Every quarter, many money managers have to disclose what they've bought and sold via 13F filings. Their latest moves can shine a bright light on smart stock picks.
Today, let's look at investing giant Warren Buffett. His Berkshire Hathaway company has increased its per-share book value by an annual average of 19.7% between 1965 and 2012, leaving the S&P 500 in the dust with its 9.4%. Clearly, the guy knows a thing or two about investing. With that in mind, let's take a look at his company's recent investment activity, noting that he heads a large corporation, not a hedge fund or mutual fund. While he owns many businesses in their entirety, from Dairy Queen to GEICO to Fruit of the Loom, he also has tens of billions of dollars invested in the stock of other companies.
The company's reportable stock portfolio totaled $92 billion in value as of Sept. 30, 2013.
Before we delve into changes in the portfolio, it's important to note that the collection of stocks and its management is not handled entirely by Buffett. For many years Lou Simpson managed the investments of Berkshire subsidiary GEICO, and now there are two newcomers in the fold co-managing some Berkshire money, one or both of whom may end up succeeding Buffett at the company's investment helm. They're Todd Combs and Ted Weschler, and some of Berkshire's investment moves reflect their thinking. Each has had the amount of money he manages for Buffett increased, suggesting that Buffett is pleased with them. The total has recently been about $5 billion apiece. Therefore we shouldn't assume that any particular purchase or sale is purely a Buffett decision.
So what does Berkshire Hathaway's latest quarterly 13F filing tell us? Here are a few interesting details.
The company's biggest holdings are Wells Fargo, Coca-Cola, and IBM. But the modest portfolio that only features a few dozen stocks also contains some lesser-known names, such as television and digital media company Media General (NYSE: MEG), with a market capitalization of $235 million. Buffett bought the Media General's newspaper assets in 2012, but the company still bears a lot of debt, is unprofitable, and has borrowed money from Berkshire at steep interest rates. Media General is merging with Young Broadcasting, and in its last quarter it posted narrowing losses.
Among holdings in which Berkshire Hathaway increased its stake were ExxonMobil (NYSE:XOM) and DaVita Healthcare Partners (NYSE:DVA). Many are discussing why Berkshire would buy ExxonMobil, with my colleague Tyler Crowe suggesting that Buffett likes ExxonMobil's extra-long-term prospects and Alex Dumortier adding that the stock simply looks cheap. The company is also a diversified giant, so it's not completely dependent on the price of oil (though refining weakness recently hurt it) -- and it's venturing into alternative energies, too.
Dialysis specialist DaVita Healthcare Partners recently posted third-quarter results featuring revenue up 17% but earnings down 6%. DaVita has been growing through partnerships and also has basic demographics on its side -- as our population grows and ages, demand for dialysis is likely to rise.
Berkshire Hathaway reduced its stake in lots of companies, including GlaxoSmithKline and ConocoPhillips (NYSE:COP). ConocoPhillips spin-off Phillips 66 (NYSE:PSX) remains a major holding, though. ConocoPhillips has seen its stock surge almost 40% over the past year, and it's near a 52-week high, yielding a solid 3.8%. The company has ambitious growth plans following the spin-off of its refinery business, and it's targeting higher-margin projects in lower-risk geographic regions. It's seen as interesting that this stock is being sold when it's seemingly more attractively valued than fellow energy giant ExxonMobil.
Meanwhile, Phillips 66, yielding 2.3%, saw its profit fall sharply in its last quarter, as refiners struggle with falling U.S. gas consumption coupled with rising oil prices. With U.S. refiners such as Phillips 66 unable to export as much as they might like, their excess supply is sold in the U.S., leading to falling gas prices. (Still, Phillips 66 does enjoy a greater export capacity than some peers, which could serve it well.)
We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13F forms can be great places to find intriguing candidates for our portfolios.