Buffett's Berkshire Hathaway Swaps Billions Of Stock For Cash, Slowing Buybacks Too

seekingalpha05-05

Berkshire Hathaway reported solid Q1 earnings with a 5% YoY increase in revenues and a 39% YoY increase in operating income.The company's cash pile reached a record-breaking $189 billion, with Buffett...

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Slowing Buybacks Too\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-05 20:47 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4689602-buffetts-berkshire-hathaway-swaps-billions-of-stock-for-cash-slowing-buybacks-too><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Berkshire Hathaway reported solid Q1 earnings with a 5% YoY increase in revenues and a 39% YoY increase in operating income.The company's cash pile reached a record-breaking $189 billion, with Buffett...</p>\n\n<a href=\"https://seekingalpha.com/article/4689602-buffetts-berkshire-hathaway-swaps-billions-of-stock-for-cash-slowing-buybacks-too\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"IE0004445015.USD","symbol_name":"JANUS HENDERSON BALANCED \"A2\" (USD) 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to sell equities, including a reduction in its holdings in Apple. The pace of buybacks slowed notably.Reflecting on the latest insights and comments from Buffett, on a high level, I remain Hold/Underweight Berkshire Hathaway stock.   jetcityimage Warren Buffett's Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) reported earnings for the Q1 2024 period and delivered a solid performance: Revenues increased 5% YoY; while operating income increased 39% YoY. At the same time, Buffett continued to be a net seller of equities during the first quarter, with the company's cash pile hitting a record-breaking $189 billion. Notably, the higher cash balance in Q1 was primarily fueled by equity sales, specifically in Apple shares (-13% QoQ), as Buffett expressed concerns about capital gains tax. Other interesting takeaways from the latest reporting relate to a major slowdown in buybacks, and further accumulation in an undisclosed \"banks, insurance, and finance\" equity holding, suggesting an increased likelihood for a takeover of a regional bank. Reflecting on the latest insights and comments from Buffett, on a high level, I remain Hold/ Underweight Berkshire Hathaway stock. I continue to dislike that Buffett builds an enormous cash pile while equities are soaring. Moreover, although the sell-down in Apple shares is encouraging (I am Sell rated on Apple (AAPL)), the stake in the iPhone maker remains too large for my liking. At the same time, I continue to dislike Berkshire's investments in BofA (BAC), Coca-Cola (KO) and Occidental Petroleum (OXY), Berkshire's second-largest, fourth-largest and sixth-largest common stock holdings, respectively. With these holdings (worth about $220 billion) and $200 billion of cash, \"eye-popping gains\" remain unlikely. For context: Berkshire Hathaway stock has outperformed the broader U.S. stock market this year. Since the beginning of the year, BRK shares have appreciated approximately 12%, compared to a 7% gain for the S&P 500 (SP500). Seeking Alpha Berkshire Reports Q1 Earnings Berkshire reported solid Q1 2024 earnings: During the period from January to end of March, the Omaha-based conglomerate generated approximately $89.9 billion of revenues, up about 5% YoY. The topline expansion was mostly driven by higher insurance premiums earned and higher utility/ energy revenues, which increased almost 9% YoY and 19% YoY respectively, while freight rail transportation revenues fell about 7% YoY. On profitability, Berkshire managed to increase group earnings by about 39% YoY, to $11.2 billion. In line with the topline growth, the profitability expansion was primarily carried by the insurance business (operating income underwriting up 185% YoY, insurance-investment income up 32% YoY) and the energy business (operating income up 72% YoY). Operating income for the railroad business dropped nearly 8% YoY. Berkshire Q1 2024 Reporting Cash Pile Hits New Record, Again In the first quarter 2024, Berkshire Hathaway's cash pile hit a new record, at $189 billion, with Warren Buffett predicting it could hit Berkshire's cash holding could top $200 billion by the end of the current quarter. In that context, while cash and cash equivalents fell to $28.9 billion (vs. $33.7 billion one year prior), short-term investments in U.S. Treasury Bills surged by approximately $23.8 billion, to $153 billion. Berkshire Remains A Net Seller Of Equities It is interesting to note that the higher cash holding on BRK's balance sheet was mostly funded by net sales in equities. Over the past 12 months, the conglomerate's investments have been reduced by about $18 billion, to $335.9 billion. Berkshire Q1 2024 Reporting Apple Share Sales Are Accelerating Talking about Buffett's decision to sell shares, the aggressive reduction in Apple shares is notable: Berkshire Hathaway reduced its holdings in Apple for the second consecutive quarter, selling approximately 116 million shares in Q1. This resulted in a decline in the conglomerate's stake value from $174.3 billion to $135.4 billion, equivalent to a 13% QoQ decline. Personally, I am pleased to note that Buffett has decided to reduce BRK's exposure to the iPhone maker. As I have previously argued: I am negative on Apple ($174.3 billion BRK investment), as the iPhone maker is struggling with flattish topline and accumulating business risks. Notably, two major risks stand out: Firstly, the outcome of the Google/Apple Department of Justice trial could potentially sever Apple from receiving billions in Traffic Acquisition Costs (TAC) payments. Secondly, there are multiple risks linked to Apple's presence in China, where I anticipate a potential decline in market share over the next 12 to 36 months. While accurately forecasting the impact of these risks on Apple's EPS is challenging, I have previously project an approximate 10-15% downside risk to Apple's EPS in the years 2024 and 2025. Apple's commercial risk is compounded by the company's rich valuation premium, with Apple shares trading at 28x consensus 2024 earnings.  Despite the recent sale in Berkshire's Apple sales, Buffett reiterated his confidence in the company, stating that it is \"extremely likely\" to remain Berkshire Hathaway's largest holding by end of 2024. Unless something dramatically happens that really changes capital allocation strategy, we will have Apple as our largest investment However, there is still about $100 billion of whitespace between BRK's stake in Apple versus the conglomerate's second-largest holding, Bank of America, suggesting more room for sales. On that note, I expect Berkshire to be a seller of AAPL shares also in the next few quarters. Buffett May Be Worried About Higher Capital Gains Tax Tax considerations may be a key argument why Buffett has decided to gradually sell-down BRK's Apple exposure: Addressing questions about why he sold Apple shares, the Oracle of Omaha said that he believes the 21% capital tax rate is currently favorable, contrasting capital taxes with historical rates of 35% and 52%. On that note, Buffett suggested that prevailing fiscal policies may necessitate higher taxes in the future: I think that something has to give and I think that higher taxes are quite likely. [If we are selling] at 21% this year, we're doing it at a lot higher percentage later on, I don't think you'll actually mind the fact that we sold a little Apple this year. Buybacks Are Slowing Despite Berkshire Hathaway's robust and expanding earnings, coupled with its significant cash reserves, Warren Buffett maintains a cautious stance on repurchasing BRK shares. This is disappointing, in my view. During the three months ending March, Berkshire Hathaway repurchased only $2.6 billion of common stock, down more than 50% YoY compared to the $4.5 billion repurchased during the same period one year prior. On an annualized basis, BRK's buyback yield is now running at about ~$10 billion, implying a mere 1% equity yield vs. the conglomerate's ~$850 billion market capitalization. Berkshire Q1 2024 Reporting Buffett May Be Working On a Regional Bank Takeover While Buffett has been a net seller of equities over the past few quarters, and slowed down buybacks, there are still a few things that the investor likes. Specifically, Buffett expressed interest in investing in Japanese trading houses, characterizing the opportunity as \"compelling.\" Moreover, he added that Berkshire is currently evaluating a potential investment in Canada. Most interesting, however, is Berkshire's implied interest in a listed bank stock, which the conglomerate has been quietly accumulating for two consecutive quarters. Berkshire Q1 2024 Reporting In the latter half of 2023, Berkshire Hathaway obtained confidential treatment, shielding the specifics of one or more of its stock holdings from public scrutiny. Speculation suggests that the undisclosed purchase could be a bank stock. This takeaway stems from the noticeable increase in Berkshire's cost basis for \"banks, insurance, and finance\" equity holdings, which surged by about $3.6 billion in the latter part of last year; and increased by another $1.4 billion in Q1 2024. In my view, it is highly likely that Buffett is silently working on a takeover of a regional bank, following the \"blood on the street moment\" in 2023. Berkshire Q1 2024 Reporting Investor Takeaway  Warren Buffett's Berkshire Hathaway reported Q1 2024 earnings with solid performance: Revenues up 5% YoY; operating income up 39% YoY. On the capital allocation angle, Buffett remained a net seller of equities, boosting the cash pile to a record $189 billion, mainly from Apple shares (-13% QoQ), driven by capital gains tax concerns. Notably, buybacks slowed, and undisclosed equity holdings in finance hint at a possible regional bank takeover. While the sell-off in Apple is positive (I'm Sell rated on Apple), the stake remains oversized, in my view. Additionally, I'm wary of Berkshire's investments in BofA, Coca-Cola, and Occidental Petroleum, given their rankings in Berkshire's holdings. Considering Q1 2024 insights, I maintain a Hold/Underweight stance on Berkshire Hathaway stock.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2433480097"}