Berkshire Hathaway has recently submitted its 13F filing for the second quarter, detailing its holdings as of the end of June.
Every quarter, investors eagerly await insights from Warren Buffett’s firm when it files with the Securities and Exchange Commission. This document sheds light on Berkshire’s buying and selling activities, drawing interest in Buffett’s investment strategies, particularly as he is set to step down as CEO at the year’s end.
Although Berkshire has remained relatively quiet recently, it did undertake some noteworthy actions in the second quarter. The conglomerate sold off shares in its two largest positions while also investing in struggling medical stocks that have faced challenges this year.
Reducing Stakes in Apple and Bank of America
In the latest quarter, Berkshire further decreased its position in its largest asset, Apple (AAPL), and its third-largest holding, Bank of America (BAC). Specifically, Berkshire reduced its Apple stake by 7% and its Bank of America stake by 4%. Over the last year, the cuts have been significant—they’ve trimmed their Apple stake by 30% and their Bank of America shares by 41%.
The ongoing bull market has persisted for more than five years; however, Berkshire has maintained a conservative approach, stockpiling hundreds of billions in cash and equivalents. They’ve been selling more shares than they’ve been purchasing and have even stepped back from stock buybacks. Given the stock market’s growth, many investors speculate that Buffett and his team might not be seeing very appealing opportunities at the moment.
There are also whispers that Berkshire is operating conservatively in light of Buffett’s upcoming departure as CEO, although he will remain as chairman. The seasoned Greg Abel is expected to take the helm. While Berkshire’s stock began the year robustly, the announcement of Buffett’s transition caught many off guard.
Additionally, Apple has been grappling with issues related to tariffs throughout the year. It’s possible that Berkshire anticipated such challenges when President Trump took office. If Berkshire is feeling jittery about the economic landscape, the decision to cut back on bank stocks—typically cyclical in nature—seems understandable.
Contradictions in the Healthcare Sector
Berkshire’s stake in the nation’s largest health insurance company, UnitedHealth Group (UNH), amounts to $1.57 billion. Interestingly, UnitedHealth shares have tumbled about 46% this year. Yet, after news of Berkshire’s investment, those shares rose nearly 9.5% during after-hours trading.
UnitedHealth has faced a multitude of challenges this year, including a sector-wide increase in health insurance costs. Management has since adjusted its forecast for earnings to $16 per share for the year, attributing the struggle to rising medical costs. They now anticipate expenditures to reach $6.5 billion more than initially projected, which is a tough reality amidst an aging population and rising healthcare service costs.
Moreover, the US Department of Justice is probing UnitedHealth over billing practices connected to the Medicare Advantage program. Allegations have surfaced regarding payment discrepancies that may have favored the company. In a statement, UnitedHealth expressed confidence in its practices and affirmed its cooperation with the Justice Department.
At heart, Buffett and his team are value-driven investors, seeking stocks that reflect the true worth of the company. UnitedHealth’s situation this year signals a decline in revenue, although management anticipates a rebound with double-digit growth in the coming years. Despite a high debt level, operational profits of around $14.3 billion in the first half of the year far exceed debt interest expenses.
Notably, UnitedHealth’s dividend yield is now about 3.25%, and its free cash flow yield is above 10%, suggesting robust dividend coverage going forward. Recently, the company also raised its quarterly dividend by 5%.
In summary, while UnitedHealth forecasts lower revenues for this year and is trading at less favorable multiples, it nonetheless maintains a strong position in the healthcare insurance market. This resilience might offer enticing risks for Buffett and his team, particularly as they look for investments with solid barriers to entry in a competitive landscape.
