Berkshire's largest investments include some of the most popular blue chips known to Wall Street. In the recent quarter, Buffett added to several of these positions. Let's take a look at Berkshire's top eight holdings according to dollar value at the end of March, not including Buffett's option to purchase 700 million shares of Bank of America at any time prior to September 2021 for $5 billion.I decided to follow-up on my last comment on top funds' activity for Q1 2015 to take you inside how I look at the holdings of many gurus, including Warren Buffett.
8. Davita Healthcare Partners
This Denver-based company provides a variety of healthcare services throughout the United States and abroad. DaVita (DVA) is a leading provider of kidney care, delivering dialysis services to patients with chronic kidney failure and end-stage renal disease. It operates or provides administrative services at 2,197 outpatient dialysis centers located in the U.S. serving approximately 174,000 patients. The company also operates 93 outpatient dialysis centers located in 10 countries outside the U.S.
At the end of March, Berkshire held 38.6 million shares of DaVita, worth $3.13 billion. While Buffett is typically responsible for billion-dollar positions at Berkshire, he is not likely responsible for this investment. Ted Weschler, one of Buffett's hand-selected portfolio managers, is a major DaVita bull. He has been investing in the company for more than a decade.
7. U.S. Bancorp
Financials are a major part of Buffett's investing strategy. Berkshire raised its stake in U.S. Bancorp during the first quarter to 83.8 million shares, worth $3.66 billion. In comparison, Berkshire held 80.1 million shares at the end of 2014. In January, the bank reported record full year 2014 net income of $5.85 billion. Furthermore, U.S. Bancorp (USB) returned 72% of 2014 earnings to shareholders through dividends and share buybacks.
In April, the bank announced it returned 70% of first quarter earnings to shareholders, and was named one of the World's Most Ethical Companies by the Ethisphere Institute.
6. Procter & Gamble
At the end of March, Berkshire held 52.8 million shares of Procter & Gamble (PG), unchanged from the prior quarter and worth $4.33 billion. Last November, Berkshire announced it will acquire Procter & Gamble's Duracell battery business. In fact, Berkshire will exchange its P&G stake for a recapitalized Duracell, which will include $1.7 billion in cash at closing. The transaction is expected to close in the second half of 2015.
Procter & Gamble is typically considered a staple among investors seeking a solid dividend and stability, but shares have declined more than 10% this year so far. Nonetheless, the company declared a 3% dividend increase in April, marking the 59th consecutive year that Procter & Gamble has raised its dividend. In the first three months of 2015, net sales fell 8% year-over-year to $18.1 billion.
5. Wal-Mart
Berkshire maintained its stake in the world's largest retailer at 60.4 million shares during the first quarter. The position was worth $4.97 billion at the end of March, down from $5.2 billion at the end of December. Berkshire steadily increased its stake in Wal-Mart (WMT) last year as shares gained 9% in 2014. However, shares are down about 7% this year.
Looking ahead, Wal-Mart expects challenges to its operating income. In February's earnings release, Wal-Mart CFO Charles Holley said, "Given the investments we're making in our worldwide e-commerce initiatives and in our associates through higher wages and training, we expect operating income to be pressured in fiscal 2016. We will invest approximately $0.02 per share in the first quarter and approximately $0.20 per share for the full year in the new wage structure, comprehensive associate training and educational programs. Our incremental investment in global e-commerce initiatives will range between $0.06 and $0.09 per share this year. Together, we're investing between $0.26 and $0.29 per share for these initiatives in fiscal year 2016."
4. American Express
The only sector Buffett favors more than consumer staples is financial services. Berkshire held 151.6 million shares of American Express (AXP) at the end of March, worth $11.84 billion. The position was unchanged from the previous quarter, but the value of the position declined by over $2 billion due to a declining share price.
American Express is losing its exclusive partnership with Costco, and total revenue in the recent quarter shrank 3%. On the positive, the company remains committed to returning money to shareholders. In May, the board of directors approved the repurchase of up to 150 million shares, and hiked the quarterly dividend 12% to $0.29 per share. Berkshire also has positions in Mastercard and Visa.
3. International Business Machines
IBM (IBM) was the worst performer in the Dow Jones Industrial Average last year, but is Berkshire's third largest position. During the first quarter, Berkshire stayed faithful and raised its stake in Big Blue to 79.6 million shares, worth $12.77 billion and up from 77 million shares in the prior quarter.
In April, IBM announced its 12th consecutive quarter of declining revenue. Yet shares have found support this year and are among the best performers in the Dow. During the first quarter, IBM returned $2.3 billion to shareholders through dividends ($1.1 billion) and share repurchases ($1.2 billion). Buffett recently told CNBC that he's mainly sticking with IBM because he likes it and even expected revenue to decline. Buffett first started buying IBM shares in early 2011.
2. Coca-Cola
Coca-Cola (KO) is one of the most predictable positions at Berkshire. In fact, Buffett is on record saying he will never sell his shares in the world-renowned beverage company. At the end of the first quarter, Berkshire held the usual 400 million shares of Coca-Cola, worth $16.22 billion. Shares have been mostly flat over the past year as the market still has fears about consumers losing their taste for Coke, but the company is trying not to go stale.
Coca-cola recently entered into an agreement to purchase a 16.7% equity stake in Monster Beverage, hiked its strategic position in Keurig Green Mountain, and launched a new milk product called Fairlife. Coca-Cola is also making operating changes to drive stronger growth and save $3 billion annually by 2019.
1. Wells Fargo
America's most profitable bank is also Buffett's top holding. Shares of Wells Fargo (WFC) have performed well over the past year, but Buffett is still buying. Berkshire held 470.3 million shares of Wells Fargo at the end of the first quarter, up from 463.5 million shares in the prior quarter. The position was valued at $25.6 billion at the end of March. Like most of Warren Buffett's favorite stocks, Wells Fargo pays a healthy dividend, which was increased by 7% to $0.375 per share in April.
Let's look more closely at Bershire's top holdings as of Q1 2015. First, you will notice Berkshire has a fairly concentrated portfolio of 47 positions for a total market value of over $110 billion (click on image):
Next, let's drill down to look at all the 47 positions of Berkshire as of the end of March, not just the top 8 positions mentioned in the article above (click on each image below):
There are a lot of interesting positions in the Berkshire portfolio that receive little or no attention. For example, while Buffett is long IBM, did you know his best technology positions are VeriSign (VRSN), an internet security company and Verisk Analytics (VRSK), an insurance risk analytic firm for government and businesses? He's made great returns on both these companies.
Buffett also has big positions in DirectTV (DTV), Moody's (MCO), Goldman Sachs (GS) and Deere & Co. (DE). Apart from American Express (AXP), Buffett also has big positions in Mastercard (MA) and Visa (V), which goes to show you the world's most famous investor knows people need credit cards to make ends meet, and that business is the biggest legalized scam on earth, raping consumers with extraordinary high interest charges (makes hedge fund fees look tame by comparison).
What else is worth noting? He maintains sizable positions in Suncor Energy (SU) and Philips 66 (PSX). He also has a sizable position in Wal Mart's competitor, Costco (COST) and a few big positions in media and entertainment companies like Liberty Global (LBTYA), Liberty Media Corporation (LMCA), Viacom (VIA) and Twenty First Century Fox (FOXA).
In healthcare, apart from DaVita (DVA), Berkshire has big positions in Johnson & Johnson (JNJ) and Sanofi (SNY) which looks like it's ready to break out to new highs (click on image):
What else? Buffett holds positions in well known companies like General Motors (GM), Verizon (VZ), General Electric (GE) and United Parcel Service (UPS). But he also holds positions in in less well known companies like Restaurant Brands International (QSR), Chicago Bridge & Iron Company (CBI) and NOW Inc. (DNOW).
As I stated in my last comment on top funds' activity in Q1 2015, there is a reason why people like peering into Warren Buffett's portfolio or that of Seth Klarman or his protege, David Abrams, the one-man wealth machine. These managers are incredible stock pickers with a long and enviable track record. They don't hug benchmarks, they take very concentrated bets in a few stocks they really like and hold them for a long time, which is why they've delivered incredible outperformance over a very long period.
There are many other less well-known funds that take concentrated bets to deliver outsized gains. One that I added to my asset managers is Akre Capital Management, which has a portfolio of 37 positions making up its $4 billion fund. Akre is part of the Symmetric Twenty (see details here).
As always, don't follow the gurus blindly and do your own due diligence before investing in any specific stock. I love going over the holdings of top funds and picking my favorite ideas. For example, from Buffett's portfolio, I like American Express (AXP), Wal Mart (WMT), IBM (IBM) and Sanofi (SNY) going forward but there are other gems in there, including ones of less known companies (don't buy stocks that have already run up big, focus on the ones that have recently dipped or coming off a base, making new highs).
Anyways, it's a long weekend in the United States, markets are closed there, so I had time to write this up. Don't forget the Oracle of Omaha has some pretty bright people working for him and he can also teach private equity firms a thing or two on making money in the long-term.
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Below, a recent CNBC interview with Becky Quick and Warren Buffett. Also, CNN's Poppy Harlow sat down with Buffett to discuss the U.S. economy, stocks, income inequality, money in politics and his pick for President in 2016. Great interview, listen carefully to his comments on inequality.
Reuters reported that Berkshire Hathaway's shareholders recently celebrated Warren Buffett's 50th anniversary running the conglomerate, as the billionaire expressed optimism the company would thrive over the long haul, even after he is gone. It no doubt will thrive but it just won't be the same without the Oracle of Omaha at its helm.