There's little doubt that Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) CEO Warren Buffett is one of the greatest investors of our generation. Over the past roughly 65 years, he's turned $10,000 in investment seed capital into a net worth of over $86 billion, as of this past weekend. And, as I often remind folks, this fails to include the tens of billions he's donated to charity over the years, or the more than $400 billion in market value Berkshire Hathaway stock has created for shareholders over the years.

Maybe the most exciting thing about Buffett's investing strategy is the quarterly look under the hood provided by 13F filings with the Securities and Exchange Commission (SEC). Form 13F is a requirement for companies with more than $100 million in assets under management. It effectively allows investors a snapshot of the holdings of the country's top money managers, as well as gives us an idea of what they were up to in the previous quarter.

Berkshire Hathaway CEO Warren Buffett at his company's annual shareholder meeting.

Berkshire Hathaway CEO Warren Buffett at his company's annual shareholder meeting. Image source: The Motley Fool.

Buffett and his team were fairly active during the third quarter

This past week, Berkshire Hathaway filed its 13F with the SEC, thereby disclosing its holdings as of Sept. 30, 2019.

In terms of positional shuffling, it was actually a very active quarter for Buffett and Berkshire Hathaway, with two new purchases and five separate stock sales. As my Foolish colleague Matthew Frankel covered in detail, Buffett added two new positions to Berkshire's portfolio during the third quarter: furniture manufacturer RH and integrated oil and gas company Occidental Petroleum.

At the same time, five stocks were either reduced or given the heave-ho, including Apple, Sirius XM, Wells Fargo, Phillips 66, and Red Hat, which is now owned by IBM. It should be noted that the Red Hat acquisition was an all-cash buyout, meaning Buffett's disposition of stock was mandatory in this instance. The remaining sales really aren't that notable, with the Oracle of Omaha regularly paring back his stakes of Wells Fargo and Phillips 66 of late, and the Apple and Sirius XM sales representing a very small percentage of Berkshire's total holdings in both companies.

After the third-quarter shuffling, Berkshire Hathaway now owns exactly four dozen securities. But, in my opinion, there are three other stocks that Buffett should have sold or pared down during the third quarter.

An American Airlines 737 pulling up to a gate.

Image source: American Airlines.

American Airlines Group

In 2007, Buffett absolutely blasted the airline industry in his annual letter to shareholders. He used airlines as an example of an industry where "a durable competitive advantage has proven elusive," and proclaimed that "the worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money." And yet, Buffett has been an active buyer of airlines in recent years. Despite this 180 on airlines, I believe Buffett should be thinking about paring or abandoning his stake in American Airlines Group (NASDAQ:AAL).

On a macro level, airlines have an exceptionally poor track record of surviving downturns in the U.S. economy. The problem is that, despite being in the longest economic expansion on record (dating back 160 years), all economic expansions eventually come to an end. Contractions and troughs are simply a part of the economic cycle, and American Airlines isn't built to survive prolonged weakness in the U.S. economy.

Relative to its peers, American Airlines has what's arguably the worst balance sheet. While it's not uncommon for major airlines to be carrying around a net-debt position on their balance sheets, American Airlines has $34.4 billion in total debt, and $29.3 billion in net debt, which are high-water marks for the U.S. airline industry. Although low interest rates have been a clear blessing for American as it's pledged to upgrade its fleet, things really aren't going to get any better for the company from a balance sheet perspective than they are now. That bodes poorly for the company's future.

The Oscar Mayer wienermobile parked on a highway.

Image source: Kraft Heinz.

Kraft Heinz

Among the four dozen holdings in Berkshire Hathaway's portfolio, none has arguably been more of a dumpster fire in 2019 than food and beverage company Kraft Heinz (NASDAQ:KHC). Even though another Buffett stock has been worse in the percentage decline department, no company has cost Berkshire more money this year than Kraft Heinz. In total, Berkshire owns more than 325 million shares of the company, resulting in a year-to-date loss of almost $3.1 billion, including dividends paid, through this past weekend.

The problems really came to light for Kraft Heinz in February, when the company took a whopping $15.4 billion charge to writedown the value of a number of its brands. Even after this valuation writedown, Kraft Heinz is still lugging around $35.8 billion in goodwill, as well as $28.1 billion in long-term debt. In short, the balance sheet is a mess, and in hindsight it's become apparent that Heinz grossly overpaid for Kraft Foods a few years ago. The company probably needs quite a bit of capital to reignite North American sales, but it simply doesn't have it at the moment, with cost-cutting, rather than spending, the first order of business.

For his part, Buffett has said that Berkshire will not sell its stake in Kraft Heinz, which represents 26.7% of the company's outstanding shares. Doing so would add even more pressure to an already pummeled stock. However, I don't understand why Buffett doesn't slowly pare his position, a few million shares per quarter. Kraft Heinz doesn't appear anywhere near turning itself around anytime soon, and Buffett could certainly find better places to park his money.

Generic prescription drug tablets covering a one hundred dollar bill, with Ben Franklin's eyes peering out from between the tablets.

Image source: Getty Images.

Teva Pharmaceutical Industries

Finally, I remain somewhat surprised that Berkshire Hathaway hasn't sold a single share of embattled brand-name and generic drug developer Teva Pharmaceutical Industries (NYSE:TEVA). It should be noted that Teva was initially added to Berkshire's portfolio by one of Buffett's trusted investment team members, and not the Oracle of Omaha himself.

Initially, when Berkshire first bought into Teva, I believed that Teva met a lot of the qualities that Buffett himself would look for in an investment. And while I continue to believe in Teva (I've been a shareholder for some time), the company simply doesn't mesh with Buffett's investment style any longer.

As a refresher, Teva Pharmaceutical has seen its top-selling brand-name drug exposed to generic competition, settled bribery charges, dealt with executive turnover, and contended with generic-drug pricing weakness, all within a span of two years. More recently, it's faced lawsuits from 44 states over the role it played in the rise of opioid prescriptions in the United States. As the icing on the cake, the company also sports nearly $27 billion in total debt. These are not issues that Buffett is typically willing to tolerate, nor is healthcare a sector that the Oracle of Omaha much cares for. 

Though I believe Teva has the tools to be a long-term success story, it doesn't meet the criteria that Buffett typically looks for in an investment. As such, I believe it would have been wise for Berkshire to begin paring down its position during the third quarter.