Buffett Bought Up His Own Stock While Selling Others Amid Rally

(Bloomberg) -- Shares of Berkshire Hathaway Inc. were left out of the stock market rally in the second quarter. Warren Buffett clearly thought the disconnect wasn’t warranted.The famed investor spent a record $5.1 billion buying back Berkshire’s own stock in the second quarter, more than double the amount he’d ever purchased before. That came as he unloaded almost $13 billion of other companies’ shares, including airline stocks and some financials, in what was Buffett’s biggest selling quarter in more than a decade.Buffett has shown signs of buying appetite in recent weeks, but the second-quarter results show those are a new phenomenon as the Covid-19 pandemic has slammed the economy but failed to put a permanent dent in stock-market valuations. Buffett’s been building up cash this year even as other investors have sought to seize on opportunities amid the turmoil, and the pain Berkshire’s own businesses are feeling may inform his thinking.“Our operating business groups are preparing for reduced cash flows from reduced revenues and economic activity as a result of Covid-19,” Berkshire said Saturday in a regulatory filing. “We currently believe our liquidity and capital strength, which is extremely strong, to be more than adequate.”Buffett’s cash pile surged to a record $146.6 billion at the end of June, in part from dumping all of his airline shares in April. He’s been more active lately, striking a deal for natural-gas assets in July and snapping up at least $2 billion of Bank of America Corp. stock in recent weeks through Aug. 4.Berkshire’s Class A shares, which fell in line with the S&P 500 in the first three months of the year as the pandemic spread in the U.S., fell another 1.7% last quarter while the broader index rallied 20%. Buffett said in early May that repurchases weren’t more compelling than at previous times, but the buybacks in the quarter suggest his thinking shifted.The company’s stock has rallied in July and August, but still is underperforming in 2020. Berkshire Class A shares were down 7.4% for the year through Friday’s close, compared with the 3.7% gain in the S&P 500.Berkshire’s operating profit slumped 10% in the second quarter to $5.5 billion. That was driven by a 42% drop in earnings from the conglomerate’s manufacturing, service and retailing businesses.The company also took $10 billion of impairment charges related to its Precision Castparts unit. Berkshire bought Precision Castparts in 2016 in a transaction valued at $37.2 billion, making it one of Buffett’s biggest deals. Now the maker of jet-engine blades and aircraft structural components is bracing for lean times as Boeing Co. and Airbus SE cut jetliner production and less air travel reduces the need for replacement parts.That’s forced the aerospace-parts maker to undergo “aggressive restructuring,” with the company cutting its workforce by about 10,000 employees during the first half of 2020.“We believe the effects of the pandemic on commercial airlines and aircraft manufacturers continues to be particularly severe,” Berkshire said in the filing. “In our judgment, the timing and extent of the recovery in the commercial airline and aerospace industries may be dependent on the development and wide-scale distribution of medicines or vaccines that effectively treat the virus.”Other key takeaways from the results:Unrealized gains and losses in Berkshire’s massive stock portfolio count toward the bottom line. So the S&P 500’s rally in the second quarter pushed net income to $26.3 billion.Insurance underwriting profit more than doubled to $806 million in the period. That was helped by gains at auto insurer Geico as fewer accidents benefited the business. Berkshire warned that Geico might be hurt in the next three quarters by a program that’s giving drivers a credit on their premiums.Berkshire’s press release is here.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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3 Stocks Flashing Signs of Strong Insider Buying

Confused by the current financial landscape? You’re not alone. Unemployment is high, yet in the face of this bad news, stocks have been charging forward. Add to the mix a rapidly rising rate of new COVID-19 infections, and you get a sense of the market’s clear disconnect. In times like these, traditional metrics alone might not tell the full story. You need other strategies to do the job.The activity of insiders can act as a more reliable trading signal. Watching the insiders – the corporate officers charged with running their companies for stockholders’ benefit – is a common strategy for finding good buys. These officers are responsible for more than just their own profit – they have to justify themselves to their Boards and their shareholders, and they have to show results. So, when they start buying up blocks of stock in their own companies, it’s a sign that investors should note.The TipRanks Insiders’ Hot Stocks tool tracks these purchases, and makes the data available for investors’ use. We’ve pulled up three stocks that have seen recent ‘informative buy’ action from company officers, to find out what makes them, well, hot. Here are the details.Navient (NAVI)First up, Navient, is a financial company servicing student loans. Navient boasts over 10 million individual loans, with a total dollar value exceeding $300 billion, and is one of the largest student loan servicers in the US, with a 25% market share.The corona epidemic has been tough on the company; the economic shutdown and consequent high unemployment have made loan collection generally a difficult business in the current climate. Navient has found some support in Federal bankruptcy law, which prevents student loan debt from being written off.That kept Navient in the black, even when revenues and earnings slumped in Q1. The sequential drop was dramatic – revenues fell 161%, while EPS fell 23%. In the second quarter, the numbers returned to more normal levels. Revenue was positive, at $125 million, and earnings beat the forecast and registered 92 cents per share. Second quarter results benefited from the settlement of a 2018 lawsuit alleging improper conduct. Navient agreed to various corrective measures, albeit without admitting fault.On a purely positive note, the company has kept up its dividend payments, even during the crisis. The quarterly dividend, of 16 cents, annualizes to 64 cents per share and gives an impressive yield over 8%, even with the current depressed share price.All of this shows a company capable of weathering the current storm. And the insiders have been snapping up the stock. The largest recent purchase, by CEO John Remondi, totaled over $390,000 for 50,000 shares. Other company directors have been making buys, ranging from $21,000 to $79,000. The purchase activity has swung NAVI’s insider confidence metric strongly positive.William Ryan, from investment firm Compass Point, weighs in on NAVI, noting the company’s strong Q2 earnings and plans for an upcoming $65 million share buyback. He writes, “We would note that NAVI originally suspended guidance after reporting Q1'20 earnings due to the uncertainty surrounding the COVID-19 pandemic. After originating only $238M in private refi loans during the quarter due to lower marketing efforts related to the volatility surrounding COVID-19, the company stated they have resumed marketing of this product. They expect to originate close to $2B in private student refi loans during the second half of the year…”With a strong second half ahead, Ryan gives NAVI a Buy rating and an $11 price target. His target implies an upside of 28%. (To watch Ryan’s track record, click here)The analyst consensus on NAVI is a Moderate Buy, based on an even split of 3 to 3 between the Buy and Hold ratings. Shares are priced at $8.60, and the average target, at $9.83, suggests the stock has room for 14% growth in the coming year. (See Navient stock analysis on TipRanks)Knowles Corporation (KN)Next on our list is Knowles, a mobile audio provider. The company’s products include micro-acoustic and audio processors for mobile devices. Knowles is well known for its contribution to hearing aids and cellphone microphones, but its line-up also includes parts and solutions for automobiles, other consumer electronics, defense hardware, and medical systems.Knowles’ earnings through the ‘corona half’ slipped into negative territory – but the drop was, in some ways, to be expected. The company typically reports much higher revenue and earnings in the second half of a calendar year and looking forward, KN is expected to see Q3 earnings turn around from a 5-cent loss to a 14-cent gain. This would bring earnings back to first half historical norms.Donald MacLeod, a Board member from Knowles, has made the only recent insider purchase of the stock – but it was significant. He showed his confidence when he bought a block of 10,000 shares, spending over $150,000. 5-star analyst Christopher Rolland, from Susquehanna, notes Knowle’s continued stress in Q2, but adds, “…the impact appears shorter term in nature, affected by a $3 million writedown in Intelligent Audio inventory (-200 bps) and lower overall utilization levels. Management remains on track to deliver promised opex reductions, decreasing to $42 million to $44 million starting in the December quarter…”In line with this upbeat mid-term outlook, Rolland sets a Buy rating, with a $17 price target suggesting a 8.5% upside for the coming year. (To watch Rolland’s track record, click here)Knowles has 2 recent analyst reviews, and both are Buys, making the Moderate Buy consensus view unanimous. The shares are priced at $15.66, while the $17 price target matches Rolland’s above. (See Knowles stock analysis on TipRanks)Great Western Bancorp (GWB)Last on today’s list is Great Western Bancorp, a bank holding company based in South Dakota. The company’s main subsidiary, Great Western Bank, has over 170 branches in 9 states across the Great Plains, Rocky Mountain, and Southwest regions. The company boasts assets exceeding $12 billion, and a $800 million market cap.Great Western is the fifth largest farm lender in the US, but despite a solid market position has seen shares decline steadily during the corona crisis. A combination of factors have hit the bank hard, including reductions in on-site ‘brick and mortar’ business, and the especially hard hit that farmers have taken during the economic downturn. With supply chains disrupted, farmers have had to destroy produce, losing income – and that has sent feedback along the financial chain. Earnings fell sharply in Q1, and again in Q2, missing the forecasts both times, but the better outlook for Q3 suggests that the economic recovery is starting to take hold for the company.Confidence is clear from the buying activity of the company officers and directors. They have been making purchases in recent days ranging from $25,000 to more than $190,000. Blocks of stock started at 2,000 shares and worked their way up. The largest purchase, by Douglas R. Bass, Regional President and EVP, was of 15,000 shares. Collectively, these purchases have given GWB a strongly positive insider sentiment, much more so than average for peer companies in the financial sector.RBC’s 5-star analyst Jon Arfstrom sees the bank company as fundamentally sound, writing, “Overall, we view the other core trends as stable, with solid balance sheet expansion, modest but expected margin pressure, and reasonable fees and expenses… we have a somewhat more balanced view of the outlook. While we think it will take a few quarters, we appreciate the focus on credit and the enhancement of the risk systems by new CEO Mark Borrecco. Ultimately, the adjusted allowance compares with peer levels…”Arfstrom rates this stock a Buy, and his $17 price target indicates a 29% upside potential for the coming year. (To watch Arfstrom’s track record, click here)Great Western shares get a Hold from the analyst consensus, based on 4 ratings, 2 each Buys and Holds. Meanwhile, the average price target, $17.25, suggests a 19% upside from the current share price of $14.51. (See Great Western stock analysis on TipRanks)To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

Ex-Boeing Pilot at Center of 737 MAX Probe to Leave Southwest Airlines

A central figure in a federal criminal probe into Boeing’s development of the 737 MAX is leaving Southwest Airlines, where he has worked as a pilot since leaving the plane maker more than two years ago.