Warren Buffett Signals Big Shift In Investing Stance As Berkshire Reports

Legendary investor Warren Buffett seems to think one of the best deals on the stock market is Berkshire Hathaway (BRKB) shares as second-quarter results Saturday showed record buybacks.

Berkshire Hathaway Stock Buybacks

Repurchases totaled $5.1 billion in Q2, nearly double the prior record of $2.2 billion in Q4 2019 and a reversal from slower stock repurchases of $1.7 billion in Q1.

In May, Buffett argued repurchases weren't more attractive than other money moves, saying the stock price had not fallen to "where it really feels way better to us than other things, including the option value of money, to step up in a big, big way."

That apparently has changed, and the buybacks of Berkshire Hathaway stock contrast with the $13 billion in stock sales Buffett made, the most in more than a decade, as he cashed out all his airline stocks.

With the surge stock sales, Berkshire's cash pile climbed to a fresh record high of $146.6 billion, up from $137 billion in Q1.

Prior to the Q2 report, Buffett had shown signs he is willing to put more of that to use. In early July, the company agreed to acquire natural gas transmission and storage assets from Dominion Energy (DE) for $10 billion.

And over the past few weeks, Berkshire Hathaway steadily nibbled at Bank of America (BAC), buying more than $2 billion worth of stock. By number of shares BofA is Buffett's largest position, but Apple (AAPL) remains No. 1 by value and accounts for a whopping 46% of Buffett's stock portfolio.

Still, Berkshire has yet to make a megadeal during the coronavirus crash, and its last big buy was for $37 billion Precision Castparts in 2016.

With Berkshire staying cautious on M&A in recent years, investors have been clamoring for more repurchases, especially since 2018. That's when Berkshire loosened its buyback policy to allow Buffett and his right-hand man, Vice Chair Charlie Munger, to repurchase stock when they thought its price was below intrinsic value.

Warren Buffett Stocks, Earnings

Meanwhile, Berkshire Hathaway earnings were a mixed bag as its diverse array of businesses — from railroad BNSF to insurer Geico — suffered varied impacts from the coronavirus.

Operating income fell 10% to $5.51 billion, and Berkshire booked a $10 billion charge on Precision Castparts, which is exposed to the aviation sector.

"We believe the effects of the pandemic on commercial airlines and aircraft manufacturers continues to be particularly severe," Berkshire said. "In our judgment, the timing and extent of the recovery in the commercial airline and aerospace industries may be dependent on the development and wide-scale distribution of medicines or vaccines that effectively treat the virus."

But earnings from the vaunted stock portfolio totaled $34.5 billion as holdings like Apple and Amazon (AMZN) have been on epic runs lately, even as bank stocks like Wells Fargo (WFC) and JPMorgan Chase (JPM) were relative laggards.

The net result was an 86.5% surge in overall earnings to $26.3 billion.

Meanwhile, Berkshire Hathaway own stock has been on a run lately, rallying about 20% since late June. Class B shares gained 0.8% to 211.18 in premarket trading on the stock market today. They remain in buy range after clearing a 203.43 buy point earlier in the week, according to MarketSmith chart analysis. The chase zone extends to 213.60.

But the stock may not be in buy range for long, especially after the buybacks. Analysts say share repurchases could provide support for a Berkshire stock rally, since investors will assume that Buffett and Munger considered the stock undervalued if buybacks picked up.

"Berkshire's shares continue to look inexpensive, and further elevated share buyback should drive upward re-rating with its shares," UBS analyst Brian Meredith wrote on July 28.

Reprinted from yahoofinance, the copyright all reserved by the original author.

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