Billionaire Warren Buffett is currently in the news cycle for potentially financing Occidental’s takeover bid for Anadarko to the tune of $10 billion. Although Chevron previously made a bid for Anadarko, Occidental has made a higher bid with the help of Buffett. In return Warren Buffett will receive 100,000 shares of cumulative perpetual preferred stock and warrants to purchase 80 million shares of Occidental at $62.5 per share, contingent on whether the deal goes through. While Buffett is now potentially deploying his capital to get preferred shares and warrants, Buffett’s Berkshire Hathaway has also deployed its capital in the fourth quarter in 5 stocks. Let’s take a look at which stocks billionaire Buffett added.
Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
General Motors Company (NYSE:GM)
Berkshire Hathaway added 19.8 million shares to its holdings in GM in the fourth quarter, increasing its holdings by 37% quarter over quarter to 72.269 million shares. Many investors view GM as a potential play on autonomous driving. Although GM gets most of its revenue from traditional cars, autonomous driving and ride sharing has potential to create a lot more value that GM could potentially capture. As an illustration of the value that automation and ride sharing could create, Google’s Waymo self driving division could be worth $175 billion according to some analysts. Uber might IPO for around $90 billion. GM presently has a market cap of around $54 billion. If management unlocks GM’s autonomous potential, bulls hope GM’s market cap will go up.
JPMorgan Chase & Co. (NYSE:JPM)
Buffett’s company added 14.45 million shares of JPMorgan in Q4, increasing its stake by 40% quarter over quarter. JPMorgan is widely regarded as a leading ‘big four bank’ with a great management team. True to its reputation, the bank reported excellent results for its latest quarter, with net income rising 12% and revenue rising 5% year over year. Given the supporting factors such as the good economy and Trump’s market friendly policies, it’s easy to see why Berkshire Hathaway added to its position.
Red Hat, Inc. (NYSE:RHT)
Red Hat is a new position for Buffett’s company, with Berkshire Hathaway reporting a position of 4.175 million shares, worth $733 million at the end of December. Red Hat presently is a M&A play as investors bet on whether its merger with IBM will go through.
Suncor Energy Inc. (NYSE:SU)
Buffett’s company established a new position of 10.75 million shares in Suncor Energy in the fourth quarter. Although it is integrated, Suncor Energy is somewhat correlated to oil prices. Oil prices have firmed up recently as the supply demand news has supported sentiment. If Venezuelan production is seriously disrupted, there is potential for a rally.
U.S. Bancorp (NYSE:USB)
Although Buffett is known for owning bigger stakes in banks such as Bank of America and Wells Fargo, Berkshire Hathaway also likes U.S. Bancorp. Buffett added 4.385 million shares to his already big position in the bank, giving his company 129.308 million shares at the end of December. U.S. Bancorp has performed well in 2019, rising 16.37% year to date. Shares yield around 2.78% currently.