Warren Buffett (Trades, Portfolio) and his fellow portfolio managers at Berkshire Hathaway (BRK.A)(BRK.B) purchased only one new stock in the first quarter, but made significant reductions to three holdings. Buffett in his first quarter letter said that he values stocks like he does entire businesses: If he can estimate their earnings five years out, and they sell at "at a reasonable price in relation to the bottom boundary of our estimate" he will buy them. When he can't determine a figure, he moves on. Each of the three reductions of the first quarter though was sold at substantial profit from its original purchase price.
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Phillips 66 (PSX)
Phillips 66 formed when ConocoPhillips (COP) spun off its refining, pipelines and chemicals division in May 2012. As a long-time holder of ConocoPhillips and having first held shares of Phillips 66 in the second quarter of 2012, Buffett likely received his shares as part of the spin-off.
Buffett didn't touch the holding until the first quarter of 2014, when he reduced it from its original size of 27,163,918 shares to 9,741,303 shares. In total he sold 17,422,615 shares, which were worth $1.32 billion in total at the quarter's average share price of $76. If he had bought the stake at the second quarter 2012's average share price of $33, he would have an approximately gain of about 151%.
PSX shares have climbed further, gaining almost 7% this year to trade around $82.38 on Thursday.
In the first quarter, Phillips 66 reported $1.56 billion in earnings, up from $1.4 billion a year prior. Revenue was $41.09 billion, down from $42.27 billion a year prior. During the quarter, the company also returned $2.2 billion in capital to shareholders. It paid $229 million in dividends and repurchased 8.4 million in common stock for $640 million. The company ended the quarter with cash of $5.3 billion and debt of $6.2 billion.
Phillips 66's revenue and earnings history:
Currently the company trades near a three-year high stock price, with a P/S ratio near a two-year high at 0.29. It also carries a P/E of 12.9 and P/B of 2.2.
Buffett cut his Starz holding by 57.7% in the first quarter, selling 2,622,340 shares and retaining 1,919,541 shares, or 1.64% of shares outstanding. Buffett also likely received his Starz holding when the company spun off of another of his holdings, Liberty Media Corp, in the first quarter of 2013. He has had the stake since the first quarter of 2013. If he had purchased the company at its average price of $18 that quarter, he would have an approximate 68% gain when he sold in the first quarter of 2014, when the price averaged $30. The value of his sale at that average price was about $518 million.
Starz's first quarter revenue increased 5% to $420 million, while net income declined to $58.2 million from $66.8 million a year prior. The company also repurchased 1.4 million shares from Feb. 1 to April 30, 2014 for $41.0 million, bringing its total share repurchases since its spin off to 11.6% of outstanding shares. Starz's balance sheet has $17.9 million in cash and $991.9 million in total debt.
General Motors (GM)
Buffett decreased his General Motors holding by 10 million shares, or 25%, keeping 30 million shares of his holding. Buffett started his GM stake in first quarter 2012 and added to it through that year and in second quarter 2013. His average buy price was $27.12, giving him an approximate gain of 23%. Currently, GM has a share price around $33.42, after losing 2.5% in the past five years.
In the first quarter, General Motors reported an improvement in revenue to $37.4 billion, from $36.9 billion a year prior. Earnings were $100 million, down from $900 million a year prior. The company ended the quarter with cash of $27 billion, down from $27.9 million at year-end 2013.
GM's revenue and earnings history:
GM has a P/E ratio near a five-year high at 38.3, with a P/B ratio near a one-year low at 1.39. Its P/S ratio is 0.4.
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This article first appeared on GuruFocus.