Warren Buffett in Omaha, Nebraska, May 3, 2024.
David A. Grogan
Berkshire HathawayThe company’s highly scrutinized cash pile could exceed $200 billion, more than Hungary’s entire annual gross domestic product, as Chief Executive Officer Warren Buffett uncharacteristically sells off some of his favorite stocks.
The Omaha-based conglomerate is likely to report second-quarter results on Saturday morning and say its cash holdings surpassed the record of $189 billion it set in the first quarter. Berkshire’s earnings report comes at a time when Buffett is selling off some of his winning investments. apple, Bank of America and BYDThis leads some to believe the Oracle of Omaha is beginning to worry that the bull market is overheating.
“It certainly seems like he wants to reduce some of the risk in his portfolio,” Bill Stone, chief investment officer at Glenview Trust Company and a Berkshire shareholder, said earlier this week. “He’s trimming his top two holdings, none of which are as cyclical as banks. The market seems confident of a soft landing right now, but he may have a more contrarian view.”
Berkshire has been a net seller of stocks for six straight quarters, especially after Buffett pared back his huge investment in Apple by 13% in the first quarter for tax reasons after making huge gains. The iPhone maker’s 23% rise in the second quarter may have prompted a resurgence in selling.
Meanwhile, in a surprise move, the conglomerate recently began selling shares of Bank of America, its second-largest holding after Apple. Over the past 12 transactions, Berkshire has sold $3.8 billion of the Charlotte-based bank’s shares. The Bank of America sale began in July and will not be reflected in the second-quarter report.
Buffett’s vast bankroll has made handsome profits from the sharp rise in Treasury yields over the past two years, but his cash pile may once again be called into question as interest rates are expected to fall from multi-year highs. Investing $200 billion in cash in three-month Treasury notes at about 5% would generate profits of about $10 billion a year, or $2.5 billion a quarter, but those profits are set to decline if the Federal Reserve starts to cut interest rates.
“It’s a question of how long they’re going to hang on to it,” Andrew Kligerman, a Berkshire analyst at TD Cowen, said of Berkshire’s vast cash pile in an interview.
“Things aren’t glamorous.”
Buffett, who turns 94 later this month, said at Berkshire’s annual meeting in May that he was open to putting more capital into the business but was hesitant because of soaring stock prices.
“I think that’s a reasonable assumption. [cash holdings] “We’ll probably be at about $200 billion by the end of this quarter,” the investment icon said at the time. “We’re happy to spend it, but [a business is] I’m doing something that’s very risk-free and I can make a lot of money. I’m not going on hunger strikes or anything like that. It’s just that things aren’t as glamorous.”
Berkshire Hathaway
Weaknesses in the non-insurance sector
Investors will also be closely watching quarterly results from Berkshire’s BNSF Railway and Berkshire Hathaway Energy utilities, which have shown signs of weakness recently. BNSF is struggling with rising wages and declining revenue, while BHE faces pressure from wildfire liability claims.
“Segments outside of insurance will weigh on results. Railroad could see weak volumes and rising labor costs, and utilities could have a strong quarter, but nobody is counting on it given the liability risks,” said TD Cowen’s Kligerman, who recently initiated research coverage on Berkshire with a hold rating.
In contrast, Berkshire’s insurance business has shown signs of strength, with underwriting revenues up 185% in the first quarter compared to the same period last year.
Berkshire shares had risen more than 21% this year through Thursday, outpacing the 14% return of the S&P 500. The conglomerate’s market capitalization has ballooned to $956 billion, putting it on the cusp of joining a very small handful of U.S. stocks worth more than $1 trillion.
