Over the past decade, Berkshire Hathaway (BRK.A 0.26%)(BRK.B 0.15%) CEO Warren Buffett has taken a lot of criticism for underperforming the benchmark S&P 500 over the trailing 10 years.
But this doesn't accurately portray just how good the Oracle of Omaha has been throughout his investing career. In the more than five decades Buffett has run his company, the per-share market value of Berkshire Hathaway's stock is up 2,744,062%. That compares to an aggregate gain of 19,784% for the S&P 500 over the same time period, inclusive of dividends paid. There's simply no comparison.
And for those who of you who think Buffett has lost his touch, he's up $74 billion, on an unrealized basis, in a span of four years on his company's stake in Apple -- and this doesn't include the more than $2 billion Berkshire has received in dividends.
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The Oracle of Omaha probably sold shares of these stocks during the second quarter
Warren Buffett remains just as much of an investing genius today as he was one, two, or three decades ago. When the Oracle of Omaha buys or sells a stock, Wall Street and retail investors tend to pay very close attention.
Thanks to a number of Securities and Exchange Commission (SEC) filings, we know Buffett and his team were active sellers of equities during the second quarter. Berkshire Hathaway exited its positions in all four of its airlines, as well as pared down its stakes in U.S. Bancorp and Bank of New York Mellon for regulatory purposes (i.e., to keep its ownership stake under 10%).
But it's my belief that Buffett also trimmed or exited Berkshire's holdings in three other prominent stocks during the second quarter.
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Goldman Sachs
Beyond what we already know from SEC filings, the most probable sale in Buffett's portfolio during the second quarter is investment bank Goldman Sachs (GS +1.80%).
Over the past two quarters, Buffett and his team have whittled down the company's stake in Goldman from over 18 million shares held to only 1.92 million shares owned, as of the end of March 2020. Buffett rarely pares down his positions over long periods of time, so this broad-stroke selling activity would appear to indicate that he and his team are ready to completely move on from Goldman Sachs.
What isn't so clear is why Buffett has lost faith in Goldman Sachs. In the coronavirus disease 2019 (COVID-19)-challenged second quarter, Goldman was stellar. Net revenue surged 41% from the prior-year period, with its Fixed Income, Currency, and Commodities segment generating its highest sales in nine years, while Equities revenue surged to an 11-year high.
The best guess I can offer is that Buffett may be concerned about Goldman Sachs' role in brokering mergers and acquisitions. With COVID-19 adversely impacting the U.S. and global economy, investment banking growth via mergers and acquisitions could prove challenging in the quarters to come.
There's little question that Buffett and his team are walking away from Goldman Sachs will a lot more than they invested. However, the exact reason to sell now remains a bit of a mystery.
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Charter Communications
Another Buffett stock that I expect to have been pared down in the second quarter is cable services provider Charter Communications (CHTR +0.16%).
Why Charter? The simple answer is that Berkshire Hathaway has been steadily trimming its position in Charter over the past couple of years. Having just said that Buffett isn't a fan of slowly paring down his company's stakes, this might mean that his investing lieutenants have been in charge of reducing Berkshire's exposure to the company. And it certainly doesn't hurt that Berkshire Hathaway is up nearly 240% from its initial cost basis on Charter.
More than likely, Buffett is a big fan of Charter's predictable cash flow and its healthy capital return program. In the recently ended second quarter, Charter generated consolidated free cash flow of $1.9 billion, and the company repurchased approximately 2.3 million shares of stock, totaling $1.2 billion. These share repurchases are likely to play a key role in pumping up Charter's earnings-per-share growth.
However, Charter Communications no longer possesses the value proposition that Buffett typically seeks out in the stocks he holds. Cord-cutting remains an ongoing challenge for all content providers, and sales growth for Charter is forecast to come in under 5% in 2021. With a forward price-to-earnings ratio of 32, this looks to be a lofty price to pay for mediocre growth. I expect Buffett or his team to have reduced Berkshire's stake in Charter during Q2.
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Occidental Petroleum
Lastly, I expect Buffett to have to have used the rebound in oil prices and oil stocks during the latter half of the second quarter as an opportunity to reduce Berkshire Hathaway's stake in drilling and exploration company Occidental Petroleum (OXY 4.17%).
To be honest, the Occidental situation is a bit weird for Buffett. He handed over $10 billion to aid Occidental in its purchase of Anadarko Petroleum last year. In return, Buffett secured preferred stock that was to yield 8% a year. But when crude oil prices plummeted due to COVID-19, Occidental could no longer afford to outlay cash dividends to Berkshire Hathaway. Instead, it offered to pay the Oracle of Omaha via stock issuances. Thus, in Q2, Berkshire's position in Occidental actually grew by more than 17.2 million shares.
Back in 2019, the buy thesis on Occidental appeared solid. But following a major worldwide decline in oil demand in 2020, that thesis is now somewhat frail. Occidental's efforts to sell some of its non-core African assets in order to reduce its outstanding debt have failed to materialize. This leaves the company will little recourse but to clamp down on capital expenditures (and it already slashed its dividend). This isn't what Warren Buffett signed up for, and liquidating some of the stock received as a dividend might be a smart way to preserve capital.
With the release of 13Fs just over a week away, we'll soon know exactly what Warren Buffett sold during the second quarter.
