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 (BRK.B 1.10%) 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 look at his company's recent investment activity, noting that he heads a large corporation, and 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 $104.8 billion in value as of Dec. 31.
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 $7 billion apiece. Thus, 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.
There would appear to be three new holdings: Goldman Sachs Group,, Graham Holdings Company, and Liberty Global, Inc. Things are not always as they appear, though. The Goldman Sachs stock can be traced back to 2008, when Buffett infused the company with billions in cash and got warrants to buy stock in it. Meanwhile, Graham Holdings Company is simply what's left of what used to be The Washington Post Company after Amazon.com CEO Jeff Bezos bought the newspaper, leaving assets such as the educational services company Kaplan. Buffett is thinking about exiting his position in Graham Holdings.
Meanwhile, Liberty Global is a new holding. It bought Virgin Media last year and is now the largest international cable company. Its fourth-quarter results lagged expectations, but it did add more than a million organic subscribers over the year. Some don't like Liberty Global's debt level, but the company has been using the proceeds from it to invest in its future, buying smaller cable operators and upgrading its systems.
Among holdings in which Berkshire Hathaway increased its stake were DaVita HealthCare Partners (DVA 2.90%), USG Corporation (USG), and General Electric Company. Dialysis specialist DaVita Healthcare Partners recently posted fourth-quarter results that featured earnings up 36% and revenue up 23% -- which helped propel shares to a 52-week high. 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. Bears might worry about the company's vulnerability to Medicare reimbursement rate reductions, but it has weathered some of those in the past. The company has grown in part by acquisition, such as its major $4.4 billion purchase of HealthCare Partners in 2012.
Buffett's USG shares are also largely due to moves he made during the recent financial crisis, and to his converting many convertible notes into shares. If Buffett does the same with his remaining notes, he could end up owning more than 30% of the company, and he's already its largest shareholder. USG fits well in his portfolio, though, as it supplies wares such as wallboards and joint compounds that are used in home construction. Berkshire already owns companies specializing in insulation, bricks, flooring, and furniture, not to mention a big network of real estate agencies. In its last quarter, USG posted revenue up 12% and earnings nearly twice as high as analysts had expected.
Berkshire Hathaway reduced its stake Suncor Energy (SU -1.70%) and ConocoPhillips (COP -0.60%), along with a few others. Canada's largest energy company, Suncor has been shifting its focus from low-priced natural gas to more profitable oil and is also investing significantly in renewable energies. Its integrated business model is boosting the profitability of its oil sands production, but it may be somewhat hurt if some sizable proposed pipelines aren't built. Suncor's last quarter was disappointing, but it's viewed as an attractive portfolio candidate at recent levels. Suncor Energy yields 2.5% and has been boosting its payout aggressively.
ConocoPhillips (COP -0.60%), yielding 3.8%, offers both income and growth. It spun off its midstream and downstream businesses and is now focused upstream, exploring and producing. The company is investing heavily in North American projects, with a strong interest in Alaska. It's also spending about 45% of its $16.7 billion capital budget abroad, offering diversification. ConocoPhillips is aiming to grow its profit margins and production by about 3% to 5% annually through 2017.
Finally, Berkshire Hathaway's closed positions were Washington Post, DISH Network Corporation, and GlaxoSmithKline.
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, and 13F forms can be great places to find intriguing candidates for our portfolios.