Forecast: Three Stocks that Warren Buffet Continues to Dispose of, Apart from Apple and Bank of America
Tomorrow, Nov. 14th, is a significant day for investors in the fourth quarter, as it signifies the deadline for institutions managing over $100 million to file Form 13F with the Securities and Exchange Commission. This form offers insights into which stocks the top Wall Street money managers have been purchasing and selling in the latest quarter. Despite the data potentially being stale for active hedge funds, it can still offer valuable information about the stocks, industries, sectors, and trends that interest these top asset managers.
There isn't a more anticipated 13F filing on Wall Street than that of Berkshire Hathaway (BRK.A 1.26%, BRK.B 1.18%). With Warren Buffett delivering remarkable gains of over 5,600,000% in Berkshire's Class A shares since he became CEO in the 60s, investors eagerly await the chance to peek under the hood and see what the Oracles of Omaha and his team has been up to.
Buffett has been a net seller of stocks for eight consecutive quarters
Contrary to his optimistic view of the US economy and stock market, Berkshire Hathaway's financial reports reveal that Warren Buffett has been a decisive net seller of equities for eight consecutive quarters (Oct. 1, 2022 through Sept. 30, 2024). In total, he and his top investment aides, Todd Combs and Ted Weschler, have sold $166.2 billion more shares than they've purchased during this period.
Often, investors don't have to wait for Berkshire Hathaway to file its quarterly 13F to learn what Warren Buffett has been up to. For instance, Berkshire's quarterly operating results usually list the company's top-five stock holdings. As of Sept. 30, Berkshire's report listed the fair value of Apple (AAPL 1.29%) at $69.9 billion, which translates to 300 million shares of the company owned. However, Berkshire held 400 million shares of Apple in its investment portfolio at the end of June, highlighting that Buffett sold an additional 100 million shares during the third quarter. This marks the fourth consecutive quarter that Buffett has sold shares of Apple.
Furthermore, whenever Berkshire holds more than a 10% stake in a publicly traded company, it is required to file Form 4 if shares of that security are bought or sold. During the September-ended quarter, 13 separate Form 4s showed that over 235 million shares of Bank of America (BAC 1.64%) were sold, resulting in approximately $9.61 billion in proceeds. This selling activity in Bank of America has continued into the fourth quarter.
However, Berkshire's third-quarter securities sales totaled more than $36 billion based on its cash flow statement, indicating that Apple and Bank of America weren't the only two stocks Buffett sold. My prediction is that Buffett also sold shares of three other positions.
1. Capital One Financial
Buffett and his team reduced Berkshire's stake in credit-services provider Capital One Financial (COF 1.60%) by 21% or about 2.65 million shares in the second quarter. Historically, Buffett doesn't significantly reduce $1 billion-plus holdings and then suddenly stop. Typically, this selling extends over multiple quarters.
Aside from simple profit-taking, there are two potential reasons why Buffett, Combs, and Weschler might have sold more shares of Capital One Financial in the September-ended quarter. The first catalyst is valuation. Capital One's shares were trading at a 22% premium to its book value as of Nov. 8, while historically, shares have traded at a 22% discount to the company's book value over the past five years. Additionally, the stock market as a whole is currently priced considerably above its historical average.
The other possible concern is the likelihood of a U.S. recession. Although Warren Buffett doesn't attempt to "time" his trading activity, there are several warning signs that the U.S. economic growth could slow or potentially enter a recession. These signs include the first notable decline in U.S. M2 money supply since the Great Depression, as well as the longest yield-curve inversion in history. Financial stocks like Capital One Financial are inherently cyclical.
2. T-Mobile
Another Warren Buffett stock I'd expect to see further reduced in the September-ended quarter is telecom titan T-Mobile (TMUS 1.03%). Berkshire's 13F shows that 570,000 shares of T-Mobile were sold in the June-ended quarter, representing a reduction of almost 11% in just three months.
Although Buffett has owned telecom stocks (through Berkshire's investment portfolio) on a few occasions in the past, he usually doesn't hold onto them for more than a few years. Seeing this stake further reduced during the third quarter would simply be in line with historical trends.
T-Mobile's evaluation serves as another incentive for Buffett and his investment crew to monetize their shares. Although its forward P/E ratio of 22 isn't exorbitantly high, it draws attention when compared to AT&T and Verizon Communications, consistently valued at forward P/E ratios of 10 or less.
T-Mobile has been outpacing both companies in terms of growth, but its projected sales growth has decreased to 3% in 2024 and less than 5% in 2025. This suggests that it might require additional time to warrant its current evaluation. Buffett, known for his value investing approach, doesn't hesitate to trim down or liquidate exceptional companies if their valuation no longer aligns.
3. Louisiana-Pacific
The forecasted stock that I reckon Buffett is still divesting is Louisiana-Pacific (LPX 0.96%), a provider of siding and outdoor construction solutions principally used in new home construction. A total of 1.08 million shares of the company were offloaded by Buffett and his team during the March and June quarters.
Louisiana-Pacific fortuitously found itself in an advantageous position when the Federal Reserve commenced an aggressive rate-raising cycle in March 2022. Rising mortgage rates led to a significant dip in existing-home sales, yet it presented an opportunity for homebuilders to offer discounts or financing incentives to attract homebuyers. With new home demand persisting, Louisiana-Pacific's stock witnessed a surge.
However, the Federal Reserve has shifted its monetary policy direction. With an easing rate cycle now underway, the allure that homebuilders and their suppliers experienced amidst the soaring mortgage rates can swiftly dwindle.
Additionally, Louisiana-Pacific, like Capital One Financial and T-Mobile, grapples with its historically premium valuation. Over the past five years, Louisiana-Pacific has averaged a forward P/E multiple of over 10. Currently, shares trade at nearly double this rate – approximately 21 times forward-year earnings – which often triggers concern for Warren Buffett.
Despite Buffett's selling streak, some investors might still be interested in following his finance moves. For instance, they could monitor whether Berkshire Hathaway increases its investment in other sectors or companies, such as possibly buying more shares of Tesla, given Buffett's recent positive comments about electric vehicles and sustainability.
Moreover, it's worth noting that even though Buffett has been a net seller of stocks, there is a possibility he might be allocating funds to different investments outside of equities. For example, he could be exploring potential opportunities within the real estate market, bonds, or alternative investment vehicles, all of which are components of a diverse investment portfolio.
