Warren Buffett’s Berkshire Hathaway is one of the most closely followed investors in the market due to its remarkable track record and its long-term investment focus. We track Berkshire Hathaway’s 13Fs alongside those of hundreds of hedge funds and other notable investors as part of our work researching investment strategies. According to our research, the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and our own portfolio based on these results outperformed the S&P 500 by 33 percentage points in the last 11 months. Using our database we can see any changes that Buffett made to his 13F portfolio during the second quarter of 2013. Here are some trades we noticed him and his team making (or see Buffett’s stock picks over time):
Stable banks. The holding company increased the size of its position in U.S. Bancorp (NYSE:USB) to a total of about 78 million shares. Unlike many larger banks, U.S. Bancorp has not been seeing low earnings relative to its valuation, and so its trailing P/E is 12 (some banks including Citigroup Inc. (NYSE:C) and Bank of America Corp (NYSE:BAC) have low forward earnings multiples but this is based on an expected recovery in their businesses). The retail-focused bank delivered only a modest increase in earnings last quarter compared to the second quarter of 2012, but stable growth is probably sufficient at its current pricing. Citadel Investment Group, managed by billionaire Ken Griffin, had owned 7.6 million shares of U.S. Bancorp (NYSE:USB) at the end of March (find Griffin’s favorite stocks).
Of course, Berkshire continued to be a fan of Wells Fargo & Co (NYSE:WFC), with that stock once again being its largest holding by market value. Wells Fargo trades at a significant premium to the book value of its equity with a P/B ratio of 1.5, which is also a higher valuation than many of its peers, but its trailing earnings multiple is also 12 and profits have been up here as well.
GM. Buffett and his team were also buying General Motors Company (NYSE:GM) between April and June, closing the quarter with 40 million shares of the automaker in their portfolio. GM had been one of the most popular stocks among hedge funds in the first quarter of the year (check out the full top ten list). Many value investors, including billionaire David Einhorn of Greenlight Capital, have argued that U.S. consumers will soon need to replace an auto fleet which is heavily aged by historical standards, benefitting the auto industry in general. Einhorn has also claimed that General Motors Company (NYSE:GM) is poised for recovery in the European market, though recent reports still show poor performance in that geography. Earnings were actually down in Q2 2013 versus a year earlier, though based on expectations from Wall Street analysts the forward P/E is only 8 with a five-year PEG ratio of 0.6.
Oil sands. Berkshire’s largest new position generally tracks a good deal of attention from markets; this quarter, it was Alberta oil sands company Suncor Energy Inc. (USA) (NYSE:SU). The energy company has been seeing only limited revenue growth recently, but many bulls argue that the potential production from the oil sands more than justifies the trailing P/E of 18. We would note that Berkshire owns Burlington Northern Santa Fe, a railroad which currently gets a good deal of business from transporting oil from Alberta and nearby oil fields to refineries, and that takeaway capacity has been becoming one of the bottlenecks to further development in the oil sands. Our database shows that billionaire Steve Cohen’s SAC Advisors had been buying Suncor Energy Inc. (USA) (NYSE:SU) in the first quarter of 2013 (research more stocks Cohen liked).
Berkshire didn’t make many major sales of its largest holdings last quarter, in line with its reputation as a longer term investor in many cases. We would be interested in taking look at alternatives in banking, however, including large banks with cheaper price-to-book multiples. We are also skeptical that General Motors Company (NYSE:GM) will prove to be a better buy than other automakers, though we are keeping an eye on the industry generally for any signs of a release of pent-up demand. As for Suncor Energy Inc. (USA) (NYSE:SU), we are interested in the oil sands and with the stock’s valuation not too high the company seems to be worth a closer look.
Disclosure: I own no shares of any stocks mentioned in this article.