It's amazing what a difference three months makes. Back in May, investors were stunned when Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) revealed its latest investing moves with its stock portfolio, as they largely consisted of stock sales rather than major purchases. Now, though, it appears that the Warren Buffett-led insurance giant made some big buys in the second quarter of 2020 to go along with its other repositioning moves.
Berkshire's latest filing with the U.S. Securities and Exchange Commission on Form 13-F revealed some of the shifts in strategy that Buffett made in response to the coronavirus crisis. Combined with some more up-to-date information than the June 30 date to which the 13-F disclosures apply, investors are getting a better picture of exactly how Berkshire has sought to take advantage of the stock market recovery.
1. Massive bank sales paved the way for a bigger concentration in Bank of America
We've seen in July and August that Berkshire Hathaway has dramatically increased its stake in Bank of America (NYSE:BAC), and that at least raised the likelihood that Buffett had finally chosen a favorite stock in the sector rather than playing the field. The quarterly disclosures confirmed that suspicion, as Berkshire made massive sales in the following bank stocks:
- Holdings in JPMorgan Chase (NYSE:JPM) got slashed by more than 60%, or 35.5 million shares. That corresponds to stock worth roughly $3.6 billion at recent prices, and it left Berkshire with less than a 1% stake in JPMorgan.
- Berkshire's sales of Wells Fargo (NYSE:WFC) continued, with a 26% reduction working out to 85.6 million shares worth more than $2.1 billion. Berkshire still owns nearly 6% of Wells Fargo's outstanding stock.
- More modest cuts in smaller positions included sales of about 40% of Berkshire's ownership of PNC Financial (NYSE:PNC), a 15% reduction in holdings of M&T Bank (NYSE:MTB), and a 9% drop in shares owned of Bank of New York Mellon (NYSE:BK).
Recent purchases in Bank of America don't come close to using up all the cash that these sales generated. It's possible that Buffett will make more Bank of America buys in the future, as Berkshire has received permission to own just shy of 25% of the company without being considered a bank holding company for regulatory purposes. For now, Berkshire Hathaway has cut its net bank position through these moves, and that's an interesting statement on his views of the long-term prospects for the industry in a period in which low interest rates could put ongoing pressure on profitability.
2. An interesting arbitrage play with Sirius XM
One doesn't typically think of Buffett as an arbitrageur. However, there's clearly some activity happening on the arbitrage front with respect to Sirius XM Holdings (NASDAQ:SIRI) and Liberty SiriusXM Group (NASDAQ:LSXMK).
Berkshire saw a 82.4 million share reduction in its holdings of Sirius XM Holdings stock, representing a roughly $490 million drop in the value of the position. However, Berkshire added 11.8 million shares of the more expensive Liberty SiriusXM tracking stock, worth about $420 million at current prices. Liberty SiriusXM's sole asset is stock in Sirius XM Holdings, but the tracking stock shares trade at a discount to Sirius XM Holdings' own shares. It appears that Berkshire is anticipating that discount closing in the near future and wants to profit from it.
3. A golden buy -- but not much else
Making big headlines was Berkshire's purchase of Barrick Gold (NYSE:GOLD). Although that seemed to run counter to Buffett's aversion to gold bullion, the fact that Barrick is an operating gold miner gives it advantages over investing directly in the commodity itself.
Elsewhere, though, purchases were few and far between. Berkshire took its position in STORE Capital (NYSE:STOR) up another 5.8 million shares, worth about $150 million and bringing the position right below the 10% ownership level. Increases in stakes in Suncor Energy (NYSE:SU) and Kroger (NYSE:KR) were similarly small. All in all, buybacks of Berkshire stock revealed last week and the Bank of America stock buys were the biggest purchases from the period.
More to come?
Warren Buffett never stands still, but as the stock market has moved back upward, it's likely he'll remain discriminating in his appetite for new positions. That's tough for some Berkshire shareholders to swallow, but Buffett's discipline is the company's hallmark. Those who prefer a different approach are welcome to try their own hand at picking individual stocks of their own.