Axalta Coating Systems Ltd (NYSE:AXTA) has popped by nearly 9% in trading today, after it came to light that famed investor Warren Buffett of Berkshire Hathaway would soon be the owner of some 20.0 million shares purchased directly from The Carlyle Group for $28 apiece. The news clearly indicates confidence in the company and its operations from the most revered investor in the world, which is why shares have spiked on the news.
The Carlyle Group purchased Axalta Coating Systems Ltd (NYSE:AXTA) from E I Du Pont De Nemours And Co (NYSE:DD) in February 2013 for $4.9 billion. At the time, Axalta was a division of DuPont dubbed DuPont Performance Coatings, which DuPont shed as it aimed to focus on some of its higher-margin businesses. Some 20 months later, The Carlyle Group took Axalta public in November 2014 with an offering of 50 million shares at $19.50 apiece. In the five months since then, the stock has grown by nearly 50% and proved to be popular among some of the world’s most prominent investors, including George Soros and Steven Cohen, each of whom took a position in the newly-listed company.
The purchase by Buffett, which amounts to $560 million worth of Axalta Coating Systems Ltd (NYSE:AXTA) shares gives him a nearly 10% ownership position in the $6.6 billion market cap company. While the investment is not a huge one for Buffett, whose equity portfolio was valued at over $109 billion at the end of 2014, it’s another vote of confidence by the Oracle of Omaha in the automotive sector, which he has previously declared as a good long-term area of investment. Buffett already has a $1.43 billion stake in General Motors Company (NYSE:GM), while his holding company Berkshire Hathaway owns both Lubrizol (a maker of lubricants for the automotive industry) and the Van Tuyl Group (a large car dealership since renamed Berkshire Hathaway Automotive).
It’s Buffett’s long-term investment focus that can allow him to shrug off disappointing quarterly results like those his equity portfolio experienced during the first quarter. The weighted average returns during the first quarter of Buffett’s 46 long positions valued at $1 billion or greater as of the end of 2014 were an uncharacteristically poor -2.4%. With Buffett’s top four picks accounting for more than 60% of his equity portfolio, we can find the reasons why by starting there. What we find is that all four of those top picks underperformed the market, with his top pick Wells Fargo & Co (NYSE:WFC)dipping by 0.11% during the quarter, his second pick The Coca-Cola Co (NYSE:KO) sliding by 3.15%, and his fourth pick International Business Machines Corp. (NYSE:IBM) posting a marginal gain of 0.74%, also underperforming the market, as the S&P 500 was up by 0.9% during the quarter.
