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Berkshire Picks Up Red Hat and Suncor, Dumps Oracle

Greggory Warren, CFA (greggory.warren@morningstar.com)

There were a few surprises in wide-moat Berkshire Hathaway's BRK.A / BRK.B fourth-quarter 13-F filing. While we expected to see some buying activity given the sell-off in the equity markets during the period, we were surprised by the scale and the scope of the purchases. Berkshire's biggest buy involved JPMorgan Chase JPM , with the insurer spending an estimated $1.5 billion to increase its stake in the bank by 40%. The firm also increased its stake in PNC Financial PNC by 36%, acquiring another 2.2 million shares of the bank for an estimated $275 million, and made smaller additions to US Bancorp USB , Bank of New York Mellon BK , and Bank of America BAC . Berkshire increased its stake in Travelers TRV by 68%, picking up 2.4 million shares for an estimate $300 million, and lifted its stake in General Motors GM by 38%, acquiring another 19.8 million shares for an estimated $665 million.

The company made three new money purchases during the quarter, picking up 4.2 million shares of Red Hat RHT (for an estimated $650 million), 10.8 million shares of Suncor Energy SU (for an estimated $360 million), and 14.2 million shares of StoneCo STNE , which had its initial public offering in late October (for an estimated $345 million). These purchases were offset in a large part by the elimination of Berkshire's stake in Oracle ORCL (netting an estimated $2.1 billion), as well as sales of shares of Wells Fargo WFC ($770 million), Apple AAPL ($555 million), Phillips 66 PSX ($350 million), United Continental UAL ($350 million), Charter Communications CHTR ($90 million), and Southwest Airlines LUV ($65 million), some of which--Wells Fargo and the airlines--were ongoing adjustments to keep Berkshire's total ownership stake below 10%. With a few exceptions-- American Express AXP , Kraft Heinz KHC , Moody's MCO , DaVita DVA , and USG USG (to name a few)--the insurer is looking to avoid owning 10% or more of an investee's shares, purely to limit regulatory complications, especially with bank holdings. As some of these companies buy back stock, Berkshire is forced to trim its positions.

These changes in the portfolio, as well as market movements, during the December quarter had an impact on Berkshire's top stock holdings. At the end of 2018, the company's top five positions--Apple (21.5%), Bank of America (12.1%) Wells Fargo (10.7%), Coca-Cola (10.3%), and American Express (7.9%)--accounted for 62.6% of its $183.1 billion portfolio (down from 64.5% of a $221.0 billion portfolio at the end of the third quarter, when Kraft Heinz was Berkshire's fifth-largest holding). Meanwhile, the insurer's top 10 holdings--which now include Kraft Heinz (7.7%), U.S. Bancorp (3.2%), JPMorgan Chase (2.7%), BNY Mellon (2.1%), and Moody's (1.9%)--accounted for 80.1% of the portfolio (versus 80.3% previously).