Berkshire & Warren Buffett, the iconic Oracle of Omaha, have made a surprising move, seemingly losing his enthusiasm for the stock market.
His conglomerate, Berkshire Hathaway, has seen its cash reserves skyrocket to nearly $277 billion, and in a significant shift, the company has slashed its holdings in Apple by about half. This move comes even as Berkshire posted a record quarterly operating profit.
The results unveiled by Berkshire signal that Buffett, who at 93 years old remains one of the most revered investors in the world, is becoming increasingly cautious about the broader U.S. economy and the elevated valuations in the stock market. These concerns were echoed in the recent market turmoil that pushed the Nasdaq into correction territory, coupled with a weak jobs report that raised alarms about the health of the U.S. economy and the Federal Reserve’s timing on interest rate cuts.
Analyst Cathy Seifert of CFRA Research interprets the data as a defensive stance by Berkshire. “If you look at the entire Berkshire picture and the macroeconomic data, a safe conclusion is that Berkshire is getting defensive,” Seifert noted. She maintains a “buy” rating on the company.
As of June 30, Berkshire’s cash pile had swelled to $276.9 billion, up from $189 billion three months earlier. This increase was largely due to the conglomerate selling a net $75.5 billion of stocks in the quarter, marking the seventh consecutive quarter where it sold more stocks than it purchased.
A significant portion of the sales came from Apple, with Berkshire offloading about 390 million shares, on top of the 115 million shares sold from January to March. Despite this reduction, Berkshire still held approximately 400 million shares of Apple, valued at $84.2 billion as of the end of June. This move came as Apple’s stock price rose by 23%.
Berkshire’s operating profit from its diverse businesses climbed 15% to $11.6 billion, or about $8,073 per Class A share, compared to $10.04 billion a year earlier. A substantial portion of this profit was driven by Berkshire’s insurance operations, particularly the Geico car insurer, which saw its underwriting profit more than triple.
However, overall revenue saw only a modest increase of 1% to $93.65 billion, with minimal changes in major segments such as the BNSF railroad and Berkshire Hathaway Energy. Net income, on the other hand, dropped 15% to $30.34 billion from $35.91 billion a year earlier, influenced by the fluctuating stock prices that affect the value of Berkshire’s investment portfolio, including its holdings in Apple.
Buffett has consistently advised shareholders to disregard Berkshire’s quarterly investment gains and losses, which can lead to significant swings in net profits or losses.
Despite the burgeoning cash reserves, Buffett has been hesitant to spend it unless he finds opportunities with minimal risk and substantial returns. “We’d love to spend it, but we won’t spend it unless we think we’re doing something that has very little risk and can make us a lot of money,” Buffett stated at Berkshire’s annual meeting in May.
Berkshire has also reduced its share buybacks, repurchasing only $345 million in the second quarter and none in the first three weeks of July. This conservative approach extends to its returns from short-term Treasuries, which are expected to decline once rate cuts commence.
While Buffett remains a staunch supporter of Apple, acknowledging its strong pricing power and loyal customer base, he noted that selling some of the shares made financial sense due to the likely increase in the 21% federal tax rate on gains. Berkshire has also sold more than $3.8 billion of shares in Bank of America, its second-largest stock holding, since mid-July.
Berkshire Hathaway, based in Omaha, Nebraska, has grown into a colossal conglomerate under Buffett’s leadership since 1965, encompassing a vast array of businesses from industrial and manufacturing companies to real estate, Dairy Queen, and Fruit of the Loom. Vice Chairman Greg Abel is expected to succeed Buffett as CEO.
Geico’s underwriting profit surged, contributing to a 54% increase in quarterly insurance profit, which totaled $5.58 billion. This growth was fueled by higher investment income and Geico’s ability to raise premiums while dealing with fewer claims from drivers.
However, profit at BNSF fell by 3%, primarily due to increased legal reserves, which offset lower operating costs and higher shipments of consumer and agricultural products. Legal challenges also impacted Berkshire Hathaway Energy, where profit dropped 17%, largely due to issues at the PacifiCorp utility unit, which has been blamed for causing wildfires in Oregon in 2020. PacifiCorp has set aside $2.7 billion for wildfire losses as of June 30, up from $2.4 billion three months earlier, with potential for further increases.
Berkshire’s Class A shares closed at $641,435 on Friday, up 18% this year, outperforming the S&P 500’s 12% gain.
