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The Big Price Impact on Stocks After Warren Buffett’s Most Active Buying Spree

Warren Buffett and Berkshire Hathaway (BRK.A, BRK.B) were actively spending down the company’s large pool of cash last quarter, just as they promised during their recent annual meeting. This makes sense as some stock prices are lower than they have been in years, and a few sectors are showing they could have plenty of upside potential. It makes even more sense when you consider that Berkshire Hathaway was sitting on $144 billion in cash. The inflation rate is now running above 8% and eroding the value of every unearning penny.

Jumping into the market can be costly if wrong, but investor’s ‘dry powder’ is being eroded with increased costs by the day – finding a place for money to grow by at least the inflation rate would seem prudent. The analysts at Berkshire Hathaway are certainly aware of this.

The positive impact of Berkshire showing confidence in a company is often all that is needed to exceed the near non-earnings holding a cash position. Below we look at three Berkshire Hathaway changed positions as reported on May 16, and then compare the stock’s price moves versus the overall market.

Where Did They Gain Exposure

As revealed by the companies 13F filed on May 16, as of March 31 Berkshire Hathaway added Citigroup (C), Paramount Global (PARA), and sold Verizon (VZ). There were older positions added to as well, such as Chevron (CVX), and Activision Blizzard (ATVI). But for the purpose of showing the power of Buffett’s believing a stock is attractive, or in Verizon’s case, no longer attractive, we’ll take a look at the market moves of these companies as of 1pm the day after the 13F was made public.

Source: Koyfin

The above chart of Citibank, Paramount Global, and
Verizon from the beginning trading on Monday compares the stocks to the S&P
500 performance during the same short period.

 

The S&P, as reflected during the short period in this chart, beginning on the date of Berkshire’s 13F filing, shows the S&P 500 up 1.60%. This is substantial in a year when the index has mostly been delivering red to investors. Verizon was the most noteworthy sale of Buffett as they brought their position near zero. The company’s stock rose only 0.11%, well below the S&P benchmark performance.

As for the positions opened during the first quarter by Berkshire Hathaway, Citicorp shot up 8.28%. Paramount Global reacted even more strongly, rising double digits to 13.95%. 

Lessons

While an SEC-registered portfolio new holdings are kept close to the vest before reported in order to avoid insider trading problems, listening to what someone like Warren Buffett is saying at annual meetings and at other times can allow you to get a sense if they have been active, and in what industries. More important, is whether they are active buying or selling. For an investor that is holding a stock which a well-followed investor has decided to sell, can cause significant underperformance for at least the near term.

Other Pertinent Info from the 13F Filing

During the first quarter of 2022, the value of Berkshire’s US stock portfolio rose by 10% to $364 billion. Buffett had indicated the firm he manages has been struggling to find bargains in recent years. He blamed this on stocks swelling to record highs, fierce competition from private equity firms, and SPACs which increased competition and costs of acquisitions. Even Berkshire’s own rising stock price made it unappealing as a company stock buy-back.

A change of appetite took place in the first quarter of 2022. Berkshire bought $51 billion worth of equities and sold less than $10 billion in stocks. Its net cash reduction of $41 billion helped slash its cash pile by 28% to $106 billion. Q1 2022 marked one of the most active buying periods in Berkshire Hathaway’s history.

Take-Away

Well known, successful investors can either make a winner out of your holding or cause it to trade at a pace below the market. While knowing and trading on information before it is made public can get you in trouble, investors like Buffett do provide guidance. These hints as to their thinking and likely direction may help investors somewhat. This is why it always makes sense to know what they’re saying – it isn’t fun holding something they just reported sold, and the tailwind they create when you’re long the same company can be profitable.

Paul Hoffman

Managing Editor, Channelchek

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Sources

https://www.sec.gov/Archives/edgar/data/1067983/000095012322006442/xslForm13F_X01/primary_doc.xml

https://whalewisdom.com/filer/berkshire-hathaway-inc#google_vignette

www.koyfin.com

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Michael Burry’s Latest Portfolio Brings the FAANGS Out

On Monday, May 16, Michael Burry filed his company’s holdings report with the SEC. Relative to the previous quarter, there was significant reshuffling. While it’s rare to get an explanation of his thinking beyond an occasional tweet of warning or tweet of frustration, his quarterly positions report is worth reviewing. It lends a rare clue as to what the celebrated hedge fund manager is expecting.

Michael Burry’s thinking, reflected in Scion Asset Management’s 13F holdings (a/o March 31), are shown below. Following the holdings we offer company descriptions and some thinking related to a few of the holdings.

Source: WhaleWisdom

Why it Matters

The positions in Scions portfolio are usually few, quite deliberate, and not the result of herd thinking. During the prior quarter (Q4 2021), among the scant positions were two public prison stocks ($GEO and $CXW). While many pundits and YouTube “gurus” hazarded a guess as to what Burry may have expected to occur with crime, the positions may have had nothing to do with an expected need for jail cells. Following the stock tickers links above to the Channelchek reports discloses that public policy on for-profit prisons is in flux. The positions may have just been a play on policy direction.

Burry’s investment universe is broader than the average self-directed investor and even deeper than the average hedge fund manager. The positions report reflect just those required to be disclosed in an SEC 13F filing. With this in mind, out of the entire universe of public securities Scion could hold, there are only a dozen that Burry’s portfolio felt were worthy at the end of the first quarter. One is a Put position which effectively makes him short the stock and possibly expecting more red than green, but not necessarily.

 

 

Holdings Breakdown

Scion has a Put on Apple (AAPL) with contracts to control 206,000 shares. The portfolio is also long shares of two other megacap high-tech stocks adding to a similar notional amount. Of the three, based on price earnings ratio, Apple is by far the most expensive. Apple’s P/E is at 23.7 earnings, while Google/Alphabet (GOOGL) is trading at a much lower PE of 20.7x, and Facebook/Meta (FB) is even lower yet at 15.1x price to earnings. This AAPL Put may not be a bet against Apple as much as it is a play that FAANG stocks should trade with multiples more in-line with each other. If this is the case, he’s not looking to hit a home run, but instead looking for movement either down by Apple, or up by the two other FAANG stocks to net incremental capital gains.

Since the 4Q of 2021, he has held Bristol Myers Squibb (BMY).  Year-to-date 2022 the biopharmaceutical company is up 19% vs the S&P 500 which is down 9.8%. Discover Network C shares (DISCK) is his fourth largest by market value. The C shares of Discovery allow no voting rights. Discovery’s A shares allow one vote per share, and B shares 10 votes per share.

Moving down the list shows a very diversified portfolio of long positions including Cigna (CI) a health care insurer, Ovintiv (OVV) a Canadian based fossil fuel company trading at 8x earnings, and Nexstar Media (NXST) which is a media company that owns television broadcast networks not unlike DISCK.

Stellantis NV (STLA) is a Dutch automaker trading on the NYSE and London exchanges. It owns the Chrysler and Jeep brands as well as Alpha Romeo, Peugeot, and Maserati. STLA pays above-average annual dividends. It declared a dividend on February 25, with an ex-dividend date of April 19. The period covered in Scion’s 13F is through March 31. 

In the consumer discretionary category Scion’s portfolio held two companies month-end that stand to benefit as consumers fill their need to travel and play outdoors. Bookings.com (BKNG) which is a huge online travel website and retailer Sportsman’s Warehouse (SPWH) which is a small-cap value stock trading at only 3.75x earnings.

The last is a payment tech company called Global Payments (GPN). The company’s product line runs the full gamut of electronic merchant payment products.

 Take-Away

Dr. Michael J. Burry has an excellent record of spotting investment opportunities before the rest of the market. His picks are as disparate as the mortgage market in 2008 and GameStop (GME) in 2020.

The portfolio reported by the SEC on May 16, reflecting March 31 quarter-end holdings does not have a strong theme. The most talked-about position has been the Puts on Apple. As mentioned, that play may be more complicated and be a hedge involving other long holdings.

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Paul Hoffman

Managing Editor, Channelchek

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Sources

https://www.sec.gov/Archives/edgar/data/0001768023/000156761922010751/xslForm13F_X01/primary_doc.xml

https://whalewisdom.com/filer/scion-asset-management-llc#tabholdings_tab_link

www.koyfin.com

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