One of investors’ greatest pastimes is following the buying and selling of Warren Buffett and Berkshire Hathaway (NYSE:BRK-B). CNBC has created a portfolio tracker to do just that.
In mid-August, the holding company filed its Q2 2024 13F. As usual, there were a few surprise buys and sells. The biggest surprise was that the Oracle of Omaha dumped almost 50% of his Apple (NASDAQ:AAPL) stock, pushing Berkshire’s cash to a record $277 billion.
Before the Apple sale, the Berkshire equity portfolio had a market value of over $400 billion. As of Aug. 27, it was $317 billion, up from $280 billion at the end of June.
Berkshire added two new positions in the second quarter and increased its holdings for five existing positions.
Of the seven changes, the two new stocks Buffett added in the second quarter, Ulta Beauty (NASDAQ:ULTA) and Heico (NYSE:HEI), were undoubtedly the biggest surprises.
The two non-surprises saw Berkshire topping up Occidental Petroleum (NYSE:OXY) and Chubb (NYSE:CB), which are top-10 holdings.
Here’s a look at all four buys.
24/7 Wall Street Insights
- Ulta Beauty (ULTA) is the most unusual stock Buffett has ever bought.
- Heico (HEI) is the type of stock the Oracle of Omaha might own.
- Occidental Petroleum (OXY) is one of Buffett’s favorites.
- Chubb (CHB) is in its circle of competence.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Ulta Beauty (ULTA)
I don’t think there’s any question that Berkshire’s purchase of 690,106 shares of the beauty retailer surprised many investors. Warren Buffett rarely buys retail stocks despite owning several at different times, including Floor & Decor Holdings (NYSE:FND), and until Q1 2023, RH (NYSE:RH), better known as Restoration Hardware.
In February 2017, Buffett appeared on CNBC’s “Squawk Box” and commented honestly about the retail industry:
I think retailing is just too tough for me, just generally,” Buffett said during his Squawk Box appearance. “We bought a department store in 1966, and I got my head handed to me. I’ve been in various things in retailing. … I bought Tesco over in the UK and got my head handed to me. Retailing is very tough, and I think the online thing is hard to figure out.
So, why Ulta?
First, my guess is that one of his investment managers—Todd Combs or Ted Weschler—did the buying with his approval.
Secondly, Ulta and Sephora are the two largest beauty retailers in America. At the midpoint of its latest guidance, Ulta expects fiscal 2024 revenue of $11.55 billion, from its previous forecast of $11.75 billion. It also expects same-store sales to grow by 2.5% in 2024.
On the profit front, analysts expect it to earn $25.81 a share in 2024 and $28.27 in 2025. It trades at 14.4x the 2024 estimate, considerably less than its five-year average of 22.8x earnings.
While Buffett might not have been pulling the strings, it should do well in the long run.
Heico (HEI)
Heico seems more like a Buffett stock than Ulta.
The aerospace company has two operating segments: Flight Support Group (68% of revenue) and Electronics Technologies Group (32%). The former supplies airlines with its own and third-party aftermarket aircraft parts. The latter manufactures electronics components for aircraft, satellites, missiles, and non-flight defense systems.
Berkshire acquired 1.04 million shares of Heico. That’s approximately 0.1% of its entire equity portfolio. As a result of the investment in Heico, Berkshire owns 1.2% of the company.
It reported Q3 2024 results on Aug. 26. Sales jumped by 37% to $992 million, while its operating profits increased 45% to a record $216 million. Its operating margin was a healthy 21.8%, 110 basis points higher than a year ago. Its more significant segment, the Flight Support Group, has now increased its sales sequentially for 16 quarters.
That’s what you call consistency.
The only thing that might suggest Buffett didn’t pick Heico is its tiny dividend. With the 10% increase in its quarterly dividend payment in July to 11 cents, its annual rate of 44 cents yields 0.2%. Berkshire’s annual take is no more than $4.4 million, which is no more than a rounding error on a small acquisition.
Heico’s enterprise value is $31.97 billion, nearly 33 times its EBITDA (earnings before interest, taxes, depreciation and amortization).
In the long term, Berkshire will do just fine owning Heico.
Occidental Petroleum (OXY)
Berkshire has owned Occidental since investing $10 billion in the oil and gas company as part of its 2019 acquisition of Anadarko Petroleum.
The holding company received 100,000 cumulative perpetual preferred shares worth $100,000 each and warrants to buy 80 million shares of its common stock at an exercise price of $62.50 per share. The preferreds paid 8%, or 9% interest, for dividends unpaid and accruing interest.
Today, Berkshire owns 255.2 million shares worth $14.45 billion, making it the holding company’s sixth-largest position.
During the pandemic, it had to issue common shares to Buffett to cover its dividends, forcing a readjustment to the warrants. Berkshire now holds 83.85 million warrants to buy shares at $59.62, slightly out of the money at current prices.
Down nearly 6% in 2024, Berkshire bought 7.3 million OXY shares in the second quarter.
Chubb (CB)
Berkshire first bought shares of the insurer in Q1 2024. It added 1.11 million shares in the second quarter. It now holds 27.0 million shares of Chubb. They’re worth $7.48 billion, or 2.4% of its equity portfolio.
Buffett and Berkshire know a thing or two about property and casualty insurance, so buying the Zurich-based insurer’s stock makes total sense.
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