Tomorrow, Nov. 14, is one of the most important days of the fourth quarter for investors. It marks the deadline for institutional investors with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission.
A 13F provides a clear and concise roundup of which stocks Wall Street's top money managers purchased and sold in the latest quarter (in this case, the September-ended quarter). Despite 13Fs being filed up to 45 calendar days following the end to a quarter -- i.e., the data can be stale for active hedge funds -- they can still offer invaluable information as to which stocks, industries, sectors, and trends have the undivided attention of top asset managers.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
There isn't a 13F filing that's more anticipated on Wall Street than Warren Buffett's Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B). With the Oracle of Omaha delivering cumulative gains of greater than 5,600,000% in Berkshire's Class A shares (BRK.A) since he became CEO in the mid-1960s, it's no surprise that investors wait on pins and needles for an under-the-hood look at what he and his team have been up to.
Warren Buffett has been a net seller of stocks for eight consecutive quarters
While the Oracle of Omaha is known for his optimistic view of the U.S. economy and the stock market, Berkshire Hathaway's consolidated cash flow statements show he's been a decisive net seller of equities for eight consecutive quarters (Oct. 1, 2022 through Sept. 30, 2024). On an aggregate basis, he and his top investment aides, Todd Combs and Ted Weschler, have sold $166.2 billion more in stocks than they've purchased over this span.
Occasionally, investors don't have to wait for Berkshire Hathaway to file its quarterly 13F to know what Warren Buffett has been up to.
For example, Berkshire's quarterly operating results always list the company's top-five stock holdings. As of Sept. 30, the fair value listed for Apple(NASDAQ: AAPL) in Berkshire's report is $69.9 billion. Based on where Apple closed on Sept. 30, this translates to 300 million shares of the company owned.
The catch is that Berkshire Hathaway ended June with 400 million shares of Apple in its investment portfolio. A little sleuthing allows investors to see that Buffett dumped another, roughly, 100 million shares of Berkshire Hathaway's top investment holding during the third quarter. This marks the fourth consecutive quarter Buffett has sold shares of Apple.
Additionally, anytime Berkshire holds a greater than 10% stake in a publicly traded company, it's required to file Form 4 within two business days when shares of that security are purchased or sold. During the September-ended quarter, 13 separate Form 4's show that north of 235 million shares of Bank of America(NYSE: BAC) were sold, totaling roughly $9.61 billion in proceeds. This selling activity in Bank of America has continued into the fourth quarter, as well.
But with more than $36 billion in securities sold during the third-quarter, based on Berkshire's cash flow statement, it's crystal clear that Apple and BofA aren't the only two stocks Buffett sold. My prediction is that the Oracle of Omaha continued to pare down three other positions.
1. Capital One Financial
Perhaps the biggest surprise of the second quarter was Buffett and his team reducing Berkshire's stake in credit-services provider Capital One Financial(NYSE: COF) by 21%, or about 2.65 million shares. Historically, Buffett doesn't reduce his stake in a $1 billion-plus holding by a sizable amount and then suddenly stop. Usually, this selling will extend for multiple quarters.
Aside from simple profit-taking, there are two possible reasons why Buffett, Combs, and Weschler are likely to have sold more shares of Capital One Financial in the September-ended quarter.
The first catalyst is valuation. Capital One's shares ended Nov. 8 at a 22% premium to its book value. While this isn't egregiously high, it does represent a considerable premium to the 22% discount shares have traded at, relative to the company's book value, over the trailing-five-year period. I should also mention that the stock market, as a whole, is historically pricey.
The other potential concern is the likelihood of a U.S. recession taking shape. Even though Warren Buffett makes no attempt to "time" his trading activity, there are a couple of warning signs that U.S. economic growth may slow or shift into reverse. This includes the first notable decline in U.S. M2 money supply since the Great Depression, as well as the longest yield-curve inversion in history. Financial stocks like Capital One Financial are inherently cyclical.
Image source: Getty Images.
2. T-Mobile
Another Warren Buffett stock that I'd expect the Oracle of Omaha and his crew to have further pared down in the September-ended quarter is telecom titanT-Mobile(NASDAQ: TMUS). Berkshire's 13F shows that 570,000 shares of T-Mobile were sent to the chopping block in the June-ended quarter, representing a reduction of almost 11% in three months.
Although Buffett has owned telecom stocks (via Berkshire's investment portfolio) on a handful of occasions in the past, he doesn't tend to hang onto them for more than a few years. Seeing this stake pared down again in the third quarter would simply be par for the historical course.
However, T-Mobile's valuation provides another reason for Buffett and his investing lieutenants to cash in their company's chips. Although its forward price-to-earnings (P/E) ratio of 22 isn't absurdly high, it does stand out when peers AT&T and Verizon Communications are consistently valued at forward P/E ratios of 10 or less.
While T-Mobile has been outpacing both companies on the growth front, its forecasted sales growth has slowed to 3% in 2024 and less than 5% in 2025. In other words, it may need time to grow into its current valuation. Buffett is an ardent value investor and hasn't been afraid to pare down or completely sell wonderful companies if their valuation no longer makes sense.
3. Louisiana-Pacific
The third stock that I predict Warren Buffett is still selling is Louisiana-Pacific(NYSE: LPX), a supplier of siding and outdoor building solutions used primarily in new home construction. A cumulative 1.08 million shares of the company were sold by Buffett and his team in the March- and June-ended quarters.
Louisiana-Pacific found itself in the right place at the right time when the Federal Reserve kicked off an aggressive rate-hiking cycle in March 2022. While rapidly rising mortgage rates sent existing-home sales plummeting, it opened the door for homebuilders to offer discounts and/or financing incentives to lure homebuyers. With new home demand remaining strong, Louisiana-Pacific's stock soared.
But the nation's central bank has undergone a decisive shift in monetary policy. With a rate-easing cycle now underway, the luster that homebuilders and their suppliers enjoyed when mortgage rates were climbing can quickly fade.
The other issue for Louisiana-Pacific, as can be seen with Capital One Financial and T-Mobile, is its historically pricier valuation. Over the trailing-five-year period, Louisiana-Pacific has averaged a forward P/E multiple of just over 10. Shares are currently trading for double this figure -- almost 21 times forward-year earnings -- which is often a red flag for Warren Buffett.
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Bank of America is an advertising partner of Motley Fool Money. Sean Williams has positions in AT&T and Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
