Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-B, BRK-A) has made many changes in portfolio investing approach through time.  The one constant is his ‘forever’ strategy, which now only means a bit more than multi-year for many of his positions.  Since he has adopted a policy of being above the common holder in leaner times and since he has taken BNSF private and broadened out his shareholder base with the Berkshire-B shares, it really seems that this is the time for Mr. Buffett to adopt a more concentrated portfolio as he has many overlapping positions in direct competitors where he could perhaps make more of an impact by making a bolder statement.

We have gone through the entire public stock holdings of Berkshire Hathaway and addressed some of his overlaps, some recent trends, and even gone over some of his ‘forever’ picks.  In oil we are paring up the ConocoPhillips (NYSE: COP) position against Exxon Mobil Corp. (NYSE: XOM).  A few standalone positions that need to be addressed are Kraft Foods (NYSE: KFT), Moody’s Corp. (NYSE: MCO), Republic Services Inc. (NYSE: RSG), and Comdisco Holdings (NASDAQ: CDCO).  In home improvement centers there is this split between Home Depot Inc. (NYSE: HD) and Lowe’s Companies (NYSE: LOW).  In retail, there is Costco Wholesale (NASDAQ: COST) versus Wal-Mart Stores Inc. (NYSE: WMT).  Lastly there is this financial powerhouse group under Buffett via M&T Bank Corp. (NYSE: MTB) and Wesco Financial Corp. (NYSE: WSC).

We took a look at each position versus some rough weightings per sector in the full Berkshire Hathaway portfolio holdings in our screening and decision process.  What is not a factor, and one that could play a role in some of Buffett’s determination presently versus the past, is that Buffett may in his mind have a Keiretsu where all of his underlying business units have secondary relationships with some of his stock and debt portfolio holdings’ parents.

BUFFETT’s OIL & GAS BETS

There has been an interesting trade that started but that never really finished.  Buffett made a huge bet in ConocoPhillips (NYSE: COP), which he admitted was a very wrong bet.  His Chinese oil investment he shed due to pressure over Sudan and other civil rights issues, but he recently took on Exxon Mobil Corp. (NYSE: XOM) as a sideshow.

ConocoPhillips (NYSE: COP) is now a position of roughly 29.1 million shares, which comes to about $1.6 billion or so in total today.  Conoco is a steadily smaller stake… lower than the prior 34.179 million shares and yet another cut from 37.7 million two quarters ago and 57.43 million and 62.485 million before that.  Exxon Mobil Corp. (NYSE: XOM) is now 421,800 shares which is the same as before but the position was lowered from 1.276 million shares originally.

Here is the take, and this is something that Buffett needs to consider greatly.  Exxon’s market cap of $310 billion is nearly 4-times that of rival Conoco.  Buffett historically liked to look for ways he could commit his money in a non-disrupting manner but that is no longer the case.  What is interesting about Exxon, particularly when you see where Buffett made his bad bet on Conoco, is that Buffett could quite literally invest as much cash as he wanted to in Exxon Mobil and not move the meter so much here.  Even a (theoretical) 5% stake would cost more than $15 billion today, making it the Buffett giant versus some $8+ billion of Wells Fargo and versus the $1.6 billion in Conoco.  Buffett needs more energy exposure through time, and Exxon is the only logical choice for Buffett to park his billions easily.

FOUR INDIVIDUAL CIRCUMSTANCES

Kraft Foods Inc. (NYSE: KFT) is 105.21 million shares that are still worth more than $3 billion.  The position if down from the 106.7+ million a quarter before and down from the 138+ million before Buffett was critical of the Cadbury deal.  The problem is that between Nestle and an $11+ billion stake value in Coca-Cola, Buffett may need more than just Kraft here.  Adding another food giant might not be how Buffett wants to go, but the Kraft concentration seems one that is a fully-valued proposition for the time being.  Our take is that Buffett should (and will likely continue) shrinking a bit more of the Kraft stake.

Moody’s Corp. (NYSE: MCO) seems to be continually shrinking at 30.783 million shares.  That was compared to 30.83 million a quarter earlier and down from the 48 million originally before two more quarters of decreases.  No matter how you rank today’s world and tomorrow’s world, the “forever” investment term just got away from Ol’ Warren here.  Moody’s has outlived its usefulness and its business model is likely to never be as loose and as profitable as it once was.  If we are wrong on that front, then it is because the world is all living in mansions and no one cares that it is a bubble.  Buffett could have saved vast funds here but his forever mentality got in the way of logic and reason when there was still plenty of time to sell.

Republic Services Inc. (NYSE: RSG) was kept the same at 10.827 million shares, but that was still up from two quarters ago.  This is a position that Buffett needs to be adding more of for the Berkshire holdings.  It is smaller than rival Waste Management and it enjoys many barriers to entry, a business model that works rain or shine, and fits in perfectly with the “forever” plan.  The only thing holding Buffett back here (most likely) is that he piggy-backed into this one with Bill Gates via Gates’ Cascades, and that is over a 12% stake for Gates and now about 2.8% for Berkshire.  It may require more filings, but this position makes perfect sense for the Berkshire family here to become much larger.  Gates even has his right hand man on the board of Republic.

Comdisco Holdings (NASDAQ: CDCO) roughly 1.5 million shares, the same as before.  Nothing more needs to be said?  This is not even worth having as a line item, and the recoup of what is left is not enough to matter for Warren and friends.

THE HOUSING & HOME IMPROVEMENT TRADE-OFF

Acme Brick, USG, Clayton Homes, HomeServices, Star Furniture, Nebraska Furniture Mart, Jordan’s Furniture… and on.  How much housing exposure does Buffett really need?  This sector ALWAYS comes back in time but there is a real rivalry here.  Buffett has kept a steady position of Home Depot Inc. (NYSE: HD) at 2.757 million shares and Lowe’s Companies (NYSE: LOW) at 6.5 million shares.  Buffett doesn’t pair Coke against Pepsi, why does he have a Home Depot stake of $79 million and a stake in Lowe’s of $143 million?  This makes no sense.  Picking which one of these two behemoths is a better stock versus the other depends upon which point in time one is performing better than the other.  Buffett may want to pick which he has the best tax advantage in and make his statement by going with one over the other.  The conflict here is that this may actually hurt some of his supply operations if it disrupts a relationship.  In a perfect world that might not matter (like the world is perfect), but having these two positions rather than one concentrated position only makes sense here if it is locking up business for Buffett.  In today’s world, the numbers might not matter on that front and that may be the case for some time to come.

THE RETAIL TRADE… COSTCO vs. WAL-MART

Costco Wholesale Corporation (NASDAQ: COST) is 4,333,363 shares, which was the same as the last quarter but that is after it had been lowered from 5.254 million before.  The other is a stake of Wal-Mart Stores Inc. (NYSE: WMT) at just over 39 million, also the same as the prior quarter but the difference is that this stake had been raised earlier.  On a personal note, Costco is much better overall experience.  But business is business.  Wal-Mart may have been dead money for some time, but Wal-Mart is much more fairly valued, it has nearly a 2.4% vs. 1.5% dividend yield, and its $191 billion market cap is more than 7-times that of Costco.  If Buffett wants to have an “all in bet on America” then Wal-Mart fits that role perfectly.  Wal-Mart is likely the new destination of millions of more Americans now that The New Normal means lower pay, fewer jobs, and a much more price-conscious consumer.  The vast size of this company also allows Buffett to really dig in deep here as much as he wants if he ever wants to raise the stake.  Buffett’s stake is more than $2 billion here, but he could raise that exponentially if he ever wanted to and it would not create a drastic move.

AND THEN THE FINANCIAL WEIGHTING…

How much financial exposure does Buffett need for Berkshire Hathaway in banks and insurance?  Maybe having so many holdings gives Berkshire’s management a better grip on a full snapshot of the financial markets.  But some is overkill and redundant beyond belief.  Berkshire’s current worth in these is $6+ billion in American Express, $8+ billion in Wells Fargo, $1.4 billion in US Bancorp, the Goldman Sachs preferred shares, and literally endless billions in vast outfits in insurance and reinsurance operations in the Berkshire subsidiaries.  It goes on and on and some of these could be widdled down to nothing.

M&T Bank Corp. (NYSE: MTB) is 5.363 million, which is already a decrease from 5.563 million shares before that and down from 6.71 million shares before that.  This is worth over $460 million whether a deal gets wrapped up with Banco Santander or not.  By the looks of it, Buffett is already on the way out and that may happen whether he wants it or not if a cash deal comes the way of M&T.

Wesco Financial Corp. (NYSE: WSC) is 5.703 million shares, same as last quarter, and this is 80.1% owned by Berkshire Hathaway.  The company has already submitted an offer for the remaining 19.9% not already owned, but it is at book value and supposedly Buffett and Munger won’t budge.  This represents a change coming either way, and Buffett could even consider monetizing an eclectic mix of its operations holdings unless they were going to be integrated and rolled up into the eclectic mix of Berkshire’s private subsidiaries.

Again, Buffett’s most recent full holdings are here.

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JON C. OGG

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