Warren Buffett became one of the world's most successful investors by buying shares in underappreciated companies. In fact, his stock-picking record is so good, he's one of the wealthiest people on the planet. His success suggests that keeping track of the stocks he purchases for his investment company, Berkshire Hathaway (BRK.A -0.70%) (BRK.B -0.64%) could be smart. Fortunately, Berkshire Hathaway discloses the stocks it owns to the Securities and Exchange Commission every quarter in a report known as a 13-F.
The latest 13-F was released this week, and in it, we learn Berkshire Hathaway's portfolio consists of 48 stocks, including three stocks it bought in the second quarter and one stock it received as a spinoff from one of its existing holdings. Among them were a major grocery-store chain, a luxury retailer known for lavish locations, an insurer, and a generic-drug maker focusing on women's health. Read on to find out if these four stocks are right for your portfolio, too.
The stocks Buffett bought
As I mentioned, the Oracle of Omaha didn't find anything new to add to Berkshire Hathaway's portfolio. Instead, Berkshire Hathaway added to existing positions in Kroger (KR 1.32%), RH (RH 1.16%), and Aon (AON -1.24%). It also received shares in Organon (OGN -0.27%) when Merck (MRK 1.06%) spun it off on June 3. Berkshire already held the healthcare giant in its portfolio.
|Company||Shares Berkshire Held as of March 31||Shares Berkshire Held as of June 30||Increase|
Data source: Berkshire Hathaway.
Betting on a turnaround
Kroger's come a long way since 2017, when low margins and costly expansion plans caused its shares to tumble nearly 50% from its highs in 2016. Since then, a plan including cost-cutting, a renewed focus on its core grocery business, and e-commerce has turned things around, causing its share price to more than double.
Last summer, Kroger accounted for only 0.37% of Berkshire Hathaway's portfolio, but Berkshire now owns 61.8 million shares worth $2.4 billion, representing 0.81% of its portfolio. That's large enough for it to rank as Berkshire Hathaway's 15th largest position.
So far, Buffett's bet on Kroger is paying off. Kroger's digital sales have tripled since 2019, and in its recent earnings conference call, management said strong demand for premium products contributed to better-than-expected earnings. As a result, Kroger increased its full-year fiscal 2021 EPS target to above $2.95, it authorized a new $1 billion stock-repurchase program, and it boosted its dividend payout by 17% to $0.21 per share, giving it a forward yield of 1.9%.
Home prices are helping this retailer's sales soar
Berkshire Hathaway also increased its position in RH, formerly Restoration Hardware. Last quarter, Buffett's team added over 35,000 shares in the luxury retailer, bringing total ownership in the company to 8.5%.
RH has benefited from significant tailwinds in the past year. COVID-driven homebuying trends, such as owning rather than renting and second home purchases, have caused home prices to increase significantly because of limited supply, unlocking demand for RH's products, including luxury furnishings. Meanwhile, higher wages and stimulus payments have boosted savings and disposable income, increasing consumer spending.
In its fiscal quarter ending in April, RH's top-line sales grew 78% year over year to $861 million, and EPS of $4.89 increased an eye-popping 285% from the same quarter last year. Those results prompted management to tell investors in June it expects to be net debt-free later this year.
RH expects its full fiscal year sales growth will be above 25%, up from prior estimates for growth of at least 15%, but that outlook could change when it reports its next quarterly update on Sept. 9.
A unique way to play risk
If COVID has taught us anything, it's that the unexpected ought to be expected. Perhaps that's one reason Berkshire Hathaway has been stockpiling shares of Aon, the world's second largest insurance broker.
Berkshire Hathaway came into the second quarter owning over 4 million shares in Aon, and it added almost 300,000 shares during the quarter, making Aon its 24th largest position. A lot has happened to Aon since Buffett was buying in Q2, though.
Last year, Aon announced plans to merge with Willis Towers Watson, the third largest insurance broker, in a $30 billion deal. However, the U.S. Department of Justice filed suit in June to block the merger, citing anticompetitive risks, and Aon abandoned its merger plans in July.
It remains to be seen whether Buffett was hoping for the merger to proceed or fail, so it will be important to keep an eye on what happens with his Aon shares in the third quarter. Unfortunately, we won't know if he's a buyer or seller until Berkshire Hathaway's next 13-F report is released in November.
The final stock Berkshire Hathaway bought in the second quarter was also the only stock that was new to the portfolio in the period, Organon. Berkshire Hathaway came to hold its Organon shares when Merck spun it off in June.
Organon's product lineup consists of biosimilars and a slate of women's health drugs Merck developed, including contraceptives NuvaRing and Nexplanon. The spinoff was orchestrated to jettison noncore assets and unlock value for Merck investors.
The company reported second-quarter results earlier this month. In the quarter, revenue inched up 3.9% from the same quarter one year ago, which was much better than the 15% year-over-year decline reported in the prior quarter. It also reported better-than-expected adjusted EPS of $1.72, and it instituted its first dividend, deciding to pay $0.28 per share quarterly.
It's unclear whether Berkshire Hathaway will hold on to its shares, though. The 3%-plus dividend yield is intriguing and second-quarter results are encouraging, but Organon accounts for only 0.02% of Berkshire Hathaway's assets, so there's no guarantee it will still be in the portfolio next quarter.