Berkshire Hathaway added two new stock holdings late last year, courtesy of the new share pickers chosen by Chief Executive Warren Buffett, while the company also shed some long-held investments.
New portfolio managers Ted Weschler and Todd Combs added for the first time shares of commodities broker Archer Daniels Midland and Internet address manager VeriSign Inc. Shares of Kraft Foods Group and consumer products maker Johnson & Johnson were sold. Holdings of CVS Caremark and Dollar General Corp. were eliminated.
“ADM sounds like Weschler and Combs,” said David Kass, a Berkshire shareholder and finance professor at the University of Maryland who usually brings students to the May meetings. “VeriSign is probably Weschler and Combs.”
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Digesting annual and quarterly changes to the portfolio of marketable stocks is a regular event for Berkshire shareholders, who are flocking to Omaha for today's annual meeting at the CenturyLink Center.
What is new is the authority Buffett, 82, has granted the younger investment managers as he contemplates the company's future after him. Both men are new in the past two years and have had their universes expanded, with larger amounts of money to deploy as they see fit, courtesy of Buffett.
But Buffett, who built Omaha-based Berkshire from a failing textile company into one of the world's largest and most diversified corporations through acquisitions and savvy stock picks, isn't spending all of his time looking for the next large company to buy outright and slot into the roster of dozens of wholly owned subsidiaries.
Under Buffett's direction, Berkshire added shares of San Francisco-based bank Wells Fargo between September and December 2012. It is one of Berkshire's “Big Four” holdings, initiated by Buffett in 1996 and added to over the years. Also, holdings in General Motors rose, and the IBM stake increased.
“They have added to Wells Fargo almost every quarter and every year since 2005,” said Kass, who is not related to Douglas Kass, the professional investor who believes Berkshire share prices will fall and who was invited by Buffett to ask questions at the annual meeting.
Some long-term holdings were sold between Sept. 30 and Dec. 31, the last period during which Berkshire was required by the Securities and Exchange Commission to disclose stock ownership:
>> Ownership of Johnson & Johnson, maker of baby shampoo to blood sugar monitors, was again pared. Buffett has been cutting Johnson & Johnson for some time. In 2012, Berkshire reduced its holdings of Johnson & Johnson by about two-thirds. The world's biggest health-products maker was ordered that year to pay more than $1.1 billion in fines after an Arkansas jury found the firm misled doctors and patients about the risks of an anti-psychotic medication. There have also been mishaps leading to the recall of hip implants and non-prescription medicines.
“It's still got a lot of wonderful products, and it's got a wonderful balance sheet and all of that, but there have been too many mistakes,” Buffett told financial news channel CNBC that year.
>> Kraft Foods Group holdings are lower than in previous quarters; the company's restructuring has led to share ownership of a new company spawned by the breakup, Mondelez International.
Andy Kilpatrick, a Buffett biographer whose tome “Of Permanent Value” has been updated many times into two volumes spanning 1,800 pages, said the consumer products firms are worthwhile investments and fit the Berkshire definition of promising holdings.
“They are good companies, perhaps even undervalued companies,” Kilpatrick said.
He said the sale of consumer-products firms may have been to free up investment capital for Weschler and Combs, who added to their stakes of kidney-care firm DaVita Dialysis and DirecTV late last year.
>> Newspaper publisher Lee Enterprises has been cut in recent periods. Berkshire and Buffett have remained buyers of newspapers with what he calls superior economics; the portfolio includes The World-Herald through Berkshire's BH Media Group.
Buffett's “Big Four” group of stock holdings consists of Wells Fargo, Coca-Cola, IBM and American Express. Each, said Tom Russo, New York-based partner at investment firm Gardner Russo Gardner and a Berkshire shareholder, reflect a change in the fundamentals of value investing, or the attempt to find companies that are selling at a discount the present value of their future cash flows.
Deeply undervalued companies, Russo said, are scarcer than ever, because investing continues to evolve and attract additional capital and talent searching for outstanding returns.
The idea that companies exist that are selling at a discount to their liquidation value — a basic tenet of value investing that Buffett learned from 1940s subject expert Benjamin Graham — doesn't come to pass very often anymore, Russo said.
Berskhire knows this, Russo said, and the addition of IBM shares illustrates the point.
“The margin of safety is not the stock price, but the business franchise,” Russo said. “IBM is deeply embedded in corporate information technology departments worldwide, and the cost of switching to another vendor is too high.”
Berkshire Hathaway investments
Common stock holdings as of Dec. 31 with a market value of more than $1 billion.
|Name (no. of shares)||Pct. Of company owned||Cost in millions||Market value in millions|
|American Express (151,610,700)||13.7||$1,287||$8,715|
|Munich Re (20,060,390)||11.3||2,990||3,599|
|Phillips 66 (20,668,118)||3.3||660||1,097|
|Procter & Gamble (52,477,678)||1.9||336||3,563|
|US Bancorp (78,060,769)||4.2||2,401||2,493|
|Walmart Stores (54,823,433)||1.6||2,837||3,741|
|Wells Fargo (456,170,061)||8.7||10,906||15,592|
Source: Berkshire Hathaway Inc.
The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.
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