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Warren Buffett, renowned as one of the best investors in history, continues to draw attention whenever he makes investment decisions. With nearly 70 years of experience documented in annual shareholder letters, Buffett’s choices are closely watched. Recently, however, he has been more of a seller than a buyer, offloading more stocks from Berkshire Hathaway’s portfolio than he has acquired in the last six quarters.
Despite this cautious approach, Buffett has found a few companies worth investing in over the past year, totaling an impressive $7.1 billion. Even though these stocks have risen significantly since his initial purchase, there's speculation that he might continue to buy more this month.
Among the limited number of stocks that have piqued Buffett’s interest in the current market, one stands out: Chubb Limited, a commercial property and casualty insurance company. Initially, Buffett kept this investment confidential, leading to much speculation about which stock he was purchasing. However, in his latest disclosures, he revealed Chubb as his “mystery stock,” with Berkshire's stake valued at about $6.8 billion.
Buffett's long-standing familiarity with the insurance industry dates back to when he first acquired National Indemnity after taking over Berkshire Hathaway. His investment in Chubb reflects a deep understanding of the sector and highlights its importance to Berkshire's overall strategy.
In addition to Chubb, Buffett has been actively purchasing shares of Occidental Petroleum. He consistently buys shares whenever they hover around $60. Buffett praised the company's CEO and has expressed plans to hold Occidental's stock indefinitely. Berkshire also holds preferred shares in Occidental, which were initially bought to assist with an acquisition in 2019. Over the last year, Buffett has invested approximately $2 billion in Occidental, increasing Berkshire's stake to 28.8%.
Interestingly, Buffett's largest purchase over the past year has been Berkshire Hathaway's own stock. He has invested $7.1 billion in share buybacks, a strategy he has employed consistently since the company adjusted its policy in 2018. This change allowed him to repurchase shares as long as they traded below their intrinsic value, rather than adhering to a rigid price-to-book-value ratio.
This buyback approach has been beneficial for Berkshire shareholders, with the stock price increasing about 40% since the beginning of last year. Currently, shares are trading near their all-time high, reflecting strong performance in the market.
Despite the rising stock price, Buffett still finds value in Berkshire shares. The current price-to-earnings ratio stands at about 19.3, which is lower than the average for the S&P 500. This indicates that, relative to its earnings potential, Berkshire Hathaway is still a solid investment. With a significant portion of its assets in U.S. Treasury bills and substantial equity holdings, including a large stake in Apple, the conglomerate’s valuation appears attractive.
When Buffett reduces the total number of Berkshire Hathaway shares outstanding, each remaining share represents a larger ownership stake in the company. This strategy boosts earnings per share, supporting a higher stock valuation.
Warren Buffett’s investment decisions continue to influence the market. His recent focus on Chubb and Occidental Petroleum, along with substantial buybacks of Berkshire shares, suggests a strategic approach that could benefit investors. As Buffett sees ongoing value in Berkshire Hathaway, it might be wise for others to follow suit and consider investing as well.
