In this article we’ll run through the Top 10 Stocks Warren Buffett Just Bought. If you’re in a hurry to see the hedge fund legend’s highest conviction new stock purchases, you can jump straight to the Top 5 Stocks Warren Buffett Just Bought.
Warren Buffett’s Berkshire Hathaway Inc (NYSE: BRK.A) has been one of the most wildly successful companies in history, in any industry. Buffett and his team, including longtime right-hand man Charlie Munger, have built Berkshire into a $548 billion holding company and one of the 10 Most Profitable Companies in the World in 2020.
Buffett’s massive multinational conglomerate, which owns a wide range of subsidiaries that includes Dairy Queen, Duracell, Heinz, and Precision Castparts, earned an astounding $81.4 billion in net income in 2019. Insurance companies have also been a major component of Berkshire’s success, with Buffett using their “float” in the early days of his run at Berkshire to invest in a small stable of promising long-term holdings.
Buffett’s investing prowess has made him one of the wealthiest men in the world, with an estimated net worth of $88.5 billion as of November 27 according to Forbes. He’s also made plenty of other people rich on the back of his investing prowess. Between 1965, when Buffett took over as Berkshire’s CEO, and 2019, a $1 investment in Berkshire stock would’ve grown to be worth an absurd $2.74 million.
Even as the pandemic devastated the stock market earlier this year and hit Berkshire’s own results, Buffett has continued to stress the importance of investing for the long-term and not getting caught up in the daily headlines of doom and gloom (or in this case, corona and virus). He’s also continued to be a firm believer in American companies and the overall American economy.
During Q3, Buffett’s holding company had a relatively low-key quarter in keeping with his laidback investing motto. Berkshire’s ownership stake in ten different companies was increased, six of which represented new additions to its 13F portfolio, while the size of its ownership stake in 11 other companies was reduced, one being sold off entirely (Costco Wholesale Corporation (NASDAQ:COST)).
Buffett’s biggest moves during the quarter were the addition of multiple healthcare stocks to Berkshire’s 13F portfolio, which could greatly benefit from a looming vaccine as well as a Biden presidency that should push for more robust healthcare programs and coverage.
There’s a very good reason why we pay close attention to hedge fund sentiment before making investment decisions. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, though 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Without further ado, let’s check out the Top 10 Stocks Warren Buffett Just Bought, beginning with perhaps the most obscure stock in Berkshire’s portfolio.
10. Liberty Latin America Ltd. (NASDAQ:LILAK)
Berkshire has owned the class A and C shares of Liberty Latin America Ltd. (NASDAQ:LILAK) since 2018, when the company was officially spun off from Liberty Global Plc (NASDAQ:LBTY), the cable giant which Berkshire has also owned shares of dating back to 2013. In Q3, Berkshire added another 66,567 class C shares of Liberty Latin America to its portfolio, though it likewise sold off 160,478 class A shares.
In its Q3 investor letter, Silver Ring Partners discussed some of Liberty Latin America’s strengths, including its purchase of AT&T Inc. (NYSE:T)’s Puerto Rico assets at an attractive price, a deal which closed on November 2. It did however caution that the company does face some potential risks as well, which includes it being highly levered and serving regions that are at risk of a prolonged recession.
Liberty Latin America Ltd. (NASDAQ:LILAK)’s Q3 revenue of $888 million came in nearly $100 million lower than estimates, though CEO Balan Nair noted that there was important quarterly recovery from Covid in the company’s major markets.
9. The Kroger Co. (NYSE:KR)
Buffett added just under 3.04 million The Kroger Co. (NYSE:KR) shares to Berkshire’s portfolio in Q3, lifting the holding company’s position to just under 25 million shares and giving it a 3.23% ownership stake in the grocer. KR shares have climbed by 12.77% this year.
Kroger has performed well during the pandemic, as millions of people have either chosen, or been forced, to cook more of their meals at home. In a September interview with Bloomberg, CEO Rodney McMullen said that he expects that trend to remain strong even as the pandemic slows. In the meantime, sales are up and even re-accelerating with Covid cases surging. Excluding fuel, the company’s identical sales grew by 14.6% year-over-year in Q2, while digital sales soared by 127%.
8. General Motors Co (NYSE:GM)
Berkshire added just under 5.32 million shares of General Motors Co (NYSE:GM) to its portfolio in Q3, giving it an even 80 million shares valued at over $2.36 billion at the end of September. Warren Buffett was one of 60 money managers tracked by Insider Monkey which owned GM shares on September 30.
Billionaire activist investor David Einhorn of Greenlight Capital, who had been a major GM bull since 2015, predicted in his Q1 investor letter that this would finally be the year that GM’s free cash flow caught up with the automaker’s earnings growth of recent years now that the company has completed many of its restructuring ventures.
Surprisingly, Einhorn sold off his GM position in Q1 however, noting that the pandemic had erased the possibility of GM doing a minimal share repurchase this year. GM did indeed announce in April that it was suspending its dividend and share buyback program. Unfortunately for Einhorn, his FCF predictions were also prescient, as GM is now predicting as much as $12 billion in FCF in the second half of 2020, helping GM shares surge by 119% since the end of Q1.
7. Bank of America Corporation (NYSE:BAC)
Berkshire sold off a big chunk of its Wells Fargo & Company (NYSE:WFC) position in Q3 and invested some of that money into its Bank of America Corporation (NYSE:BAC) holding, adding another 85.09 million BAC shares to its portfolio. Berkshire owns an 11.66% stake in Bank of America valued at over $24.33 billion at the end of September.
One of the 30 Most Popular Stocks Among Hedge Funds in Q3, Bank of America represents the type of stock that Berkshire has traditionally loved, with a seemingly formidable moat. However, in many ways it also represents the common recent criticisms of Berkshire’s portfolio of companies and investments, which claim that Buffett remains invested in too many old economy dinosaurs like brick and mortar banks. While Buffett owns a massive stake in BAC, other hedge funds have been pouring into new economy finance stocks like Paypal Holdings Inc (NASDAQ:PYPL), which has surged past Bank of America in recent quarters in terms of hedge fund ownership.
6. Pfizer Inc. (NYSE:PFE)
Pfizer Inc. (NYSE:PFE) is the first of several healthcare buys made by Berkshire Hathaway in Q3, coming mere months before the company made global headlines with the promising results from its phase 3 trial of a potential vaccine for Covid-19. Berkshire bought 3.91 million PFE shares during Q3, building an ownership stake valued at over $136 million as of September 30.
In the trial of over 43,000 volunteer subjects given either the vaccine or a placebo, Pfizer’s vaccine was judged to have a 95% efficacy rate at preventing infection based on the results that showed only 5% of the cases of infection among volunteers occurred in the vaccine group. No adverse health effects were observed. Pfizer expects it will be capable of producing 1.3 billion doses of the vaccine next year alongside its vaccine partner BioNTech.
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Disclosure: None. Top 10 Stocks Warren Buffett Just Bought is originally published at Insider Monkey.