We're now a little over two weeks away from one of the most anticipated dates of the entire quarter. You see, 45 days following the end of a quarter, investment firms with more than $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. In simple terms, Form 13F provides an under-the-hood look at what the brightest money managers were up to over the previous quarter (in this case, October through December).
Among widely followed money managers, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett tends to take precedence on Wall Street. That's because he arguably has the most impressive investing track record of all money managers. Between the mid-1950s and present day, Buffett has seen his net worth soar from $10,000 in seed capital to $90 billion. In short, when Buffett buys or sells a stock, Wall Street pays close attention.
Considering that Buffett believes equities to be somewhat pricey at the moment, all eyes are likely to be on what the Oracle of Omaha winds up having sold in the fourth quarter. While I'm not expecting Buffett to have completely sold out of any of his 48 positions in Q4, I do believe there are three holdings he's likely to have pared down.
For one, even though Buffett and his team absolutely love money-center banks due to their moneymaking potential and high shareholder yields, they also prefer to keep Berkshire's ownership in banks below 10%. Even after selling off a substantial stake in Wells Fargo over the past two years, Berkshire's more than 378 million shares owned still translates into an 8.9% stake in Wells Fargo. As Wells Fargo looks to repurchase its own stock, Buffett may be required to continue reducing his stake to stay below this self-imposed 10% threshold.
Additionally, Buffett is more than likely displeased with Wells Fargo following its fake-account scandal in 2016. Since this scandal came to light, Wells Fargo has been put under the regulatory microscope, gone through a couple of CEOs, and widely underperformed other money-center banks. The simple fact that Buffett has been adding to Bank of America, JPMorgan Chase, and US Bancorp in recent quarters, while at the same time reducing Wells Fargo, speaks volumes.
Another relatively longtime holding that's a likely candidate to have been sold down in the fourth quarter is oil and gas giant Phillips 66 (NYSE:PSX).
Similar to Wells Fargo, Berkshire Hathaway has been consistently selling its stake in Phillips 66 for the past two years. Having ended 2018 with over 80 million shares on hand, Berkshire Hathaway's stake in Phillips 66 has shrunk to less than 5.2 million shares as of the end of September 2019.
One reason continued selling should be expected is Berkshire Hathaway's $10 billion commitment to Occidental Petroleum to facilitate its acquisition of Anadarko last year. This $10 billion represents a bet on higher oil prices over the long run, as well as implies that Buffett views Occidental as a more attractive long-term investment than Phillips 66. It probably also doesn't hurt that Occidental's dividend yield is double that of Phillips 66.
It's also worth noting that Phillips 66 has treated Buffett well. Since Berkshire's initial stake, Phillips 66 has roughly tripled in value, providing more than enough incentive for Buffett to lock in gains and deploy them to sectors he follows more closely.
Lastly, look for the Oracle of Omaha to have reduced his holdings in cable services provider Charter Communications (NASDAQ:CHTR). Keeping with the theme here, Berkshire Hathaway has pared down its stake in Charter by a little over 3 million total shares over the past seven quarters. The 5.43 million shares Berkshire owns today makes Charter Buffett's 16th-largest holding.
One reason selling could make sense is that Charter's valuation has gone through the roof in recent years, primarily due to its outperformance. Shares have more than doubled since Buffett took his initial position, with the company now valued at more than 38 times next year's consensus earnings per share. Were that not pricey enough, Charter's top-line looks to be growing only in the mid-single-digit range, which would suggest a potentially fully valued stock.
Buffett also has a track record of backing away from content providers, and selling down Charter Communications would fit with that theme. Within the past four years, Berkshire completely sold out of AT&T and Verizon, which are telecoms with an ancillary focus on content. He also dumped content giant Walt Disney on two separate occasions over his investing career. Since content service providers aren't typically in Buffett's investment wheelhouse, I'd look for the stake in Charter to have been sold down further in Q4.