For the better part of six decades, Berkshire Hathaway (BRK.A +0.23%)(BRK.B +0.80%) CEO Warren Buffett has been running circles around the benchmark S&P 500. Whereas the S&P 500 has delivered a very respectable aggregate total return, including dividends paid, of roughly 34,500% since the affably named "Oracle of Omaha" took over as CEO, Buffett has overseen an aggregate gain in his company's Class A shares (BRK.A) of more than 4,950,000%.
When you outperform Wall Street's major stock indexes by this magnitude, you're going to gain quite the following. It's why approximately 40,000 people trek to Berkshire Hathaway's annual shareholder meeting to hear Buffett speak about stocks, the U.S. economy, and his investment philosophy.
However, nuggets of wisdom can be found outside of these annual meetings. Every quarter, institutions with at least $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. A 13F provides a concise snapshot for investors of what Wall Street's smartest and most-successful money managers have been buying and selling.
The interesting thing about Warren Buffett is that he's been a net-seller of equities for six consecutive quarters. Based on Berkshire's 13F that details trading activity during the first quarter, Warren Buffett was a seller of six stocks.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
1. Apple: Sold 116,191,550 shares (reduced stake by 12.83%)
The eye-popper during the first quarter was undeniably the admission that Buffett and his team sold a sizable percentage of their top holding, tech stock Apple (AAPL 0.15%). Despite a second consecutive quarter of reductions, Apple still accounts for about 40% of Berkshire's $371 billion of invested assets.
During Berkshire's annual meeting, the Oracle of Omaha justified this selling activity by pointing to corporate tax rates. Buffett opined that it was probable corporate income tax rates would increase from the currently low historic rate of 21% in the future, so it would be prudent to lock in some of Berkshire's capital gains in Apple now. He postulated that investors would come to appreciate this decision over time.
Yet even with this massive reduction, Warren Buffett has complete faith in Berkshire's top holding and its CEO, Tim Cook. Cook is the process of overseeing a multiyear transition that has Apple focused on higher-margin subscription services. As subscriptions grow into a larger percentage of total sales, it'll help smooth out the revenue swings observed during iPhone upgrade cycles.
Apple also has the most robust capital-return program on the planet. Since initiating a share repurchase program in 2013, the company has bought back an aggregate of $674 billion of its common stock. Buffett is a huge fan of buybacks, which increase Berkshire's ownership stake in high-quality companies over time.
NASDAQ: PARA
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2. Paramount Global: Sold entire stake (63,322,491 shares)
Media stock Paramount Global (PARA +0.00%) was completely shown the door since 2023 began. Although Berkshire's 13F points to an 88.11% reduction in shares through March 31, Buffett admitted during his company's annual meeting that he'd sold the entire stake at a loss.
Legacy media companies like Paramount have fallen victim to the ongoing cord-cutting trend. Paramount has been actively building out its streaming services and content library, but has been losing copious amounts of money in the process. While it does possess reasonably strong subscription pricing power, it doesn't appear as if the company's streaming operations will be profitable anytime soon.
The advertising market has been challenging, as well. While 2024 offers a bounce-back year for legacy media networks with political ad spending picking up, select indicators and money-based metrics pointing toward a recession aren't encouraging businesses to increase their marketing budgets.
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3. HP: Sold entire stake (22,852,715 shares)
Similar to Paramount, the writing was on the wall that personal computing and printing services company HP (HPQ 0.22%) was getting the boot from Berkshire Hathaway's portfolio. Shares of HP were reduced in a big way during the fourth quarter, which is often the telltale sign that Buffett's investment thesis in a company has been broken.
Although HP is undeniably cheap on the basis of forward-year earnings (a multiple of 9 times consensus earnings per share), demand for personal computers (PCs) is taking longer to rebound than first anticipated. Though PC demand spiked during the initial stages of the pandemic when people were stuck in their homes, a return to "normal" has proved troublesome for this key revenue segment. Unsurprisingly, HP's sales are expected to be flat in 2024.
Furthermore, HP's capital-return program may not have been hitting home for Buffett and his team. Following $4.3 billion in share buybacks in fiscal 2022 (ended Oct. 31, 2022), HP repurchased only $100 million worth of its stock last year, along with $500 million during the first quarter of the current fiscal year.
Image source: Sirius XM.
4. Sirius XM Holdings: Sold 3,561,146 shares (reduced stake by 8.85%)
One of the biggest head-scratchers of the first quarter was the decision by Buffett and/or his top investment aides, Todd Combs and Ted Weschler, to modestly reduce Berkshire's stake in satellite-radio operator Sirius XM Holdings (SIRI +0.00%) by close to 9% after building it up over the previous two quarters.
Most radio operators rely heavily on advertising revenue, so those aforementioned indicators that point to possible economic weakness may have coerced this selling. Further, auto sales tend to slow down when the economy weakens. Sirius XM expects promotional customers with new vehicle purchases to become self-pay subscribers. Economic turbulence would slow this process.
Despite these concerns, Sirius XM stock is as cheap as it's ever been as a publicly traded company (about 8.5 times forward-year earnings). Since it generates most of its revenue (78% in the first quarter) from subscriptions and not advertising, it's better positioned than terrestrial and online radio operators to navigate a recession.
It also doesn't hurt that some of its key expenses, such as transmission and equipment, tend to be relatively fixed, which leads to predictable operating cash flow year after year.
A higher spot price for crude oil has boosted operating cash flow in Chevron's drilling segment. WTI Crude Oil Spot Price data by YCharts.
5. Chevron: Sold 3,113,119 shares (reduced stake by 2.47%)
The Oracle of Omaha and his investment team also slightly pared down Berkshire's stake in energy giant Chevron (CVX +1.40%) by roughly 2.5%. With Chevron boasting an aggressive $75 billion share repurchase program, this selling activity might simply be to keep its stake in the company fairly constant as the oil and gas titan enacts buybacks.
Although energy stocks have, historically, not played a big role in Berkshire Hathaway's investment portfolio, the $19.3 billion currently invested in Chevron makes it Buffett's fifth-largest holding. This looks to be a pretty clear indication that he and his cohorts expect the spot price of crude oil to remain elevated.
For three years during the COVID-19 pandemic, global energy companies (which includes Chevron) were forced to substantially reduce their capital expenditures (capex) due to demand uncertainty. Even though the worst of the pandemic has passed and capex spending is back to normal, global crude supply constraints remain. That's great news for the spot price of crude, as well as for Chevron's high-margin drilling segment.
Don't forget, Chevron is also an integrated energy company. In addition to drilling for oil and natural gas, it operates transmission pipelines, refineries, and chemical plants. These ancillary segments provide predictable cash flow and help to hedge against downside in the price of crude oil.
NYSE: LPX
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6. Louisiana-Pacific: Sold 446,962 shares (reduced stake by 6.34%)
The sixth and final stock Warren Buffett was a seller of during the March-ended quarter is Louisiana-Pacific (LPX 3.19%). This supplier of wood siding products used in new home construction and remodeling had nearly 447,000 shares sold by Berkshire's brightest investment minds.
Considering Louisiana-Pacific is one of Berkshire's smaller holdings, this selling activity might have more to do with Combs and/or Weschler than Buffett. The Oracle of Omaha's investment lieutenants are far more active than he is on the trading front and frequently lock in gains after a few quarters to a couple of years.
Perhaps the biggest negative for Louisiana-Pacific is rapidly rising interest rates, which have sent mortgage rates soaring. While, on one hand, the company is benefiting from strong new home sales since the inventory of existing homes for sale is depressed, there's the potential for sustainably high mortgage rates to adversely impact the housing market. As long as core inflation (led by shelter inflation) remains stubbornly high, there's not much of a catalyst compelling the Federal Reserve to kick off a rate-easing cycle.
