The most important day of the first quarter has arrived. Amid a seemingly endless parade of operating results is the Feb. 14 deadline for institutional money managers with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission (SEC).
A 13F allows investors to see which stocks Wall Street’s most-prominent and successful asset managers purchased and sold during the previous quarter. Although the data is potentially stale for active hedge funds, it offers a glimpse into which stocks, industries, sectors, and trends are piquing the interest of top money managers.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
No billionaire investor garners more attention on Wall Street than Berkshire Hathaway (BRK.A 1.98%) (BRK.B 1.86%) CEO Warren Buffett. In his six decades as Berkshire’s chief, he’s overseen a nearly 5,700,000% aggregate return in his company’s Class A shares (BRK.A).
The Oracle of Omaha’s overwhelming success has encouraged investors to ride his coattails to substantial long-term gains. Berkshire Hathaway’s 13F spills the beans and allows investors to effectively mirror the investments of Buffett and his top advisors, Ted Weschler and Todd Combs.
While some of Buffett’s trading activity for the fourth quarter is already known, the Oracle of Omaha’s favorite stock to buy — a cumulative $78 billion purchased since mid-2018 — won’t show up in Berkshire’s 13F filing after the market close.
Warren Buffett is seeking value amid a historically pricey stock market
Based on Berkshire Hathaway’s previous eight quarterly reports, Buffett and his team have been decisive net sellers of equities. Company cash flow statements show that Berkshire’s brightest investment minds have sold an aggregate of $166.2 billion more in stock that they’ve purchased between Oct. 1, 2022 and Sept. 30, 2024.
The stock market being historically pricey is the likely catalyst behind this persistent selling activity. The “Buffett Indicator,” which divides the total market cap of U.S. stocks into U.S. gross domestic product, recently hit an all-time high, when back-tested to 1970.
Despite the stock market’s relative priciness, Berkshire’s chief is still finding value in select stocks.
Thanks to Form 4 filings with the SEC, we know Buffett has been gobbling up shares of satellite-radio operator Sirius XM Holdings (SIRI 2.44%). Sirius XM is a legal monopoly that generates more than three-quarters of its net sales from subscriptions. Whereas traditional radio companies are almost wholly reliant on advertising revenue to keep the lights on, Sirius XM has a diverse sales stream that can help it navigate economic turbulence more effectively.
Form 4 filings show that Buffett and his crew added to Berkshire Hathaway’s stake in Occidental Petroleum (OXY 0.10%), as well, during the fourth quarter. The nearly 8.9 million shares purchased increased Berkshire’s stake to north of 264 million shares.
Although Occidental is an integrated energy company, it generates most of its revenue from its drilling operations. If the spot price of crude oil moves higher, few if any integrated oil and gas companies are going to benefit more than Occidental Petroleum.
Berkshire’s Form 4 filings also show a handful of purchases of internet domain-name registry services provider VeriSign (VRSN 0.81%) during the December-ended quarter. Similar to Sirius XM, VeriSign is a legal monopoly, and it possesses impressive pricing power. With a predictable operating model and reasonably low infrastructure expenses, VeriSign’s operating margin clocked in at 69% over the trailing-12-month period.
Image source: Getty Images.
Warren Buffett’s favorite stock to buy won’t show up in Berkshire’s 13F for a good reason
Historically, Berkshire Hathaway waits until the deadline day to release its 13F and it does so after the closing bell. While investors will be waiting on pins and needles to see what the Oracle of Omaha has been up to, they’re not going to receive any update on Warren Buffett’s favorite stock to buy.
Detailed purchase activity of Buffett’s favorite stock to buy is unveiled in Berkshire’s quarterly operating results, which aren’t due for roughly two more weeks. The reason investors won’t find this stock listed in today’s 13F is because Buffett’s top purchase has consistently been shares of his own company!
Prior to the midpoint of 2018, share repurchases were only allowed if Berkshire Hathaway’s stock fell to or below 120% of its book value. This line-in-the-sand threshold was never met, leading to no buybacks prior to July 2018.
On July 17, 2018, Berkshire’s board amended the rules pertaining to buybacks in order to give its CEO the flexibility to repurchase stock as he saw fit. The new rules allow for unlimited buybacks and no end date as long as Berkshire has at least $30 billion in combined cash, cash equivalents, and U.S. Treasuries on its balance sheet, and Buffett deems his company’s stock to be intrinsically cheap.
In 24 of the last 25 quarters (ended Sept. 30), Warren Buffett has repurchased shares of his own company’s stock to collective tune of almost $78 billion. He hasn’t spent anywhere close to this amount of money buying shares of any other company in Berkshire Hathaway’s 44-stock, $299 billion investment portfolio.
Since Berkshire Hathaway doesn’t pay a dividend, a hearty share repurchase program is Buffett’s way of rewarding his investors. Steadily reducing the company’s share count helps to gradually increase the ownership stakes of existing shareholders. In short, it promotes the long-term thinking that Buffett and late right-hand man Charlie Munger value.
For companies with steady or growing net income, such as Berkshire Hathaway, a constant stream of buybacks can help increase earnings per share (EPS). Boosting EPS over time can make the company’s stock appear more attractive to value-focused investors.
Though investors are eager to see what Warren Buffett was up to in the fourth quarter, keep in mind that details on his favorite stock to buy are still roughly two weeks away from being revealed.
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