Warren Buffett Portfolio: Berkshire Holdings

Createwealth8888: Warren Buffet knows how to sell. He doesn't just invest. He also speculates but sometime he will lose money too. What about you?

---------------------------------------
By Eric Rosenbaum, TheStreet.com Staff Reporter , On Tuesday August 17, 2010, 8:00 am EDT


OMAHA, Neb. (TheStreet) -- The quarterly portfolio holdings revealed after the market close on Monday from Warren Buffett and Berkshire Hathaway show that the big Buffett train slowed down in the second quarter when it came to selling stocks.

In 2009 and earlier this year, to help fund the mega-acquisition of Burlington Northern Santa Fe railroad, Buffett was a big net seller of stocks held in his portfolio. It was notable for Mr. Buy and Hold to be a heavy seller of stocks in recent quarters, but in light of the Burlington Northern deal, the crowd of zealous Warren Buffett watchers downplayed the selling activity. The man who, among other famous sayings, once said that the best holding period for a stock is "forever," was entitled to some portfolio sales given the size of the Burlington Northern deal.

It was back to normal for Mr. Buy and Hold in the second quarter of 2010, which can be described as a period of overall tweaking the Berkshire Hathaway portfolio. There were some notable buys, sells and new additions. Yet most of the buys and sells were on the margins, and there was only one new company making it into the coveted list of public stocks held by Warren Buffett.




"Things quieted down," said Morningstar analyst Bill Bergman. Buffett was again a net buyer of stocks in the second quarter in marked contrast to the previous two quarters of heavy selling, at least heavy selling by Buffett standards.



It wasn't as if Buffett needed to raise cash in the quarter for continuing operations either. The recently released earnings from Berkshire Hathaway showed that outside a big decline in the value of derivatives, the operating companies owned by Berkshire -- which had been a drag on earnings in recent quarters and in the recession -- were recovering. The big derivatives loss in the second quarter of close to $2 billion has to be put in the proper perspective, too. Berkshire Hathaway's derivatives gain in the preceding four quarters was $5.5 billion. As the Oracle has always said, derivatives will go up and down in value quarter to quarter.

What follows is a breakdown of the most notable stocks to move up and down in Buffett's estimation in the second quarter. As the Burlington Northern train came into the Omaha station the portfolio activity went from a blaring whistle to a relative tweet, but the tweets were still notable. The real big Warren Buffett winner in the quarter was Johnson & Johnson. Warren Buffett added roughly 17 million shares of Johnson & Johnson in the second quarter, far and away the biggest addition to the Berkshire Hathaway portfolio.

Lots of Johnson & Johnson pills may have been trashed as part of the massive painkiller recall, but Buffett was loading up on shares of Johnson & Johnson. Morningstar analyst Bergman said that among all the recent selling activity from Warren Buffett, the one big sell that surprised him was Johnson & Johnson. Thus, to see a big move back into shares of J&J made sense.

From May 12 to May 28, Johnson & Johnson shares fell from over $64 to $58. J&J's 52-week low is $57, which it hit in July. On Monday, Johnson & Johnson shares closed at a level similar to it second quarter low, at $58.01.

While the Johnson & Johnson buying was the biggest in terms of total shares -- bigger than all the other buying combined for Warren Buffett in the second quarter -- looking more deeply into the details, health care was a favored sector.

Warren Buffett also added to positions in Becton Dickinson and Sanofi-Aventis.

None of these represented huge moves, but in the case of Becton Dickinson, Buffett's increase of close to 147,000 shares was a percentage increase of roughly 8%.

Buffett added 160,000 shares of Sanofi-Aventis in the second quarter, taking his overall stake up above the 4 million share mark. Buffett owned 3.9 million shares of Sanofi-Aventis previously.

Becton Dickinson shares went on a big slide in the second quarter, dropping from a share price close to $80 in mid-April, to as low as $67 near the end of June. On Monday, Becton Dickinson shares close at $70.63.

Some of the share deterioration in any of these stocks in the second quarter has to viewed within the perspective of the big market gyrations in June, and the quarter end date right ahead of the market rally in July. Buffett has always said to buy when you smell fear, and so, there may have been some sniffing going on amid the market carnage in the second quarter. The markets had reached a 2010 peak toward the end of April before the big selloff began. It's also safe to say of the Warren Buffett second quarter that the more things change, the more they stayed the same. In this case, some of the same related to the same selling made by the Oracle with some big portfolio names.

Among major Warren Buffett portfolio dogs, ConocoPhillips continued to be sold by Buffett in the most recent quarter, with more than 5 million shares of the integrated oil company exiting Berkshire Hathaway's portfolio.

Buffett also unloaded another 1.5 million shares of Kraft. Buffett had been a noted seller of Kraft earlier in the year, and his selling of Kraft was noted by the press as it coincided with the Kraft pursuit of Cadbury. Kraft's courtship of Cadbury, which it ultimately acquired, did not sit well in Omaha. Warren Buffett voiced his public displeasure about a Kraft plan to use shares to finance the deal, an aspect of the deal that Kraft did back away from.

While Buffett clearly returned to J&J in a big way after his big selling pattern over the past year, even with net selling no longer the Berkshire Hathaway trend, Kraft still seems to be in the doghouse.

Long-time holding Moody's Investor Service, a holding that indirectly led to Buffett being forced by subpoena to testify this year in front of the congressional Financial Crisis Inquiry Commission, was spared any selling by Buffett in the second quarter, for the first time in recent memory. Warren Buffett has never been shy about his affinity for the big bank stocks, from long-time Berkshire Hathaway favorite Wells Fargo to the recent Buffett bank holding of much controversy, Goldman Sachs.

In the second quarter, it was a stock that serves the banks that caught Warren Buffett's attention, and was in fact the only new position for the Oracle of Omaha.

Bank technology company Fiserv was the newest stock in the Warren Buffett stable as of the end of the second quarter, with Buffett adding 4.4 million Fiserv shares.

Fiserv is a natural for the Berkshire Hathaway stable of holdings, according to Morningstar analyst Brett Horne. The bank technology company has a stable earnings profile, offers a high return on capital, and has relatively safe customer relationships. Morningstar's Horne noted that once a bank implements the Fiserv platform, the relationships tend to be sticky. Buffett has never been a fan of go-go markets in which the opportunity for disruptive technology is significant. "It's a sedate business, " said the Morningstar analyst, who described the stock as being undervalued, but short of a level where he had the stock at a conviction buy.

Additionally, Buffett loves stocks that don't disappoint on the top line, noting in the past year that he didn't think Wells Fargo would ever disappoint him in regard to revenue. Even during the worst of the bank crisis, when the big banks like Wells Fargo and Goldman were seeking government bailout money, the biggest impact on Fiserv was a flat revenue line.

Fiserv may not be a big name, but Buffett loves his boring companies. The boring buy that saw the most Buffett love in the first quarter of 2010 was information storage company Iron Mountain. In the second quarter, the Buffett Iron Mountain stake was unchanged.

As far as the actual bank companies in which Warren Buffett invests, there was not much action of note in the quarter. Buffett's Wells Fargo and U.S. Bancorp stakes were unchanged. Buffett did shed a part of his stake in M&T Bank, selling just under 200,000 shares of the Buffalo, NY-based bank. In one notable area of Berkshire Hathaway investment, activity may soon be more muted, though it doesn't relate to the portfolio of publicly traded stocks bought and sold on a quarterly basis by the Oracle of Omaha.


On the same day that the quarterly moves made by Buffett were released, Berkshire Hathaway was in the press talking about its big derivatives portfolio. Buffett top lieutenant David Sokol -- who runs Berkshire Hathaway's energy and NetJets business -- was quoted as saying that the new dollar-for-dollar collateral requirements from Congress for derivatives holdings may lead to less focus from Buffett on the controversial securities.

Sokol was sent to Washington by Buffett to lobby Congress for an exemption from the derivatives requirements. Berkshire received the most important provision it wanted in Washington D.C., in that the collateral requirements for derivatives would not be retroactive.

However, Sokol now says that the dollar-for-dollar collateral requirements might make it impossible to sell derivatives at attractive pricing. Berkshire Hathaway has more than $60 billion in existing derivatives contracts and its second quarter derivatives loss of $1.8 billion was a one-time 40% hit to earnings.

Sokol told Bloomberg on Monday, "If you are now going to have to post dollar-for-dollar collateral, and you can't get a price in the market that we think reflects the value of the credit quality of the company, then we wouldn't take on that risk."

Sokol continued, "Ultimately what it will do is alter the pricing.... If one of our competitors is prepared to offer a similar instrument at a cheaper price, then there will probably be less of them," from Berkshire, Bloomberg quoted Sokol as saying of the new derivatives legislation.

Liabilities linked to Berkshire Hathaway equity derivative contracts and credit-default swaps were roughly $10.5 billion as of the end of the second quarter, while Berkshire's collateral provisions on June 30 were $173 million, according to Bloomberg data.