Berkshire Hathaway (BRK.A -0.72%) (BRK.B -0.67%) CEO Warren Buffett knows a thing or two about investing. Since he took the reins in 1965, Berkshire Hathaway's Class A shares (BRK.A) have generated a 3,641,613% return, which is 120 times greater than the benchmark S&P 500, including dividends paid, over the same time frame (through Dec. 31, 2021).
Whereas the 2022 bear market has led to a lot of nail-biting among Wall Street professionals and everyday investors, the Oracle of Omaha has used this downturn as an opportunity to deploy tens of billions of dollars of his company's war chest. Investors know this thanks to 13F filings and Berkshire's quarterly operating reports.
Warren Buffett has gone on a buying spree in 2022
A 13F is a filing with the Securities and Exchange Commission that allows investors a detailed look at what money managers with at least $100 million in assets under management bought and sold in the most recent quarter. Even though 13Fs are detailing buying and selling activity that's at least six weeks old, they can still clue investors into the stocks and trends that have intrigued successful money managers like Buffett.
According to three 13F filings and three quarterly reports since the beginning of the year, Berkshire has bought 19 stocks in 2022. The figure next to each company represents the aggregate number of shares purchased this year.
- Occidental Petroleum (OXY 0.58%): 194,351,650 shares purchased
- Chevron (CVX -0.22%): 127,114,282
- HP (HPQ -1.36%): 104,476,035
- Paramount Global (PARA -0.18%): 91,216,510
- Taiwan Semiconductor Manufacturing (TSM 1.01%): 60,060,880
- Citigroup (C 0.80%): 55,155,797
- Activision Blizzard (ATVI): 45,483,745
- Ally Financial (ALLY 2.10%): 30,000,000
- Celanese (CE 1.71%): 9,710,183
- Apple (AAPL -0.37%): 7,666,765
- Louisiana-Pacific (LPX 0.31%): 5,795,906
- Formula One Group (FWON.K 4.11%): 5,603,705
- Floor & Décor (FND -1.74%): 3,936,291
- McKesson (MCK -0.32%): 3,198,344
- RH (RH 3.80%): 543,453
- Markel (MKL 0.31%): 467,611
- Jefferies Financial (JEF 1.01%): 433,558
- General Motors (GM 1.16%): 10,000,000 net shares sold (2,045,846 purchased in Q1, 9,168,488 sold in Q2, 2,877,359 sold in Q3)
- Berkshire Hathaway: 6,818 BRK.A shares and 6,850,133 BRK.B shares
The Oracle of Omaha is betting big on energy
One of the most eye-popping shifts in buying activity this year has to be Buffett's focus on energy stocks. At no point this century, prior to 2022, had energy stocks accounted for more than 8.9% of Berkshire Hathaway's invested assets. As of the end of the third quarter, energy stocks made up 12.1% of the company's investment portfolio.
Just two stocks make up this gigantic energy bet: Chevron and Occidental Petroleum. Keep in mind Berkshire also owns $10 billion in preferred stock of Occidental, so Buffett's bet on the sector is actually a bit larger than 12.1% advertised by the company's 13F.
The logic behind this bet is that crude oil and natural gas prices will remain well above their historic averages for years to come. Since energy companies slashed capital investments across the board during the COVID-19 pandemic, boosting the supply of energy commodities to meet a sudden surge of demand could prove difficult. Russia's invasion of Ukraine in February 2022 is only complicating matters.
Chevron and Occidental are also integrated energy companies. In addition to high-margin drilling, they operate midstream and/or downstream assets, such as chemical plants or refineries. Being integrated helps these companies better navigate oil and natural gas price swings.
Tech is a new-found love
The Oracle of Omaha and his team have never been big tech stock investors -- but that's beginning to change. Aside from adding to Apple, which made up 40% of Berkshire Hathaway's nearly $346 billion investment portfolio as of this past weekend, Buffett has overseen the purchase of more than 104 million shares of HP, over 45 million shares of Activision Blizzard, and north of 60 million shares of Taiwan Semiconductor (also known as TSMC) this year.
Why tech? First off, tech stocks have been hit hardest during the 2022 bear market. Buffett understands that tech has a history of outperforming during long-winded bull markets and may be setting his company up to benefit from the next lengthy expansion.
Second, the Taiwan Semiconductor buy can be viewed as an extension of Berkshire's big bet on Apple. TSMC is the exclusive provider of silicon processing chips used by Apple in its products. If Buffett is a firm believer that Apple's innovation will drive sales and profits higher, it only makes sense that one of its key chip suppliers will benefit, too.
And third, Buffett often can't turn down a good value when he sees one. Personal-computing and printing solutions company HP can be bought for roughly 7 times Wall Street's forecast earnings in 2022. Though HP isn't a fast-paced business like it once was, PC sales tend to be relatively predictable, which leads to steady cash-flow generation. HP has used its abundant cash flow to increase its dividend and buy back its common stock.
Dividend stocks are always popular
Something else you'll likely notice is that most of the 19 stocks Buffett and his investment team have purchased in 2022 pay a regular dividend. Over the next 12 months, Berkshire Hathaway is on pace to collect over $6 billion in dividend income.
Though income stocks took a back seat to growth stocks when interest rates were at or near historic lows, it's now the perfect time for dividend stocks to shine. Companies that regularly pay a dividend are usually profitable, time-tested, and have a knack for outperforming stocks that don't pay a dividend over multiple decades.
For instance, money-center bank Citigroup is parsing out an inflation-fighting 4.2% yield, as of last weekend. Even though bank stocks are cyclical, and therefore run the risk of higher loan delinquencies and charge-offs if the U.S. economy plunges into recession, the Fed's historic monetary policy shift is good news. With the nation's central bank rapidly increasing interest rates, banks with outstanding variable-rate loans should benefit in the form of higher net interest income.
A juicy payout could also be the reason Buffett and his team have piled into media stock Paramount Global. Paramount is currently paying a hearty 5.1% yield. To sustain this gargantuan dividend, Paramount will need its streaming subscriber count to continue climbing. It'll also need its future theatrical offerings to have at least some fraction of the success achieved by Top Gun: Maverick.
Buffett's own company is still his favorite stock
Last but not least -- if I haven't driven this point home countless times before -- there's no stock Buffett loves more than his own company, Berkshire Hathaway. Including the $1.04 billion worth of Class A shares purchased during the third quarter, Buffett and his right-hand man Charlie Munger have approved the repurchase of $63.1 billion worth of Berkshire Hathaway stock since July 2018.
Buying back Berkshire's common stock serves a multitude of purposes. For instance, reducing the number of shares outstanding helps existing shareholders become larger owners of the business.
To add to this point, buying back stock can help companies with steady or growing net income look more fundamentally attractive. If a company has fewer shares outstanding, this should lead to higher earnings per share.
And finally, it's a very clear message that Buffett is willing to bet big on the long-term outperformance of his company and investment portfolio. Most of the stocks in Berkshire's investment portfolio, as well as the roughly five dozen companies Berkshire has acquired, are cyclical. Since periods of economic expansion last considerably longer than downturns and recessions, Buffett's investment portfolio is nearly assured to build wealth over time.