We recently discussed the changes that have taken place inside Berkshire Hathaway Inc. (NYSE: BRK-A) as Warren Buffett has gone higher up the food chain.  In his more focused and more opaque approach, it also seems that after a $44 billion deal including debt to buy Burlington Northern Santa Fe Corp. (NYSE: BNI) that Berkshire Hathaway needs to further make some changes.  Buffett has been talking on and off about a whale of a deal, and that is what we got with the BNSF buyout.  Berkshire Hathaway Inc. lists 51 different subsidiary links inside the Berkshire Hathaway umbrella that are wholly owned or dominantly owned subsidiaries.  There are also more than 40 public US-listed stock holdings in there, and that is before you get into his preferred shares, convertible debt instruments, and debt for deal financing in big public companies.

We have taken a review of the Full Buffett Holdings and come up with a geared down version of his holdings here.  Some of these ‘encouraged’ sales are because of fundamental changes, and some are merely because they are too small to be a benefit even if they tripled in price.  Some are also a follow-on for action he has already taken or already hinted at.

ConocoPhillips (NYSE: COP) is an obvious exit in the oil patch.  Buffett wants continued exposure to oil, and there are better ways to get exposure for Mr. Buffett.  He has investigated the Canadian oil sands projects, and he eventually buckled to pressure to sell Chinese oil stocks.  But Buffett targeted ConocoPhillips already all on his own for sale and said he would selectively sell as a tax offset even if it rises. It was also lowered in scope over the last quarter and the recent addition of Exxon Mobil Corp. (NYSE: XOM) was the right call he should have made in the first place.  Conoco is now at a $78 billion market cap, yet Buffett cam much more easily hide Exxon with almost an unlimited amount of funds as it has a market cap north of $359 billion and is the #1 position in the 24/7 Wall St. Real-Time 500. Buffett could get his hands on almost $3 billion for the share sale at current levels.

Gannett Co., Inc. (NYSE: GCI) is one we cannot figure out why he still has in the portfolio other than being ‘long and wrong.’  He has panned newspapers, and the rest of media is challenged still.  At 3.447 million shares, this is also worth a whopping $35 million today.  The notion that this used to be worth 5-times and 8-times more is largely irrelevant now.  The Washington Post Co. (NYSE: WPO) might actually be hard for Buffett to exit because volume is so light.  He might just be stuck with it, and its education business may offset the newspaper business.  But his 1.72 million share stake could raise $700 million today if it could be unlocked.

Moody’s Corp. (NYSE: MCO) is one that was undergoing a game-changing trend for two years before Buffett decided to start lightening up.  The business is no longer in the same right nor with the same future as it once had.  Buffett wants companies with a “forever timeline” and that is just not in the cards any longer.  Ask this… How does the future of Moody’s compare now to how it was running 5 years ago?  No matter how you cut it, Moody’s has a much less dominant role and one under much more regulation and under more public scrutiny.  We interpreted his recent comments that he’s probably exiting this one anyway…. $900 million is here.

Then there is the train and rail competition.  Buffett has already indicated the sale of competing interests in the rail arena.  That takes the 1.933 million shares of Norfolk Southern Corp. (NYSE: NSC) and the 9.55 million shares of Union Pacific Corp. (NYSE: UNP) off the table.  That was roughly $640 million at the last look.  But there is an interesting take here that has not been discussed.  If Buffett really wants to communicate the value of the rail transportation business, he could also dump his 1.429 million shares of United Parcel Service, Inc. (NYSE: UPS).  That stake is only worth $80 million today, and he could kill two birds with one stone: clean up a small sub-$100 million position and make the effort to further show that rail is the best transport sector to own.

On the healthcare front, Buffett has already decided to lighten up on his health insurance operators. UnitedHealth Group, Inc. (NYSE: UNH) was listed as 3.4 million shares, down from 4.5 million in the prior quarter.  Wellpoint Inc. (NYSE: WLP) was listed as 3.394 million, down slightly from 3.5 million last quarter.  But that Wellpoint stake is also down from 4.7773 million shares in Q1.  Buffett might have been an Obama-backer, but he is lightening up in these health insurance stocks.  The only reason he might not be out entirely is either because of ‘hope’ or for goodwill in D.C.  He would raise about $280 million now by unloading these, and he’d surprisingly be able to do it at close to 52-week highs in these two.

GlaxoSmithKline plc (NYSE: GSK) and Sanofi-Aventis (NYSE: SNY) are technically not Buffett’s picks on his own.  It is unlikely that Buffett needs these as a source of funds.  And we do not anticipate a sale from Buffett here.  These could generate more than $200 million if they are exited.  Again, we do not expect these to be sold even though they do not fit in on the Buffett scale today.

Ingersoll-Rand Plc (NYSE: IR) is one that we think is one already on the way out and is probably already gone. He cut the stake way down, and this is worth about $23 million at today’s price.  This isn’t worth Buffett’s time, so we won’t make worth wasting our time nor your time with anything more.

SunTrust Banks, Inc. (NYSE: STI) is just over 3 million shares, so almost $70 million today.  This may be sentimental or for posterity’s sake, and in all fairness is not one we are picking on.  But with a similarly small Bank of America Corp. (NYSE: BAC) stake, the stake size could be more easily grown in BofA if he chooses.  Buffett’s recently increased stake in Wells Fargo & Co. (NYSE: WFC) being worth close to $8 billion and the other banks and lenders already held make this seem to be an easy stock to relinquish.

There are two positions in public insurance holdings that either need to be added to or need to be elminated.  Frankly, Buffett has more than enough insurance exposure all the way through the private portfolio.  The Torchmark Corp. (NYSE: TMK) is in individual life and supplemental health insurance products and the 2.8 million share stake is worth just under $120 million today.  The Travelers Companies, Inc. (NYSE: TRV) was such a small stake that Buffett may have changed his mind or just got caught having his broker start buying in the last 15 minutes of the last day of the quarter.  This is literally a $1.3 million stake.  But it is now a DJIA component and I think Warren wants to show he wants to hold the better quality public stocks.  Our guess is that this will be a larger stake ahead.  If not, he just needs to sell it so that people covering Buffett can ignore it.

Will Buffett sell all these positions? No, of course not. He holds on to positions in many cases until long after they have stayed their welcome in the Buffett house.  But some he has started selling and many seem unlikely compared to the rest of his portfolio.  Many of these either do no longer fit in size nor in practice for his ‘forever’ model.  After tallying all these stakes up mentioned here, Buffett could also use $6 billion to use for funding that BNSF buyout or that he could use to buy what he has always wanted…. A utility.

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JON C. OGG
NOVEMBER 24, 2009

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