Are you ready? Hedge funds have now revealed their Q4 transactions. Thanks to 13F forms filed with the SEC we now know which stocks hedge funds are buying and selling. Such transactions provide a valuable glimpse into the latest ‘Smart Money’ flows.
One fund manager in particular stands out from the crowd. Billionaire Warren Buffett– otherwise known as the Oracle of Omaha- is the chairman and CEO of the massive Berkshire Hathaway fund. The fund’s last reported 13F filing for Q4 2018 includes $183,066,067,000 in managed 13F securities.
Berkshire’s trades always generate intense speculation, and this quarter is no different. Bear in mind the fund only reports transactions 45 days after the end of the last quarter, so it is possible that shares have been bought or sold since the last filing date.
Now without further ado, let’s turn to TipRanks to discover five of the most unexpected moves Warren Buffet made in Q4:
1. Not buying the dip
Even though Q4 was chockablock with cheaply priced stocks, the hedge fund guru demonstrated remarkable restraint. For the quarter, the S&P 500 and Dow plunged 13.97 and 11.8 percent, respectively, their worst performances since 2011.
However, Q4 Berkshire’s stock buys exceeded sells by under $1 billion. That’s despite a $100 billion cash position. This is very interesting given Buffett’s well-known approach to buying at value- and some may say it speaks volumes about how he perceives the market right now.
2. Selling Apple
This leads on to point number 2. Berkshire shaved its Apple (AAPL– Research Report) holding by around 1% in Q4- when the stock fell by over 30%. Interesting given that Buffett could easily have taken the opportunity to add to his no 1 stock holding.
On the other hand, it’s highly likely that he saw his current $39.37 billion investment as sufficient. As for the sale, it’s not as bearish as it first appears, at least as far as Warren Buffett is concerned.
Following the 13F filing Buffett’s assistant Debbie Bosanek told Reuters “One of the managers other than Warren had a position in Apple and sold part of it in order to make an unrelated purchase.” She also clarified that “none of the shares under Warren’s direction have ever been sold.”
Nonetheless the outlook from the Street isn’t exactly encouraging for AAPL right now. Even though AAPL’s consensus is Moderate Buy its upside comes in at just 4%. For now, Services growth is unlikely to offset iPhone unit declines, which should persist through 2019, writes Jefferies analyst Timothy O’Shea (Track Record & Ratings). He has a Hold rating on AAPL with a $160 price target (6% downside potential).
3. Quitting Oracle
If there was one stock that came off badly from Berkshire’s Q4 transactions – it was Oracle (ORCL– Research Report). Back in late 2018, Buffett invested about $2.1 billion in the software stock. Given the fund’s preference for long-term holdings, what could be behind this abrupt shift in sentiment? No doubt Buffett didn’t want to be stuck with another IBM (IBM– Research Report)- a flailing tech stock he sold off after 7 bumpy years.
Interestingly, two top analysts also downgraded ORCL recently. Morgan Stanley’s Keith Weiss (Track Record & Ratings) downgraded Oracle from Buy to Hold last month. According to Weiss, he does not see the catalysts needed to drive the stock higher this year. Indeed his $53 price target indicates only 2% upside from current levels.
Similarly Barclay’s Raimo Lenschow (Track Record & Ratings) explained his downgrade thus: “We have seen several false starts as investors thought ORCL could be the next MSFT [Microsoft Corp]… A closer look shows that we are not there yet, and hence we feel Oracle will likely continue to be range-bound.”
4. Swapping Airlines For Bank Stocks
While Buffett pulled back on airline stocks Southwest (LUV– Research Report) and United Continental (UAL– Research Report), he boosted multiple financial stocks. We are talking about:
Bank of America (BAC– Research Report)– increased holding 2.16% to $22.08 billion (the 2nd biggest stock in the portfolio).
Shares have already surged over 18% for BAC year-to-date after the company reported another excellent quarter. BAC is now looking at 16 consecutive quarters of positive operating leverage… with more to come.
“Big banks are still distrusted by the market, and on a price-to-tangible book value (TBV) basis, BAC trades at a 30% discount to the average regional bank, even though 80% of its revenue base is relatively stable and predictable” comments Oppenheimer’s Chris Kotowski (Track Record & Ratings) . He reiterated his buy rating on January 16 with a $34 price target.
US Bancorp (USB– Research Report)– increased holding 3.5% to $5.91 billion
JP Morgan Chase (JPM– Research Report)– increased holding 40% to $4.89 billion (the largest percentage add in the quarter).
Gerard Cassidy (Track Record & Ratings) of RBC Capital is one of the top 10 analysts ranked by TipRanks. He has a buy rating on JPM with a $120 price target. On January 15 he wrote: “JPM’s balance sheet is stronger today than in the financial crisis and best-in-class, in our view, given the sizable level of capital and best-in-class underwriting standards” That’s with a ‘best-in-class’ management team. What’s more, JPM has a well-diversified business mix that allows it to remain profitable through the cycle.
BNY Mellon (BK– Research Report)– increased holding 4% to $3.81 billion
PNC Financial (PNC– Research Report)– increased holding 36% to $966.03 million
However, Buffett reduced Wells Fargo (WFC– Research Report) by 3.52% to $22.08 billion (still the 3rd biggest stock in the portfolio). The bank remains under an asset cap imposed by the Federal Reserve, which is now expected to last through the end of 2019. The $1.95 trillion cap was imposed after the fake accounts scandal erupted in 2016.
The bank remains under an asset cap imposed by the Federal Reserve, which is now expected to last through the end of 2019. The $1.95 trillion cap was imposed after the fake accounts scandal erupted in 2016.
5. Boosting GM and Initiating RedHat
A further examination of Buffett’s bullish moves reveals two interesting transactions. First a substantial 37% increase of the fund’s General Motors (GM– Research Report) stake. With the addition of close to 20 million GM shares, Berkshire now has a $2.42 billion GM holding.
No doubt the Street would applaud such a move. As the TipRanks screenshot below shows, this is a stock with a unanimous ‘Strong Buy’ top analyst consensus with 33% upside to boot.
Following the company’s Q4 results, RBC’s Joseph Spak (Track Record & Ratings) tweaked his price target higher from $50 to $52. “The details of the quarter – which were strong – should lead investors to have more confidence in 2019 EPS” he wrote. The analyst continues to view GM’s transformation as underappreciated, adding that recent restructuring significantly improves GM’s positioning.
Buffett only initiated a couple of new positions in the quarter. As well as Canadian energy company Suncor (SU– Research Report), Buffett snapped up RedHat (RHT– Research Report), a major distributor of open-source software and technology. With 4.2 million shares, the position is worth around $730 million.
Now this deserves close attention because IBM is in the process of buying Red Hat in a blockbuster $34 billion deal. The deal- expected to close in the second half of this year- translates to roughly $190 per Red Hat share. This is a significant step up from the estimated price paid by Buffett per share of $175.
“Given the broader portfolio that Red Hat enjoys relative to 2.5 years ago when it shifted from a focus on single-year deals to multi-year deals, we believe Red Hat is well positioned for the next cycle and this should benefit IBM” writes Monness analyst Brian White (Track Record & Ratings).
Enjoy the Research Report on the Stocks in this Article:
Apple Inc (AAPL) Research Report
Bank of America (BAC) Research Report
General Motors (GM) Research Report
JP Morgan Chase (JPM) Research Report
Red Hat Inc (RHT) Research Report
Oracle Corp (ORCL) Research Report
Here we looked at the latest transactions from just one hedge fund. But TipRanks covers hundreds of hedge fund managers. The result: you can use the stock screener to find stocks with positive hedge fund sentiment, and which boast a ‘Strong Buy’ rating from the Street. Go to the Screener now.
