positions, but it's not the only bank he cozied up closer to last quarter. He also bumped up his ownership of PNC Financial Services Group (PNC -1.94%), a Pennsylvania bank founded in 1852 that's become one of the largest financial services companies in the U.S.
PNC has its hands in just about everything. It operates bank branches to provide banking services to individuals and businesses. Its institutional banking business helps investment firms with their day-to-day operations, and its wealth management business helps everyday investors save more money for retirement. Overall, PNC recorded $4.3 billion in revenue and net income of $1.3 billion in the first quarter.
In fact, the bank's business has been so brisk that it rewarded investors by buying back 5.9 million shares and paying out $438 million in dividends last quarter. Since its net interest margin, or NIM, a measure of the gap between funding costs and interest earned on loans, is nearly 3%, Buffett arguably thinks PNC's in position to return even more money to investors in the future. In Q1, Berkshire Hathaway's position increased 4% to 8.7 million shares worth a little over $1 billion.
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A terrible investment? Not anymore
A foray into airlines in the 1989 left such a bad taste in Buffett's mouth that he railed against owning airlines for 25 years. In 2007, he said that a
... durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.
He followed up that assessment more succinctly in 2013, calling the industry a "death trap for investors."
His disdain for airlines made his decision to start buying them by the handful in 2017 incredibly surprising. Since then, he's established large positions in a handful of the country's largest players, including Delta Air (DAL -0.28%), which has arguably become his favorite. In the first quarter, he increased his ownership in Delta Air by 8% to 70.9 million shares. The $3.7 billion investment means he owns over 10% of the airline, making Berkshire Hathaway its biggest shareholder.
Why the enthusiasm? It appears Buffett thinks the industry has finally learned its lesson. Rather than over-building capacity and engaging in profit-busting price wars, the industry is taking a more measured approach to growth and doing better at holding the line on costs and ticket prices. In Q1, revenue grew 7.5% year over year, premium ticket prices increased 8%, and cost per available seat mile fell 0.2%, resulting in adjusted net income of $639 million, up 21% from the same quarter last year.
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It's better late than never
Airlines aren't the only surprising shift in Buffett's thinking. Over the past couple of years, he's been increasingly more effusive about Jeff Bezos, visionary CEO and founder of e-commerce Goliath Amazon.com (AMZN 0.04%). Buffett acknowledged last year that Amazon had "far surpassed anything I would have dreamt could have been done." He went on to say, "I should have bought it. I had no idea that it had the potential. I blew it!"
Apparently, that thinking was enough to convince Berkshire Hathaway to act when Amazon's share price slipped last quarter. The company acquired 483,300 shares worth nearly $1 billion. Buffett says his lieutenants were behind the purchases, but that doesn't mean he wasn't involved or the stake couldn't grow in the coming quarters. After all, Buffett attributed Berkshire Hathaway's first shares in Apple to one of his portfolio managers. Today, Apple is Berkshire Hathaway's biggest holding, representing $47 billion of the roughly $200 billion in equities it owns.
Of course, that doesn't mean Amazon will similarly become a top holding for Buffett. But I wouldn't bet against the possibility. After all, Amazon is big, but it still has plenty of levers to pull to get bigger. It's sales are still only half that of Walmart, and e-commerce sales overall still account for less than 10% of all retail sales, according to the U.S. Census Bureau. Additionally, leveraging its vast technology resources has turned Amazon into a cloud-computing giant and a top provider of online entertainment.
Amazon's net sales increased 31% to $232.9 billion, and its net income surpassed $10 billion for the first time in 2018. Given how big its addressable markets are, it wouldn't surprise me to see Amazon deliver even greater profits in the future -- or for it to become a much bigger position in Buffett's portfolio.
