Warren Buffett just tipped his hand. Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) reveals what stocks it's recently sold in a filing with the Securities and Exchange Commission every quarter, and that filing was released on Thursday. The list includes an airline stock, an energy stock, and a surprising change of heart on a top technology stock. Here's what you should know about the stocks Buffett was selling in the fourth quarter.
Airlines got a haircut
Investing in airlines has lost Buffett a lot of money in the past. In fact, he's called airlines terrible investments. Yet, Buffett still added a slate of the country's biggest airlines to Berkshire Hathaway's portfolio in 2017, and over the past few quarters, he's been fine-tuning his exposure to the industry.
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In the third quarter, he added shares of Delta Air (NYSE: DAL), but sold 1 million shares of American Airlines (NASDAQ: AAL), 700,000 shares of United Continental (NASDAQ: UAL), and 500,000 shares of Southwest (NYSE: LUV).
The trimming continued in Q4. Buffett sold 15% of his stake in United Continental last quarter, bringing Berkshire's position to 21.9 million shares; and he sold 1.2 million shares in Southwest, reducing his stake to 54.8 million shares. Berkshire's American Air and Delta Air positions were unchanged in the period, at 43.7 million shares and 65.5 million shares, respectively.
United Continental shares hit 52-week highs in December, so Buffett's selling may have simply been profit-taking. Q4 was tougher sledding for Southwest, but shares rallied about 10% in November, so profit-taking could've played a role there, too.
It's anyone's guess what Buffett will do with airline stocks next. But the ongoing tweaking of his positions suggests these might not be core long-term holdings, particularly since he didn't increase exposure to any airline stocks last quarter.
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This energy stock's on its way out
Perhaps Phillips 66 (NYSE: PSX) was the least surprising stock Buffett sold last quarter.
Berkshire Hathaway's Phillips 66 position has been shrinking for a year, and in Q3, Buffett sold more than half of its remaining shares, leaving it with 15.4 million shares. In Q4, he sold another 3.5 million shares, reducing the stake to just 11.9 million exiting December.
Buffett's been selling at a good time. Shares were hitting 10-year highs in 2018 as refining capacity utilization was peaking thanks to a rally in crude oil prices that stalled in October.
Although crude prices tumbled in Q4, Phillips 66 was still able to deliver remarkable results last quarter. Its realized refining margin grew 84% to $16.53 per barrel as refining utilization remained essentially maxed out at 99%. It reported quarterly records for pre-tax income in both its midstream and marketing businesses during the quarter.
Nevertheless, that wasn't enough to convince investors to stick around. Phillips 66's share price tumbled 29% in the quarter. The drubbing doesn't seem to have enticed Buffett to begin buying again, so it could be that his attention has turned elsewhere. That thinking is backed up by his decision to start a brand-new 10.8 million-share position in Suncor Energy (NYSE: SU) in the fourth quarter even as he sold more Phillips 66 shares.
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Is Apple on the outs?
A lot of industry pundits were banking on Buffett being a big buyer of Apple (NASDAQ: AAPL) in the fourth quarter. Worries over slowing sales in China and pent-up demand from consumers holding onto their devices longer were what prompted Buffett to initially buy Apple in 2016, so when similar worries emerged last quarter, some thought he'd use the nearly big drop in Apple's shares as another opportunity to buy.
Instead, Berkshire Hathaway's stake fell by 2.8 million shares, or roughly 1%. Should you be worried he's souring on Apple? Probably not. At 250 million shares worth $40 billion, Apple remains Berkshire Hathaway's single largest holding. More importantly, it wasn't Buffett who sold the shares last quarter anyway. One of Berkshire Hathaway's other managers sold some shares under their control to buy shares in another stock, according to an email to Reuters.
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The most surprising sell of all
Buffett is legendary for his long-term focus, but that won't stop him from admitting mistakes and selling shares if his thesis is no longer intact.
Nevertheless, it is surprising to see Buffett acquire a massive stake in a company, only to turn around and sell it the next quarter. Yet, that's precisely what happened with software Goliath Oracle (NYSE: ORCL).
Buffett acquired 41.4 million shares of Oracle in the third quarter, and then he sold that entire position in the fourth quarter. That meant that in three months he went from owning nothing, to becoming Oracle's fourth-largest investor, to owning nothing again. That's very uncharacteristic of Buffett.
Once upon a time, Oracle was a top technology stock because it dominated the market for solutions that help enterprises run and manage their business using on-premise technology. It's lost its luster over the past few years, however, as more companies have shifted to cloud-based services, and as a result, its growth has slowed.
Oracle's responded by creating its own suite of cloud solutions, but it's been playing catch-up and it still trails others in that space. Nevertheless, the company's still a cash flow machine and that's allowed it to return big money to investors via buybacks. It went into the fourth quarter with plans to spend $12 billion on repurchases and that was after it had already bought back $10 billion in the second quarter alone.
Buffett hasn't said publicly why he changed his mind, and there's always the possibility that he's thinking of repurchasing Oracle shares given that they were trading in January at the same lows he ostensibly paid to buy Oracle last summer.
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Todd Campbell owns shares of Apple. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), and Southwest Airlines. The Motley Fool owns shares of Delta Air Lines and Oracle and has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $30 calls on Oracle. The Motley Fool has a disclosure policy.