It will be a few more days before investors learn exactly what stock transactions Warren Buffett’s Berkshire Hathaway (BRK.A 0.69%) (BRK.B 0.68%) made during the third quarter. The one thing investors do already know from the company’s third-quarter earnings report is that Berkshire was a net seller of stocks.
In the third quarter, Berkshire sold nearly $7 billion worth of equity securities in its portfolio. It bought just $1.7 billion in equities. A few of the stocks sold last quarter have been made public already and there’s one stock Berkshire has been continuing to buy shares of throughout the year.
Here’s what Berkshire has been selling
Investors won’t know exactly what Berkshire’s portfolio looked like at the end of the third quarter until they see the company’s 13F filing with the Securities and Exchange Commission (SEC). The 13F discloses the holdings for institutional investors with more than $100 million in assets under management, and it’s due within 45 days of the end of the quarter. Considering Berkshire’s portfolio value exceeded $318 billion at the end of the third quarter, it definitely meets the threshold for required filing.
However, there were some clues from Berkshire’s third-quarter earnings report as well as some earlier SEC filings.
One of Berkshire’s biggest sales may have been Chevron (NYSE: CVX). The company reported it ended the quarter with $18.6 billion worth of Chevron shares. However, the shares the company held as of its latest 13F filing would’ve been worth $20.8 billion at the end of the quarter if he hadn’t sold. So, it seems Berkshire reduced its Chevron stake by about 10%.
The timing of the sale was fortunate. The oil and gas company reported disappointing earnings results at the end of October and the stock dropped to a new 52-week low. But Berkshire probably wasn’t that prescient. It has been selling out of Chevron every quarter for four straight quarters now. The stock remains Berkshire’s fifth-largest holding as of the end of the third quarter.
Another stock Berkshire sold last quarter was HP (NYSE: HPQ). Berkshire sold $619 million worth of HP recently, most of it in the third quarter. Knowledge of these sales came from SEC-required disclosures for shareholders with a stake in any company greater than 10%. The last report, on Oct. 3, put Berkshire’s stake in HP below that 10% threshold, so it may have continued selling shares since without having to report.
The sales environment for PCs and printers hasn’t recovered as quickly as Berkshire or HP’s management hoped. That’s led to a string of disappointing earnings and worsening outlooks. Berkshire likely took a loss on its shares, and now has more cash to redeploy where it sees opportunities.
One stock Berkshire’s still buying
Berkshire did make $1.7 billion in new equity purchases in the third quarter, but the holding company made a significant investment since the end of the quarter, too.
New SEC disclosures show Berkshire bought shares of Occidental Petroleum (OXY 0.66%) at the end of October. Over a three-day period, Berkshire bought $246 million worth of shares. That boosts Berkshire’s stake in the company to 25.8%. It has authorization to buy up to 50% of the company, but Berkshire has said it has no plans to take control of the business.
The new purchase is the ninth time Berkshire bought Occidental shares this year, but it’s the first time since June. The stock has performed well since Berkshire’s previous purchase, recovering from a 52-week low. But after Chevron and others in the industry reported disappointing earnings results, Berkshire may have seen an opportunity to add more to its position.
Berkshire also holds a huge amount of preferred shares in Occidental that it acquired when it helped finance the company’s 2019 Anadarko acquisition (for which it outbid Chevron). As its balance sheet recovers and it increases its dividend for shareholders, Occidental will continue to redeem those preferred shares. It’s already redeemed 15% ($1.5 billion) year to date. As such, Berkshire merely maintained its vested interest in Occidental by buying more shares of common stock.
Still, investors interested in an oil stock may be interested in following Berkshire’s lead with Occidental. The stock trades for just 7.6 times its free cash flow. That’s well below competitors like Chevron. Meanwhile, its focus is on driving efficiency from its existing production facilities, rather than investing capital in expanding. With the potential for crude oil prices to climb, it could become a cash-generating machine in the future.
Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and HP. The Motley Fool recommends Chevron and Occidental Petroleum. The Motley Fool has a disclosure policy.