A week ahead of the release of its 2016 results and the famous chairman’s letter, the A class shares in Warren Buffett’s Berkshire Hathaway have hit a series of all time high in the last week last week – culminating in the intra day high of $US252,860 on Friday and another all time closing high of $US252,838 the same day.
That was as investors contemplated he and his company making a killing from the shock $US143 billion takeover offer for consumer products giant, Unilever by Kraft Heinz which is half owned by Berkshire.
Buffett controls 50.6% of the Kraft Heinz shares on issue and they rose more than $US9 billion in value on Friday night, US time after Unilever revealed the approach and the fact that its board had rejected the offer.
But Kraft’s shares will reverse that 10% plus rise on Friday tonight after it pulled out of the Unilever bid on Sunday. The announcement was as much a surprise as the original announcement was.
Berkshire is already looking at extra gains of $2.5 billion on its growing stake in Apple and the static holding in Wells Fargo alone, as well as millions more on its various other holdings.
These gains come on top of the surge in value of Berkshire’s huge investment portfolio performed in the December quarter.
The investment portfolio saw a 15% rise in the December quarter against a 3.3% rise in the key market measure, the S&P 500. So far this quarter Berkshire shares are up 2.30%, surprisingly underperforming the S&P 500 which is up more than 4.1%.
Berkshire’s shares lagged the market for much of 2016, but thanks to the last quarter surge they jumped 23% over the year. The S&P 500 rose 10.2%, meaning Berkshire is looking at a year of outperforming the wider US market.
We will find out more details when the company releases its 4th quarter figures and chairman’s letter to shareholders Friday night, our time.
After sitting on a company record $US85 billion cash float or hoard at the end of the third quarter, Berkshire spent $US12 billion on shares (according to Buffett in an interview in January) in the wake of Donald Trump’s election victory.
On top of the share gains, that float will be boosted well past $US91 billion by June after the $US10.2 billion reinsurance deal done with AIG last month and a smaller one $US1.5 billion done with a smaller insurer.
The share purchases in the December quarter included more shares in Apple, a new stake in Southwestern Airlines, and more shares in other airlines offset by sales, led by more of the company’s long time stake in Wal-Mart and Deere & Co, the farm equipment group.
As a result and the post election surge in on Wall Street after November 7, the value of Berkshire’s stock portfolio value increased from $US129 billion to $US148 billion this quarter.
$US12 billion of that $US19 billion rise came from the new investment, the remainder from the rise in the market value of shares.
Berkshire said in a quarterly report to the US Securities and Exchange Commission that it built a new position in Southwest Air, buying 43.2 million shares valued at $US2.15 billion.
On top of this, Berkshire increased its stake in Delta Air Lines by 848% to 60 million shares worth $US2.95 billion. Berkshire also raised its stake in American Airlines. In fact Berkshire controls 8.8% of American, 9.1% of United, and 8.2% of Delta, which is a sizeable exposure.
Berkshire boosted its stake in Apple by 277%, buying 42.1 million shares valued at $US6.64 billion, building on the earlier stake valued at $US2 billion (and the first stake in the March quarter last year of around $US1 billion). The new stake of 57 million shares is around 1% of Apple’s issued capital.
Apple shares surged to record levels this week as the value of the company topped $US700 billion for the second time in three years, closing around $US710 billion.
Apple shares are up another 16.53% so far this quarter, so Berkshire is looking at another boost from this investment. Berkshire’s stake rose $US1.14 billion on Friday alone.
Buffett’s most valuable holding remained Kraft Heinz, and no change was made to the stake worth $US28.4 billion. Wells Fargo (up nearly $US1.5 billion in value on the day on Friday), Coca-Cola, IBM, and American Express also remained top holdings.
Berkshire also revealed a new stake in Monsanto, of about 8 million shares valued at about $US872 million. Monsanto currently trades for about $US109 per share, and the company plans to sell itself to Bayer for $US128 per share.
There are question marks over the deal happening (we could learn more from Bayer this week when it reports) If the deal happens, Buffett stands to make a quick profit.
The final major change was the addition of a nearly 167 million-share position in satellite radio operator Sirius XM. This puzzled analysts as the company is small by comparison with many other companies in the portfolio and the company’s at nearly $US5 low as well. This is an $US800 million investment.
Buffett continued selling down the Wal-Mart stake. Berkshire’s holding has been cut from about 13 million shares to 1.4 million. Berkshire also sold nearly all of its 15 million shares of US telco Verizon during the quarter.
Since Berkshire also quit its AT&T stake earlier in 2016, this was not a big shock to analysts. Verizon is also proposing to buy the internet business of Yahoo, perhaps Buffett didn’t like that deal.
While Buffett bought about 20 million shares of pipeline group, Kinder Morgan in early 2016, he sold his entire position during the fourth quarter. Kinder Morgan shares nearly doubled from the early 2016 lows, so this looks like opportunistic profit taking.
And after rising 43% in the past year or so, profit taking looks like being reason for the sale of the stake in Deere.
