Stock Markets Finish Mixed as Warren Buffett Makes 2 Big Buys

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Tuesday initially brought continued upward momentum to the stock market, but by midday, stocks had given up much of their gains and moved into negative territory late in the session. The Dow Jones Industrial Average (DJINDICES:^DJI) pushed ahead to another all-time high, but the S&P 500 (SNPINDEX:^GSPC) and Nasdaq Composite (NASDAQINDEX:^IXIC) posted modest declines.

Index

Percentage Gain (Decline)

Point Gain

Dow

0.20%

64

S&P 500

(0.06%)

(2)

Nasdaq Composite

(0.34%)

(48)

Data source: Yahoo! Finance.

Every three months, investors get a sneak peek at what some major institutional investors are doing with their portfolios. This afternoon after the market closed, Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) filed its latest 13F report with the Securities and Exchange Commission, revealing the stocks that the Warren Buffett-led company owned as of the end of 2020. Among the holdings were a couple of new names, along with some other noteworthy moves that signaled the continuing evolution of Buffett’s thought process about the stock market.

Image source: Getty Images.

What Buffett bought at the end of 2020

There were two big new positions in Berkshire’s portfolio at the end of the fourth quarter of 2020. The insurance giant revealed a 146.7-million-share position in wireless telecom giant Verizon Communications (NYSE:VZ), with a value of $8.6 billion. That only makes up about 3% of the full value of publicly traded stocks that Berkshire holds, but it was enough to make Verizon the sixth-biggest position in the portfolio.

Verizon appeals to Buffett’s desire for companies at reasonable valuations that pay ample dividends. The wireless telecom provider pays a dividend that yields more than 4.5% currently, yet the stock trades at just 11 times forward earnings estimates. That’s a hard combination to find in today’s market, where it’s not uncommon to find price-to-sales ratios far higher than 11.

With the 5G upgrade cycle coming into full swing, Verizon has a huge opportunity ahead of it. There’s a lot at stake, and competition will remain fierce. But having the confidence of the Oracle of Omaha is worth a lot in many investors’ eyes.

Buffett’s other big buy was oil giant Chevron (NYSE:CVX). Berkshire established a 48.5-million-share position worth about $4.1 billion, making it a top-10 holding for the insurance giant.

Chevron hasn’t made money in the past year, as the coronavirus crisis punished energy stocks and sent oil prices falling. But oil has made a comeback, and Chevron is well positioned to handle $60 crude prices and find ways to promote disciplined growth. Meanwhile, Buffett will collect even richer dividends from Chevron than from Verizon, with the oil major yielding 5.5%.

What Buffett trimmed

On the sell side, Buffett didn’t make very many big moves. The most significant was Berkshire’s continued sale of Wells Fargo (NYSE:WFC) shares. Buffett had already reduced his position in Wells from around 10% to just 1.3% as of September 2020, but Berkshire sold off more than half of its remaining shares in the last three months of the year. That took the value of the remaining stake of 52.4 million shares down to $1.6 billion.

Berkshire also sold off a small portion of its stake in Apple (NASDAQ:AAPL), reducing its holdings by 57.2 million shares. But that still leaves Buffett with 887 million shares worth roughly $120 billion, by far the portfolio’s biggest position, and one that has saved Berkshire’s performance recently.

Keep watching Buffett

As interesting as it is to see what Berkshire has bought and sold, it’s only part of the story Buffett has to tell. Investors will get the rest later this month, when Berkshire releases its annual results and Buffett and longtime peer Charlie Munger send out their annual letter to shareholders. With that information, investors should have a clearer understanding of how the Berkshire CEO sees the market and its prospects for 2021 and beyond.

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