Investors who pay attention to the moves of high profile companies like Berkshire Hathaway will note that the Warren Buffett run company sold as much as 26% of it’s stake in personal healthcare and products giant Johnson and Johnson (JNJ), as well as shares in consumer goods company Proctor and Gamble (PG). Berkshire also sold 34% of it’s holdings in oil behemoth ConocoPhillips (COP).
The sales were disclosed as part of regulatory filings made by the company and available here. Companies with more than $100 million in investment funds (usually hedge funds but also companies such as Buffett’s) must disclose their investments on a quarterly basis to the SEC.
Berkshire’s activity did not stop there. In what was one of the most active quarters for the company, positions were reduced in CarMax (KMX) , Exxon Mobil (XOM) (which he only bought in the second quarter of 2009), Gannett (GCI), Ingersoll Rand (IR), Moody’s (MCO), SunTrust Bank (STI), Unitedhealth Group (UNH) and Wellpoint (WLP).
Additions and new positions to Buffett’s portfolio are always closely watched and he did add to existing positions in Becton Dickinson (BDX), Iron Mountain (IRM), Republic Services (RSG), Wal-Mart (WMT) and Wells Fargo (WFC). The West Coast based Wells is now one of Buffett's largest positions, ahead of Bank of America (BAC), which he also holds.
Berkshire espouses an investment approach of holding stocks for the long-term ("Our favorite holding period is forever"), so the recent sales and somewhat active quarter come as a bit of a surprise to followers of the company.
The reason for the activity has nothing to do with Buffett being bearish on the stock market or the economy. Rather, the sales were made because the company needed to raise funds to complete the acquisition of railroad business Burlington Northern Santa Fe. The deal was announced some weeks back and will see Berkshire buying all of Burlington for $32 billion in a cash and stock deal, the largest Buffett has ever made.
As a result of the acquisition, which includes Berkshire issuing $8 billion in debt, Buffett was also forced to sell positions in rival railroad companies Norfolk Southern (NSC) and Union Pacific (UNP).
Buffett’s selling is therefore necessary in order to raise liquidity in the business and maintain ratings high enough for insurance purposes, the bulk of the company’s business. It’s by no means a sell sign and investors holding stocks in any of the above-mentioned companies should not panic and consider selling (unless they too are buying railroad companies).
The keenly awaited Berkshire annual meeting, or “Woodstock for capitalists”, will take place this May and it is at that event that we can expect to hear more about why Buffett felt the Burlington Northern acquisition was necessary and his outlook on the US economy, which I suspect will remain very positive.
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