Few investors command Wall Street's attention quite like Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett. Since taking the reins in 1965, the appropriately named "Oracle of Omaha" has nearly doubled up the annualized total return of the benchmark S&P 500. On an aggregate basis, Buffett has overseen a gain of 5,174,441% in Berkshire's Class A shares (BRK.A), as of the closing bell on August 7.
Given how decisively Warren Buffett has crushed the S&P 500, it's no surprise that investors eagerly await clues as to what he and his team have been buying and selling.
Traditionally, these "clues" come in the form of a 13F filing with the Securities and Exchange Commission (SEC). A 13F is a quarterly filing that provides an under-the-hood look at what Wall Street's smartest (and richest) money managers have purchased and sold. Berkshire's 13F detailing its activity during the June-ended quarter is slated for release after the closing bell on August 14.
But you don't always have to wait for Berkshire's 13F to know what the Oracle of Omaha and his top investment aides, Todd Combs and Ted Weschler, have been up to. Thanks to the company's quarterly operating results, annual shareholder meeting, and Form 4 filings with the SEC, we already know about three big moves that have been made.
Based on these various clues, which I'll touch on in more detail in a moment, I'd opine that Buffett is selling two additional holdings that Wall Street and investors don't yet know about.
Warren Buffett has been a big-time net-seller of equities
One stock we absolutely know the Oracle of Omaha has been dumping is Berkshire Hathaway's longtime top holding, Apple (NASDAQ: AAPL). Based on fair value estimates for Apple (as of June 30), which were highlighted in Berkshire's second-quarter operating results, we can approximate that nearly half of the 789.37 million shares that were held as of March 31 were sold over the subsequent three months.
During Berkshire Hathaway's annual shareholder meeting in early May, Buffett suggested that corporate tax rates were liable to increase in the coming years. Given the sizable unrealized investment gains in Apple Berkshire's investment team is sitting on, Buffett believed that locking in some gains now, at a lower tax rate, would be, in hindsight, viewed favorably by the investing community.
Berkshire's annual meeting also shed light on another disposition that was widely telegraphed. Buffett admitted that he -- and he alone -- had sold the entirety of his company's remaining stake in legacy media company Paramount Global (NASDAQ: PARA). This remaining stake totaled 7,531,765 shares, as of March 31.
Legacy media companies like Paramount have been upended by streaming services and the high costs associated with building out the content libraries needed to compete for subscribers. Despite reducing its direct-to-consumer segment losses, Paramount has struggled to regain its footing. Buffett ultimately bit the bullet prior to Berkshire's shareholder meeting and dumped the remaining position.
Furthermore, Form 4 filings tell us that Buffett and his team have been actively selling shares of No. 2 holding, Bank of America (NYSE: BAC). Shareholders with a 10% or greater stake in a company are required to file Form 4 anytime shares are bought or sold.
Over 12 consecutive trading sessions (July 17 – Aug. 1), Buffett collectively sold 90,422,124 shares of Bank of America stock, totaling about $3.82 billion. There are a number of logical reasons for this position to be pared down by around 9%, including BofA's higher book value and the potential for a rate-easing cycle to commence in the coming months -- BofA is the most interest-sensitive of the money-center banks. But more than anything, this selling activity appears to be a warning to Wall Street that the stock market is incredibly pricey.
Buffett has sold more equities than he's purchased for seven consecutive quarters, with $131.6 billion in aggregate net-equity sales since Oct. 1, 2022.
In two days, Berkshire Hathaway's 13F will reveal the full scope of what moves were made in the second quarter.
However, Berkshire's second-quarter operating results offer a big clue as to what other trades may have been executed. More specifically, the fair value cost basis for the company's "Commercial, industrial, and other" segment declined from $46.026 billion on March 31, 2024 to $45.006 billion on June 30, 2024. This segment excludes financial stocks and consumer products, but includes a host of other sectors and industries.
Based on this fair value information, I believe Buffett pared down his stake in another top holding and completely exited one of Berkshire's smaller value plays.
Prediction: Buffett pared down his stake in Chevron for a second consecutive quarter
Let me preface this first prediction by noting that Warren Buffett would never bet against America. Nevertheless, Buffett isn't oblivious to the possibility of a big sell-off in the stock market. Equities are historically pricey, and the potential for energy commodities to take it on the chin if the U.S. economy falls into a recession is palpable.
With the above being said, it's a near-certainty that Buffett sold close to 4 million shares of oil and gas stock Chevron (NYSE: CVX) during the second quarter.
Although Wall Street has been laser-focused on Apple's fair value decline from the sequential quarter, they've overlooked that Chevron's $18.6 billion fair value, as of June 30, is about $0.6 billion shy of where it should be, assuming Buffett hadn't sold a single share.
Further, Berkshire Hathaway's brightest investment minds sold roughly 3.11 million shares of Chevron during the first quarter. Once the train gets rolling in either direction, it's pretty common for buying or selling activity to be a multi-quarter event for a security held by Buffett's company.
Lastly, with Buffett referring to Occidental Petroleum as an "indefinite" holding in his most recent annual letter to shareholders, there may not be a need to have so much capital tied up in Chevron. After all, energy stocks have rarely played a key role in Berkshire's Hathaway's investment portfolio. As Berkshire's position in Occidental grows, it wouldn't be surprising to see a corresponding reduction in its stake in Chevron.
Prediction: The Oracle of Omaha completely exited his company's position in Louisiana-Pacific
My second prediction is that the Oracle of Omaha and/or his investment aides showed Louisiana-Pacific (NYSE: LPX) to the door. Louisiana-Pacific is a provider of siding/outdoor building solutions used primarily in new construction.
When the first quarter came to a close, Berkshire held 6,597,947 shares of this premier building solutions company. However, 446,942 shares were sold in the March-ended quarter. With Berkshire's investment team often increasing or reducing their positions over the span of multiple quarters, it seems logical to expect this selling activity to have ramped up in the second quarter.
But there's more to this prediction than just "it's what Buffett usually does."
When Treasury yields soared on the heels of the Federal Reserve's steepest rate-hiking cycle in four decades, it sent 30-year mortgage rates to a 23-year high last October. Bringing the existing-home sales market to a crawl opened the door for new home sales to thrive. Suppliers like Louisiana-Pacific were key beneficiaries.
However, with the Fed set to begin cutting interest rates, and mortgage rates declining, the luster for homebuilders and their suppliers may begin to wear off.
The other issue for Louisiana-Pacific is that it's no longer a particularly intriguing investment from a value perspective -- its forward price-to-earnings ratio of 18.4 is 78% above its average forward-year multiple over the trailing-five-year period. All the necessary catalysts to encourage Buffett and his team to lock in gains are there.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Prediction: 2 Stocks Warren Buffett Is Selling That Wall Street Doesn't Know About was originally published by The Motley Fool