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Morningstar | Berkshire's New Money Purchase of Amazon.com Highlights a Light Quarter of Activity for the Insurer

There were few surprises in wide-moat Berkshire Hathaway's first-quarter 13-F filing. CEO Warren Buffett had already announced that Berkshire put new money to work in Amazon.com during the quarter, noting that it was one of his lieutenants who purchased the shares, which rings true given that the position size, which cost an estimated $800 million, fell below the $1 billion-plus position size we normally see with stocks Buffett is backing. We were also aware of Berkshire's trimming of its Wells Fargo stake (selling 17.0 million shares for an estimated $800 million) to keep its holdings below 10% of the bank's total outstanding shares, but did not foresee the insurer putting an additional $935 million to work in JPMorgan Chase (acquiring 9.4 million shares). Adding in the purchase of 408,000 additional shares of PNC Financial for an estimated $49 million, Financial Services stocks now account for 44% of Berkshire's holdings.

We were also aware of the additional purchases of shares of Delta Air Lines (5.4 million for an estimated $275 million), which pushed Berkshire above the 10% ownership threshold it has decided to adhere to for all of its holdings (not just banks), paying for part of it by trimming 1.2 million shares from its Southwest Airlines holdings (raising an estimated $60 million). The only other purchase during the quarter was 935,000 additional shares of Red Hat for an estimated $170 million. As for sales, Berkshire sold 6.3 million shares of Phillips 66 (for an estimated $575 million), tendered 1.3 million shares of Charter Communications (for an estimated $420 million), and completely eliminated its remaining (928 share) stake in Verizon Communications. Despite the buying activity during the quarter, Berkshire looks to have tapped just $350 million-$400 million of additional capital to cover its stock purchases. It closed out the first quarter of 2019 with $114.2 billion in cash and cash equivalents, up from $111.9 billion at the end of December.

These conscious changes in the equity investment portfolio, as well as market movements during the first quarter of 2019, had a slight impact on Berkshire's top stock holdings. At the end of March, the company's top 5 positions--Apple (23.8%), Bank of America (12.4%), Wells Fargo (9.9%), Coca-Cola (9.4%), and American Express (8.3%)--accounted for 63.8% of its $199.5 billion portfolio, and its top 10 holdings--which also included Kraft Heinz (5.3%), US Bancorp (3.1%), JPMorgan Chase (3.0%), Moody's (2.3%), and Bank of New York Mellon (2.0%)--accounted for 79.5%. From a sector perspective, as we noted above, Financial Services is Berkshire's largest sector bet (at 44% of reported stock holdings), followed by Technology (25.7%), Consumer Defensive (15.3%), Industrials (7.0%), Consumer Cyclical (3.3%), Healthcare (1.4%), Communication Services (1.4%), Basic Materials (1.2%), Energy (0.4%), and Real Estate (0.3%).