Major Changes to Berkshire Hathaway’s Portfolio in Third Quarter 2015

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Nov 162015
 

Berkshire Hathaway (BRK.A, BRK.B) released its SEC 13F filing for the third quarter ending September 30, 2015 prior to the market opening today.  There were several major changes from the second quarter that were not previously reported.

The following stakes were increased:

(1) $340 million in Charter Communications  (CHTR)  (Ted Weschler or Todd Combs)

(2) $330 million in Liberty Media (LMCK)  (Ted Weschler)

(3) $300 million in General Motors (GM)  (Ted Weschler)

(4) $230 million in Suncor Energy (SU) (Ted Weschler)

(5) $200 million in IBM (IBM) (Warren Buffett)

There was a decrease in the following:

(1) $300 million in Goldman Sachs (GS) (Warren Buffett)

(2) $250 million in Wal-Mart (WMT) (Warren Buffett)

(3) $250 million in Viacom (VIAB) (Todd Combs) (Stake eliminated)

There were also smaller increases in Axalta (AXTA), Liberty Media Cl. A (LMCA), Liberty Global (LBTYA, LBTYK), and Twenty First Century Fox (FOXA).

Smaller decreases occurred in Bank of New York Mellon (BK), Chicago Bridge & Iron (CBI), Deere (DE),  Media General (MEG), and Wabco (WBC).

In addition, during the third quarter Berkshire acquired a $2 billion stake in AT&T (T) resulting from its acquisition of DirecTV (DTV), and a $23 billion position in Kraft Heinz (KHC) resulting from the Heinz acquisition of Kraft with 3G Capital.  (KHC is now Berkshire ‘s second largest stock holding behind only Wells Fargo (WFC), which is currently valued at $26 billion.)

I am quoted in a Bloomberg article on this topic:

“I’m surprised he had to sell anything to fund the Precision Castparts purchase, with over $60 billion of cash on his balance sheet,” David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business who has taken students to meet Buffett in Omaha, Nebraska, wrote in an e-mail.”

 

 

 Posted by at 11:46 pm

Berkshire Hathaway’s Third Quarter Net Earnings Double, But Operating Earnings Decline 3.7%

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Nov 062015
 

After the market closed today, Berkshire Hathaway released its earnings for the quarter ending September 30, 2015 (Form 10-Q).

The highlights were:

(1) Net earnings increased by 104% compared to the third quarter of 2014, primarily as a result of a large one-time gain resulting from its stake in Kraft Heinz.

(2) Operating earnings declined by 3.7%.

(3) Income from its insurance operations declined by 34%, in large part  due to a sharp decline in premiums and earnings at the Berkshire Hathaway Reinsurance Group.

(4) Operating earnings from non-insurance businesses increased by 5%.  This included gains of 12% from BNSF railroad, and 13% from its energy operations, but a 4% decline in manufacturing, services, and retailing.

(5) Book value per Class A share equaled $151,083, an increase of 0.9% from June 30, 2014.

(6) At Berkshire’s closing price of $203,100 on November 6, it is currently trading at 1.34 times book value.  Warren Buffett has stated that he would buy back shares when Berkshire traded below 1.2 times book value.

(7) Berkshire had $66 billion of cash on its balance sheet as of September 30.  Warren Buffett has mentioned that he intends to have at least $20 billion of cash as a margin for safety.  Part of the remaining $46 billion has been earmarked for Berkshire’s planned acquisition of Precision Castparts which should close in early 2016.

(8) Berkshire has “no intention of disposing of our investment in IBM common stock”, even though it has unrealized losses in its investment of approximately $2 billion.

(9) There was an additional investment of about $3 billion in equity securities (“Commercial, industrial and other”) during the third quarter.  (Approximately $500 million was invested in Phillips 66 during the quarter.)

(10) Berkshire’s Class B shares traded lower by 0.7% in after hours trading.

I am quoted in TheStreet about Berkshire’s forthcoming earnings (November 5, 2015) as follows:

“The bottom line may look very good, but this is a one-time event,” said David Kass, a professor of finance at the Robert H. Smith School of Business at the University of Maryland and author of a blog dedicated to Berkshire Hathaway. “It’s certainly a real number, a real profit that’s being earned by Berkshire, and so it will make their earnings report look good. But I think the concern that many analysts might have, they will be focusing on continuing earnings, the operating earnings, what has occurred in the last quarter, and what’s likely to occur in subsequent quarters in the near future.”…

“He always puts a lot of weight on book value, which will depend heavily on the value of the stocks in his portfolio,” said Kass.

“As of the end of the second quarter, Berkshire Hathaway’s book value was $149,735. Kass said he doubts it would be moving very far from that number in the third quarter.”…

“As Berkshire has acquired large companies rather than pieces of companies as stocks in their portfolio, book value has become a smaller percentage of intrinsic value and therefore a less accurate estimate of the value of the firm,” Kass said.”…

“That doesn’t mean book value can be discounted completely, especially as it has also been established as a basis for determining repurchases. Berkshire’s board has approved a plan in place since 2012 to buy back its shares when they trade at a less than 20% premium to book value. “It sends a message to investors,” Kass said. “It results in basically creating a floor for the stock.”

(This blog post has been published by ValueWalk and Investing.com.)

 

 

 

 

 Posted by at 10:19 pm

Charlie Munger: Valeant “Deeply Immoral” but “No Enron”

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Nov 012015
 

In a Bloomberg article “Charlie Munger Isn’t Done Bashing Valeant” (November 1, 2015), Berkshire Hathaway Vice Chairman Charlie Munger describes Valeant as “deeply immoral” but is not Enron:

“Munger elaborated on Saturday: Valeant relied on “gamesmanship” to run up its value. Its strategy, using acquisitions and price increases, is different from ITT, but it still created a “phony growth record,” he said. Unlike Enron, Valeant’s stock isn’t a house of cards because it has some valuable properties, including its portfolio of treatments, he said.”

These comments are similar to my own in a Smith Brain Trust article (October 21, 2015):

“And unlike Enron, Valeant has real products through brands like Bausch & Lomb and popular pharmaceuticals.”

 Posted by at 9:24 pm