Warren Buffett is considered one of the greatest investors of all time. With nearly 70 years of public investing experience (that he has documented publicly with annual shareholder letters along the way), he brings a wealth of knowledge to each of his investment decisions. So, when Buffett decides to buy a stock, the whole investing world pays attention.
But the Oracle of Omaha hasn’t seen a lot to like in the stock market recently. In each of the past six quarters, he’s sold more stock from Berkshire Hathaway‘s (NYSE: BRK.A) (NYSE: BRK.B) portfolio than he has bought. That said, he has still found a few companies worth sinking billions into during the past year.
He’s bought one of those stocks in each of the past four quarters, amounting to $7.1 billion in total during that period. And while the stock is up significantly since this time last year, there’s still a good chance he’s buying more this month.
Buffett’s biggest buys
As mentioned, there are only a few stocks Buffett and his portfolio managers have found particularly attractive during the current bull market.
Berkshire made headlines last year when it started buying a “mystery stock” — one that it received permission from the Securities and Exchange Commission to keep confidential in its quarterly filings. After months of speculation, in its most recent 13F disclosure, the conglomerate revealed that the mystery position was commercial property and casualty insurance company Chubb (NYSE: CB).
Buffett is very familiar with the insurance business. One of the first businesses he bought after taking over Berkshire Hathaway (which originally was a textile company) was a small Omaha-based insurance company, National Indemnity. Over the years, insurance has become a core piece of Berkshire’s operations. So his investment in Chubb speaks loudly. But it’s not his biggest purchase during the past year. As of this writing, Berkshire’s stake in Chubb was worth about $6.8 billion.
Buffett has also been buying shares of Occidental Petroleum (NYSE: OXY) practically anytime the shares trade around $60. In his most recent annual letter to shareholders, he praised Occidental Chief Executive Officer Vicki Hollub and said that he plans to hold the energy company’s stock indefinitely. Occidental’s position in the Permian Basin gives it access to cheap oil, but its concentration on separating oil from rock also makes it more susceptible to fluctuations in the price of a barrel of oil than more diversified integrated energy companies.
Berkshire also holds preferred shares of Occidental that it acquired when it invested $10 billion in it directly to help the company finance its acquisition of Anadarko in 2019. Occidental is slowly retiring those shares, and Buffett is maintaining Berkshire’s exposure through common stock purchases. During the past year, he’s bought about $2 billion worth of shares, bumping Berkshire’s stake in it to 28.8%.
But Buffett’s biggest purchase during the past year is a different familiar name. In fact, it’s one he’s been buying shares of intermittently for more than 60 years. In the past four quarters, Buffett has put $7.1 billion of Berkshire Hathaway shareholders’ cash to work by buying shares of Berkshire Hathaway stock itself.
Buying back Berkshire
For a long time, Berkshire Hathaway’s policy was that it would only allow share repurchases if its price-to-book-value ratio fell below 1.2. By the mid-2010s, it became clear that policy was too restrictive, as its shares had rarely traded below that level since 1990.
So in mid-2018, the board of directors changed the policy to one that allowed Buffett to buy back shares as long as they traded below their intrinsic value as conservatively determined by Buffett. He has done so every quarter since, including $7.1 billion worth during the past four quarters.
Those buybacks have worked out well for Berkshire shareholders. The stock is up by about 40% from the end of the first quarter last year, and currently trades near its all-time high. Even so, Buffett would be justified to continue buying shares today.
Despite their run-up in price, Berkshire Hathaway shares trade at about 19.3 times forward earnings estimates. That’s less than the S&P 500‘s average forward PE of about 22.7. That might seem like a high valuation for a conglomerate that has boring businesses like insurance companies and railroads among its biggest subsidiaries. But when you recognize that more than 20% of its value is held in U.S. Treasury bills and about 45% comes from its equity holdings, including a huge stake in Apple, it starts to look a lot less expensive.
When Buffett reduces the number of Berkshire Hathaway shares outstanding, every remaining share represents a larger stake in the conglomerate and everything it owns. That boosts its earnings per share, which supports a higher valuation. At recent prices, Buffett still likely sees great value in Berkshire shares. Investors could do well to follow his lead and buy some.
Should you invest $1,000 in Berkshire Hathaway right now?
Before you buy stock in Berkshire Hathaway, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $787,026!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 15, 2024
Adam Levy has positions in Apple. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Warren Buffett Bought $7.1 Billion of This Stock Over the Past Year, and He’s Probably Buying More This Month was originally published by The Motley Fool