One Stock Buffett Won’t Be Buying, For Sure

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You can forget about any stock repurchases coming out of Omaha. Berkshire Hathaway (BRK-B) has been on such a tear that its price-to-book value ratio, once hovering this close to the 1.1x to 1.2x that would have triggered Warren Buffett to consider repurchasing shares, is now well out of repurchase range.

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BRK.B Chart

While that stock chart might have you thinking the massive conglomerate is getting a bit pricey, the current price-to-book value is still below its pre-crisis level, despite the fact that per-share earnings have vaulted back above their pre-crisis level.

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BRK.B Chart

Still, the stock has been on fire. So much so that another pretty sharp Omaha value investor, Wally Weitz, took some profits in the second quarter. The Weitz Value fund reduced its stake by 22%. To be clear, Weitz is still quite bullish on Berkshire Hathaway; even after the trim the fund has a 4.5% position in Berkshire Hathaway. But when you’ve watched a stock race more than 10 percentage points ahead in a very hot market, that’s a pretty sweet opportunity to take some profits.

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BRK.B Chart

In coming days we’ll get a breakdown of Berkshire’s investment portfolio at the end of the second quarter. Based on the quarterly 10-Q filed with the SEC it looks like there might be some news there. According to Berkshire’s SEC filings at the end of 2012 the cost basis for its equity investments was $50.5 billion. At the end of the first quarter of this year that grew modestly to $51.1 billion. In the latest 10-Q filing Berkshire reported its cost basis on June 30th was $55.8 billion. Will be interesting to see where that new $5 billion went. To be clear, that’s still just about 5% of the portfolio’s total value of more than $103 billion.

Berkshire’s Big 4 stock investments -- Wells Fargo (WFC), Coca-Cola (KO) , IBM (IBM) and American Express (AXP) -- represent more than two thirds of the value of the equity investments. Coca-Cola and American Express haven’t been touched for decades. In the first quarter Buffett was again adding to the Wells Fargo stake and making a small (0.1%) add to the IBM position.

At one point during the second quarter, IBM was down more than 10%. Given IBM’s recent struggles -- its earnings story has recently become more dependent on cost cutting than organic growth -- it will be interesting to get a read on Buffett’s sentiment.

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IBM Chart

After building the bulk of the IBM position throughout 2011, Berkshire Hathaway has made very small additions to date; the biggest was in the second quarter of 2012—a 3.5% increase in Berkshire’s share count -- when IBM’s stock price fell nearly 7%.

Will there be more nibbling after this recent slide?

Another potentially interesting stock to keep an eye on is National Oilwell Varco (NOV). In the first quarter, it was the biggest build in Berkshire’s portfolio, with the stake growing 40% -- though that brought it only to 0.62% of the portfolio’s assets. The stock has recently been popping up in some interesting value portfolios, including the Oakmark, Oakmark Equity Income and Oakmark Global funds, as well as a Fidelity Equity Income and Parnassus Equity Income, all of which added to or initiated positions in the second quarter. The manufacturer of land and offshore drilling rigs is also rated Attractive by YCharts.

Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at editor@ycharts.com. You can also request a demonstration of YCharts Platinum.


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