The most important date of the first quarter has nearly arrived -- and I'm not talking about Valentine's Day. Tomorrow, Feb. 14, marks the deadline for institutional investors to file Form 13F with the Securities and Exchange Commission (SEC).
A 13F provides an under-the-hood look at what money managers with at least $100 million in assets under management bought and sold in the latest quarter (in this instance, the quarter ended Dec. 31, 2023). Although 13Fs have their flaws -- e.g., they provide a snapshot from 45 days prior, meaning positions could be outdated -- they can provide clues and insights as to what stocks, industries, and trends are piquing the interest of Wall Street's smartest and most successful investors.
Perhaps no investor garners more attention come 13F release time than Berkshire Hathaway's (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Here's why all eyes are on Warren Buffett and Berkshire Hathaway's 13F filing
The Oracle of Omaha, as Buffett is now affably known by the investing community, took over as Berkshire's chief in the mid-1960s. Over that time, he's overseen an aggregate return of 4,841,199% in his company's Class A shares (BRK.A), as of the closing bell on Feb. 9. Over a nearly six-decade span, he's virtually doubled up the annualized total return, including dividends paid, of the benchmark S&P 500.
Though Buffett and his investment team aren't infallible, they do have a knack for spotting value. The Oracle of Omaha's strategy is typically to buy brand-name businesses with sustained competitive advantages and rock-solid management teams, and to hang on to these stakes for long periods. Berkshire Hathaway's quarterly 13Fs provide the necessary insight to professional and everyday investors as to what stocks are on this Wall Street icon's mind.
For instance, Buffett and his team have been aggressively purchasing shares of energy stock Occidental Petroleum (OXY -0.15%) since the start of 2022. Including the roughly 4.3 million shares purchased in early February -- since Berkshire has a greater than 10% stake in Occidental, it's required to file Form 4 with the SEC anytime it purchases or sells shares -- a more than 248 million-share position worth $14.3 billion has been built from scratch in about 25 months.
Warren Buffett and his top investing aides, Ted Weschler and Todd Combs, have never been particularly big investors in the energy sector. However, this has changed in a big way over the past two years. A $14.3 billion stake in Occidental, coupled with a $16.7 billion position in Chevron, indicates that Berkshire's top minds expect the spot price for crude oil to remain elevated. Tight global oil supply, which is being fueled by years of capital underinvestment during the pandemic and Russia's ongoing war with Ukraine, does support the notion that the spot price of oil can remain above its historic norm.
In particular, Occidental Petroleum generates a higher percentage of its net sales from drilling than Chevron and most other integrated energy companies. If the spot price of crude oil moves up, few if any oil and gas stocks will directly benefit more than Occidental.
Investors have also utilized Berkshire's 13Fs to watch the Oracle of Omaha continue to pile into tech stock Apple (AAPL -0.35%). Buffett and his aides strongly believe in putting an outsized percentage of their company's capital to work in their best investment ideas. As of last week, Apple comprised about 46% of Berkshire's nearly $374 billion investment portfolio.
Apple has long checked all the right boxes. It has an exceptionally loyal customer base, an incredibly well-known brand, and the company has thrived because of its innovative capacity. Though Buffett has previously suggested he may not how the iPhone works, he has a keen understanding of consumer behaviors.
Looking ahead, Apple's future is very much reliant on its ongoing evolution as a platforms company. CEO Tim Cook is spearheading a transition that's focused on subscription services. A subscription-driven model should keep customers loyal to the company's ecosystem of products and services, lift its operating margin, and smooth out the sales fluctuations that coincide with major iPhone upgrade cycles.
Image source: Getty Images.
News flash: You won't find Warren Buffett's favorite stock in Berkshire's quarterly 13F
As is customary, Berkshire Hathaway's 13F filing won't be published until after the market closes on Wednesday, Feb. 14. But what you might be surprised to learn is that Warren Buffett's favorite stock -- I'm talking about the one he buys far more than any other holding -- won't be listed in the company's 13F for the fourth quarter.
To gain insight on Warren Buffett's favorite stock to buy, you'll have to wait until Berkshire Hathaway releases its fourth-quarter operating results, which is usually toward the end of February. Contained within this report is a section that's entirely devoted to share repurchases... because Buffett's favorite stock to buy is shares of his own company. This is why you won't find it in Berkshire's upcoming 13F.
Before mid-July 2018, the company's share buybacks program required that Berkshire stock trade at or below 120% of book value (i.e., no more than 20% above book value) before repurchases could be made. For quite some time leading up to mid-July 2018, Berkshire Hathaway stock never fell below this preset threshold. Therefore, no share buybacks were undertaken by Buffett or his team.
On July 17, 2018, everything changed for Berkshire Hathaway and its shareholders. The company's board amended the criteria governing buybacks to allow their phenomenal duo of Warren Buffett and the late Charlie Munger to work their magic. As long as the company has at least $30 billion in combined cash, cash equivalents, and U.S. Treasuries on its balance sheet and both Buffett and Munger agreed that their company's stock was intrinsically cheap, buybacks could be made with no limit.
Since introducing this repurchase program, Berkshire Hathaway's Class A and B shares have more than doubled, and north of $72 billion worth of shares have been bought back. Warren Buffett has overseen the repurchase of his company's shares for 21 consecutive quarters.
Share repurchases are an easy way for Berkshire's board to reward long-term shareholders. Since the company doesn't pay a dividend, buybacks are incrementally increasing the ownership stakes of Berkshire's shareholders.
Furthermore, reducing the outstanding share count via buybacks for businesses with steadily growing net income (sans unrealized investment gains/losses) can increase earnings per share (EPS) over time. In other words, it's making Berkshire's stock more attractive to fundamentally focused investors.
Berkshire Hathaway's 13F filing on Wednesday, Feb. 14, will undoubtedly offer investors keen insights into the Oracle of Omaha's thinking. Just don't forget that his favorite stock to buy of all is, without a doubt, his own company.
