For nearly six decades, Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has been put on a pedestal by Wall Street -- and with good reason.
Since the "Oracle of Omaha," as Buffett has come to be known, took the reins in the mid-1960s, he's overseen a greater than 5,710,000% cumulative return in Berkshire's Class A shares (BRK.A), as of the closing bell on Aug. 29. He's also practically doubled up the annualized total return, including dividends, of the widely followed S&P 500 over the same span.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Riding Buffett's coattails has been a winning strategy for long-term-minded investors. Thanks to quarterly filed Form 13Fs -- a 13F allows investors an over-the-shoulder look at which stocks Wall Street's top money managers bought and sold in the most recent quarter -- mirroring the trading activity of Berkshire's brightest minds, which includes Warren Buffett and his two investing "lieutenants," Todd Combs and Ted Weschler, can be done with ease.
However, the true apple of Buffett's eye, and the stock that recently hit a milestone just eight other public companies have ever achieved, won't be found in Berkshire's quarterly 13Fs.
The Oracle of Omaha has been a selective buyer of late
Despite being an avid proponent of the U.S. economy and American businesses, what Buffett and his team do over short periods doesn't always mesh with the long-term ethos that Charlie Munger built at Berkshire Hathaway.
Based on both public 13Fs and Berkshire's quarterly cash flow statements, investors will see that Buffett's company has been a net-seller of equities for seven consecutive quarters, to the tune of almost $132 billion. With Buffett overseeing the sale of around $5.4 billion worth of Bank of America shares since mid-July, there's a good chance we'll witness this net-equity selling activity extend to an eighth quarter.
While Buffett has unwavering faith in the American economy over the long haul, he's also a value investor at heart. He wants to pay a "fair price" for "wonderful companies," and he's willing to sit on his hands and wait until stock valuations make sense.
But this doesn't mean Buffett's buying activity has been nonexistent -- it's just very selective.
For instance, he's been purchasing shares of integrated oil and gas company Occidental Petroleum(NYSE: OXY) with some degree of consistency since the start of 2022. Aside from providing in-demand energy commodities, Occidental is highly levered to its drilling segment. Generating a higher percentage of its revenue from drilling than other integrated operators can allow Occidental to enjoy an outsized operating cash flow benefit if the spot price for crude oil remains elevated.
During the COVID-19 pandemic, global energy majors were forced to slash their capital expenditures (capex) due to an energy commodity demand cliff and unprecedented uncertainty. Even with capex levels now back to normal, crude oil supply constraints remain, which may help buoy its spot price.
Warren Buffett and his crew have also been buyers of satellite-radio operator Sirius XM Holdings(NASDAQ: SIRI) and Liberty Media's Sirius XM tracking stock, Liberty Sirius XM Group(NASDAQ: LSXMA)(NASDAQ: LSXMK).
In a little over a week, Sirius XM and Liberty Sirius XM Group will merge to create one class of shares. Sirius XM is also effecting a reverse 1-for-10 stock split upon consummation of the merger to lower its outstanding share count, increase its share price, and hopefully draw more institutional investor interest.
The merger between legal satellite-radio monopoly Sirius XM and Liberty Sirius XM Group has all the hallmarks of a rare arbitrage play from the Oracle of Omaha.
Image source: Getty Images.
Warren Buffett's favorite stock to buy just joined exclusive company
But at the end of the day, neither Occidental Petroleum nor Sirius XM are Warren Buffett's favorite stock to buy. "Favorite stock" is a term reserved for the company the Oracle of Omaha has purchased for 24 consecutive quarters.
As stated earlier, this "favorite stock" isn't going to be found in quarterly 13Fs. Rather, you'll need to dig into Berkshire's Hathaway's quarterly operating results, which provide to-the-cent buying activity of Warren Buffett's favorite stock. Near the end of each report, just prior to the executive certifications, you'll find detailed information on share repurchase activity and come to the realization that the stock Buffett buys more than any other is (drum roll) shares of his own company.
Before mid-July 2018, share buyback activity at Berkshire was nonexistent. The guidelines in place only allowed shares to be repurchased if Berkshire Hathaway's stock fell to or below 120% of book value, as of the most recent quarter. With shares not falling to or below this line-in-the-sand threshold, Buffett and right-hand man Charlie Munger (who passed away in November 2023) were forced to sit on their hands.
On July 17, 2018, Berkshire's board amended the criteria governing share repurchases to allow Buffett and Munger to get in the game. Berkshire's board set no ceiling or end date to buyback activity as long as:
- The company has at least $30 billion in cash, cash equivalents, and U.S. Treasuries on its balance sheet; and
- Buffett believes shares are intrinsically cheap.
Although the second point is entirely subjective, Berkshire sitting on almost $277 billion in cash is a sizable buffer that allows Buffett to regularly repurchase shares of his own company. Over six years, he's overseen close to $78 billion in buybacks.
It just so happens that Buffett's favorite stock to buy hit a milestone last week that only eight other companies throughout history have ever achieved. As of the closing bell on Aug. 28, Berkshire became only the ninth public company to end a trading session with a market cap of at least $1 trillion. Seven of these eight exclusive companies are members of the "Magnificent Seven," while the eighth is oil goliath Saudi Aramco, which isn't traded on U.S. exchanges.
BRK.A Shares Outstanding data by YCharts.
Because Berkshire doesn't pay a dividend, leaning on share buybacks is Buffett's way of rewarding his company's shareholders. Reducing Berkshire's outstanding share count by nearly 12.7% over the last six years has steadily increased the ownership stakes of its remaining investors. More importantly, it drives home the importance of long-term investing, which is something Charlie Munger preached in his decades at Berkshire.
Furthermore, companies with steady or growing net income and a declining outstanding share count via buybacks tend to see their earnings per share (EPS) rise. Over time, share repurchases have made Berkshire's stock more fundamentally attractive to investors.
It can also be argued that overseeing nearly $78 billion in cumulative buybacks in six years is a testament to Warren Buffett's faith in the company he's overseen for almost 60 years.
Berkshire owns around five dozen businesses, and the Oracle of Omaha is overseeing a 45-stock, $318 billion investment portfolio that's predominantly comprised of cyclical businesses. In other words, Buffett and his team have strongly wagered on the U.S. economy and top-tier American businesses expanding over time. It's a simple numbers game that undeniably favors long-term optimists.
Although Berkshire Hathaway's $1 trillion market cap is a big number, there's no reason to believe shares won't head even higher.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America and Sirius XM. The Motley Fool has positions in and recommends Bank of America and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
