We recently got a look at Berkshire Hathaway's (NYSE:BRK-A)(NYSE:BRK-B) third-quarter earnings report, and we learned quite a bit about how the conglomerate is doing. We learned that its operating businesses performed quite well, the company still has over $140 billion in cash, and we also were pleasantly surprised to learn that Warren Buffett and his team has been buying back stock aggressively.
What we don't know yet is what stocks Berkshire was buying during the third quarter. But we're about to find out, as Berkshire's latest 13-F filing -- which shows the composition of its stock portfolio -- is due at the end of the week. Here's what we know so far, and why investors might want to pay close attention.
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We know some of what Buffett and his team bought
We know that after a disappointingly slow first half of 2020, where Berkshire was actually a net seller of stocks, Buffett finally started making some moves in the third quarter. For starters, Berkshire acquired the natural gas assets of Dominion (NYSE: D) for almost $10 billion including the assumption of debt. And although Berkshire isn't required to disclose most of its stock investments until it files its latest 13-F, we do know about some of what Buffett and his stock pickers bought during the quarter:
- In a series of purchases, Berkshire spent more than $2 billion increasing its Bank of America (NYSE:BAC) stake, which was reported because of the size of the position. Berkshire now owns around 12% of the bank, which is now Berkshire's second largest stock investment in its portfolio.
- Berkshire invested about $720 million in Snowflake's (NYSE:SNOW) highly anticipated IPO in September. The value of this investment has roughly doubled since.
- Berkshire bought stakes in five Japanese companies with a total value of about $6.5 billion, it reported in August. These investments were made over the course of the previous year, so it's likely that just a small fraction was actually purchased during the third quarter.
But we also know that's not everything
Berkshire doesn't discuss the contents of its stock portfolio in its quarterly reports, aside from reporting what its five largest holdings were at the end of the quarter (and there were no surprises there).
However, Berkshire does report the cost basis of the stocks it owns, which essentially means the amount of money Berkshire paid for all of the stocks currently in the portfolio. And here's how this has changed from the end of the second quarter to the end of the third:
Category | Cost Basis, June 30 | Cost Basis, Sept. 30 |
|---|---|---|
| Banks, insurance, and finance | $31,164 | $27,145 |
| Consumer products | $38,706 | $37,016 |
| Commercial, industrial, other | $26,193 | $41,468 |
| Total cost basis | $96,063 | $105,629 |
DATA SOURCE: BERKSHIRE HATHAWAY. ALL FIGURES ARE IN MILLIONS OF DOLLARS.
Here are the key takeaways from this data:
- Berkshire's overall cost basis increased by nearly $9.6 billion. So even with the investments we already know about, it appears Berkshire was a pretty active buyer of stocks during the third quarter.
- The cost basis for the first two categories went down. The cost basis for banks, insurance, and finance stocks decreased by about $4 billion. Buffett sold bank stocks in the second quarter, so it looks like he may have done the same in the third.
- The cost basis for "commercial, industrial, or other" stocks increased by more than $15.3 billion during the third quarter. This is admittedly a broad category, but it looks like Buffett and his team invested heavily outside of its more "usual" sectors.
An active quarter
Buffett loves making investments on the tail end of crises and has a pretty strong track record of spotting great value at those times. Now that the worst of the COVID-19 pandemic is behind us, it looks like the Oracle of Omaha saw some attractive opportunities in the stock market in the third quarter, and we're about to find out what they are.
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