As I pointed out earlier this week, an event that's arguably even more anticipated than the Berkshire Hathaway (BRK.A -0.06%) (BRK.B -0.95%) shareholder meeting is set to take place either tomorrow, May 14, or Friday, May 15. Namely, the filing of Berkshire Hathaway's Form 13F with the Securities and Exchange Commission (SEC).
Form 13F is a required filing for any company with more than $100 million in assets under management, and it's meant to provide a snapshot of what asset managers were holding in their portfolios as of March 31, 2020. With CEO Warren Buffett guiding a 48-security portfolio worth $199 billion, as of this past weekend, his company will be one of many filing a 13F with the SEC.
Having recently reported its first-quarter operating results, we know that Buffett and his team purchased $4 billion worth of equities during the quarter. However, Berkshire also sold nearly $2.2 billion in equities in Q1, according to the company's cash flow statements. Keep in mind that this figure does not include completely selling out of Berkshire's four major airline stocks, which it did in April. That'll show up on Berkshire's 13F filing in mid-August, and it will represent the company's holdings for the end of June 2020.
What, exactly, did Buffett and his team sell during the first quarter? While we'll have that exact answer very soon, I'm willing to wager that the following five stocks were on the chopping block, to some extent.
Although I've not placed these companies in any particular order, my confidence is highest of all that Berkshire Hathaway completely sold out of its stake in integrated oil and gas giant Phillips 66 (PSX 0.11%) during the first quarter. As recently as the end of 2017, the company had a position in Phillips 66 of more than 80 million shares. By the end of 2019, it had shrunk to a mere 227,436 shares. The writing is on the wall that Buffett is looking to exit the position.
Furthermore, Buffett committed $10 billion last year to help Occidental Petroleum acquire Anadarko. In return for this investment, Berkshire received preferred shares that yield 8%, as well as warrants. This would suggest that the Oracle of Omaha has found his new horse in the oil space, and after roughly tripling in value, Buffett and his team are more than happy to take their gains on Phillips 66.
Another Buffett holding that's been pared down pretty steadily over the past two years is cable and internet service provider Charter Communications (CHTR -2.96%). At the end of 2017, Berkshire Hathaway held nearly 8.5 million shares. It ended 2019 with a little over 5.4 million shares, and I'd be looking for this figure to be reduced once again.
It's not that Charter hasn't performed well for Buffett, as the stock has more than tripled since Berkshire initiated its position. Rather, its valuation has become somewhat of a concern. We're talking about a company that's valued at approximately 40 times its 2020 earnings per share growing its sales at perhaps 4% a year. Higher-margin triple-play bundled service customers also declined by 12.5% during the recently reported first quarter. Charter has been a solid investment for Buffett, but the risk-reward ratio is now skewed squarely toward risk at these levels.
Despite Buffett's love for the financial sector, we witnessed something interesting when Berkshire filed its 13F in mid-February. Namely, that Buffett had parted ways without about a third of his stake in investment bank Goldman Sachs (GS -1.03%). Buffett has previously intimated that he and his team rarely make single-quarter moves, meaning that once the arrow is pointing in one direction, buying or selling activity tends to continue for multiple quarters.
But why would Buffett consider selling more shares of Goldman Sachs when the company is valued at less than 9 times Wall Street's consensus 2021 earnings per share and is trading below its book value? My best guess is that Buffett is genuinely concerned about Goldman's cyclical ties. In recent years, it's leaned heavily on merger and acquisition activity to drive its operating results higher. But with the coronavirus disease 2019 (COVID-19) wreaking havoc on the economy, it's likely we'll see a significant drop-off in M&A activity.
Similar to Phillips 66, the writing also looks to be on the wall that insurer Travelers Companies (TRV -0.96%) was given the heave-ho during the first quarter. Keep in mind that Berkshire Hathaway sold more than 5.6 million shares of Travelers stock in the fourth quarter of 2019, leaving only 312,379 shares in its portfolio.
As with Goldman Sachs, it isn't entirely clear why Travelers has fallen out of favor. Insurers are usually among Buffett's favorite companies given their ability to pass along higher premiums to members to maintain profitability. However, Travelers is a relatively slow-growing company, and its bottom line is going to get even less help with the Federal Reserve moving its federal funds rate back to an all-time low of 0% to 0.25%. Insurers will typically invest their unused premium into ultra-safe Treasury bonds to generate interest income, which, in the near term, will be minimal, at best.
Fifth and finally, I believe we'll have seen additional selling in Berkshire Hathaway's Wells Fargo (WFC -0.69%) stake. Buffett and his team sold more than 55.1 million shares of Wells Fargo during the fourth quarter, and they've pared down the position from as much as 479 million shares in the past couple of years.
This selling could very well be partly tied to Wells Fargo's aggressive share buyback program, which has steadily reduced its outstanding share count. In order to avoid having Berkshire's stake in Wells Fargo exceed 10% -- a greater than 10% stake can lead to increased scrutiny from the Federal Reserve -- it may be periodically reducing its holdings in the company.
Additionally, Wells Fargo is still reeling from its fake account scandal in 2016, which saw 3.5 million unauthorized accounts opened at physical branches to satisfy aggressive cross-selling goals. Buffett understands that trust is a difficult thing to rebuild with consumers, and he may be looking to put his money to work elsewhere.