Wednesday, August 15, 2012

Berkshire Hathaway 2nd Quarter 2012 13F-HR

The Berkshire Hathaway (BRKa2nd Quarter 2012 13F-HR was released yesterday. Below is a summary of the changes that were made to the Berkshire equity portfolio.
(For a convenient comparison, here's a post from last quarter that summarizes Berkshire's 1st Quarter 2012 13F-HR.)

As I noted in this post last week, Berkshire was a net seller of equities in the most recent quarter. Note 5 in the latest 10-Q made it fairly clear that a good portion of the selling was one or more of Berkshire's consumer stocks.
(The clue was the drop in cost basis of Berkshire's consumer products equity securities. See Note 5 of the most recent 10-Q then compare to the prior quarter's 10-Q.)

It just wasn't obvious which specific consumer stock (or stocks).

Well, thanks to this most recent 13F-HR, we now know. In addition to selling a large portion of their Johnson & Johnson (JNJ) stake, it turns out positions in Kraft (KFT), and Procter & Gamble (PG) were both cut meaningfully.

Those three stocks made up the bulk of the selling but quite a few other sales, even if relatively small in terms of total dollars, also happened this past quarter.

Details below.

There was also plenty of stocks being bought during the quarter. Some brand new positions were established while Buffett and his portfolio managers continued to build upon existing positions.

Here's what changed during the 2nd quarter:*

New Positions
Phillips 66 (PSX): Bought 27.2 million shares worth $ 1.08 billion
(some shares via spin-off from ConocoPhillips - COP)
National-Oilwell Varco (NOV): 2.8 million shares worth ~$ 214 million

Added to Existing Positions
Wells Fargo (WFC): Bought 16.7 million shares worth $ 567 million, total stake $ 14.0 billion
IBM (IBM):  2.2 million shares worth $ 444 million, total stake $ 13.2 billion
DaVita (DVA): 3.3 million shares worth $ 323 million, total stake $ 910 million
BNY Mellon (BK): 13.1 million shares worth $ 290 million, total stake $ 414 million
DirecTV (DTV): 5.4 million shares worth $ 281 million, total stake $ 1.47 billion
Viacom (VIA-B): 5.2 million shares worth $ 262 million, total stake $ 342 million
Liberty Media (LMCA): 2.5 million shares worth $ 247 million, total stake $ 544 million
Lee Enterprises (LEE): 1.6 million shares worth $ 2.1 million, total stake $ 4.3 million**

In the 2nd Quarter of 2012, there apparently was nothing purchased that was kept confidential. Their 13F-HR filings will often say: "Confidential information has been omitted from the Form 13F and filed separately with the Commission."

Not this time. Unlike the prior 13F-HR, all equity transactions have now been disclosed (the buying and selling in the latest 13F-HR then reflects what was actually bought in the 2nd quarter plus what had been held back). From time to time, the SEC allows Berkshire Hathaway to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.

Reduced Positions
Johnson & Johnson (JNJ): Sold 18.7 million shares worth $ 1.28 billion, total stake now $ 707 million
Kraft (KFT): 19.2 million shares worth $ 785 million, total stake now $ 2.4 billion
Procter & Gamble (PG): 13.6 million shares worth $ 907 million, total stake now $ 4.0 billion

Other shares sold with roughly a $ 100 million portfolio impact or less include:
Visa (V) was reduced by ~$ 100 million (27% of shares)
U.S. Bancorp (USB) reduced by ~$ 100 million (4%)
UPS (UPS) reduced by $ 89 million (82%)
CVS (CVS) reduced by $ 79 million (25%)
General Electric (GE) reduce by $ 58 million (36%)
Ingersoll-Rand (IR) reduced by $ 28 million (97%)
Verisk (VRSK) reduced by $ 17 million (16%)
Dollar General (DG) reduced by $ 16 million (8%)
ConocoPhillips(COP) reduced by $ 13 million (1%)

Sold Positions
Intel (INTC) shares were sold outright.

Todd Combs and Ted Weschler are responsible for a portion of Berkshire's portfolio. Any changes involving smaller positions will generally be the work of the new portfolio managers.

Top Five Holdings
After the changes, Berkshire Hathaway's portfolio of equity securities is made up of ~  35% financials, 29% consumer goods, 18% technology, and 9% consumer services.

It's certainly notable that consumer stocks have been sold lately but they still make up a substantial portion of the equity portfolio.

The remainder is primarily spread across healthcare, industrials, and energy.

1. Coca-Cola (KO) = $ 15.8 billion
2. Wells Fargo (WFC) = $ 14.0 billion
3. IBM (IBM) = $ 13.2 billion
4. American Express (AXP) = $ 8.6 billion
5. Procter and Gamble (PG) = $ 4.0 billion

As is almost always the case it's a very concentrated portfolio.

The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire owns equity securities listed on exchanges outside the U.S.***, plus cash and cash equivalents, fixed income, and other investments that brings the total portfolio value to somewhere north of $ 175 billion (just slightly less than the prior quarter).

The portfolio, of course, excludes all the operating businesses that Berkshire owns outright with 270,000+ employees.

Here are some examples of the non-insurance businesses:

MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar Metalworking, and Lubrizol among others.

In addition, the insurance businesses (BH Reinsurance, General Re, GEICO etc.) owned by Berkshire have naturally provided plenty of "float" for their investments over time and continue to do so.

See page 101 of the annual report for a full list of Berkshire's businesses.

At the end of the quarter Berkshire's cash and cash equivalents alone now total more than $ 40 billion.

That's certainly enough to fund another major acquisition.

Adam

Long positions in BRKb, KO, WFC, AXP, PG, USB, JNJ, KFT, COP, PSX, and GE established at lower than recent market prices.

* All values based upon yesterday's closing price. Naturally, what was actually paid can't be known from the information disclosed.
** The initial Lee Enterprises stake wasn't reflected in the previous 13F-HR. It was instead later disclosed in an amended 13F-HR.
*** Berkshire Hathaway's holdings of ADRs are included in the 13F-HR. What is not included are the shares listed on exchanges outside the United States. The status of those shares are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F-HR is if Berkshire happens to buy the ADR. Investments in things like preferred shares (and related warrants) are also not included in the 13F-HR.
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