Warren Buffett's Berkshire Hathaway bet on Citigroup, loaded up on Chevron, and dumped Verizon. Here are 5 key takeaways from its Q1 portfolio update.
- Warren Buffett's Berkshire Hathaway bet big on Citigroup and Chevron last quarter.
- The investor's company exited Wells Fargo, and virtually eliminated its Verizon stake.
Warren Buffett's Berkshire Hathaway placed billion-dollar wagers on several companies, ramped up some positions and slashed others, exited a historic holding, and even dabbled in merger arbitrage in the first quarter.
Here are 5 key takeaways from Berkshire's latest portfolio update:
1. Switching banks
Berkshire revealed a new stake in Citigroup valued at $2.9 billion, as well as a $390 million bet on Ally Financial. On the other hand, it sold the last of its Wells Fargo shares; it once commanded a $29 billion stake in the bank, and counted it among its five largest holdings.
Buffett and his team have overhauled their financial holdings during the pandemic. For example, they exited JPMorgan and Goldman Sachs in the summer of 2020, and piled $2.1 billion into Bank of America in the space of 12 days around the same time, cementing the bank's place as Berkshire's number-two holding after Apple.
The Berkshire chief explained last year that he felt his company was overexposed to banks when the pandemic hit, and while the US government would bail out the banks if the financial system froze, it was up to Berkshire to take care of itself.
Berkshire's new bet on Citigroup could indicate that Buffett is bullish on certain banks once again.
2. Betting on oil
Berkshire roughly quadrupled its Chevron stake last quarter, raising it from 38 million shares to 159 million. The energy company's stock surged 39% in the period, helping to boost the value of Berkshire's position by almost six-fold to $26 billion.
Buffett's company also invested north of $7 billion in Occidental Petroleum last quarter, and boosted its position by another 5% this quarter. Meanwhile, shares of the oil-and-gas group are up 106% this year. The upshot is that Berkshire's stake is now worth about $9.8 billion.
Buffett and his team may be bullish on energy stocks because they expect fuel prices to stay high, driven by a combination of Russia's invasion of Ukraine, pandemic-driven disruptions to global supply chains, rebounding demand, and rampant inflation.
3. Playing an old game
Berkshire more than quadrupled its Activision Blizzard stake to over 64 million shares, worth $5.2 billion at the end of March.
Buffett revealed during his recent shareholders' meeting that he had purchased a bunch of Activision Blizzard shares, as he determined they were trading at too large a discount to Microsoft's agreed offer of $95 for the company.
The investor may well have added to the position in recent weeks. He said during the annual meeting on April 30 that Berkshire owned 9.5% of Activision Blizzard, whereas it only owned 8.2% at the end of March.
Buffett also joked that his business partner, Charlie Munger, often wonders why he's "fooling around with this stuff." The Berkshire CEO attributed his behavior to being an "old fire horse," or someone who keeps up an old habit.
4. Getting out
Berkshire built a massive stake in Verizon in the second half of 2020. It owned $8.3 billion of the stock at the end of last year, making the telecoms group one of its 10 largest holdings. However, Buffett's company sold more than 99% of that position last quarter.
Similarly, Berkshire built stakes valued at more than $2 billion in each of AbbVie, Merck, and Bristol Myers Squibb in the second half of 2020. It dumped Merck in the third quarter of last year, and exited the other two pharmaceutical companies last quarter.
Buffett may have had second thoughts about his pharma holdings. He appeared to describe them last year as "so-so" stocks that he didn't know a great deal about, and wasn't too comfortable owning. As for Verizon, he may have decided the energy sector had brighter prospects than the telecoms industry.
5. Embracing media
Berkshire built a $2.6 billion stake in Paramount Global — formerly known as ViacomCBS — last quarter. The media behemoth owns Paramount Pictures, a film-and-TV studio; CBS Entertainment, which owns the CBS and CW television networks; cable-TV networks including MTV, Nickelodeon, and Showtime; and the Paramount+ streaming service.
Buffett and his team have a long history of media investments, ranging from The Washington Post Company to The Buffalo News, to an early bet on Disney. However, Buffett said in a CNBC interview in 1996 that he largely avoids betting on media giants such as Viacom and CBS, as he's unsure which ones will emerge as winners of a fast-changing industry in a decade's time.
It's unclear why Buffett, or perhaps one of his deputies, decided to bet on Paramount last quarter. Hopefully, it becomes clear in the coming months.