(Bloomberg) – Warren Buffett bets on bright prospects for his Berkshire Hathaway Inc.
Berkshire spent a record $ 5.1 billion buying its own stock in the second quarter, and may have kept that higher pace in July. The billionaire investor tried to take advantage of a larger discount on the S&P 500 within a quarter of an hour when the conglomerate’s executives held up better than expected.
Buffett said in early May that he had kept cash high to be prepared for any direction the pandemic might turn and was not too attracted to purchases. But when he looked for undervalued assets to spend billions, he swore by the shares of his own company.
“Even though we do not know how long it will last and how much it will permanently affect people’s behavior, we think Berkshire Hathaway is in a really good position to survive,” said Bill Smead, chief investor at Smead Capital Management, which supervision holds at $ 1.5 billion including Berkshire shares.
Edward Jones analyst Jim Shanahan estimated that Berkshire repurchased about $ 2.4 billion more of its inventory in July.
The 10% drop in operating profit was not nearly as sharp as the 27% decline expected by analysts at Keefe, Bruyette & Woods, and the results were better than a Shanahan forecast. Earnings generated by Berkshire’s companies totaled $ 5 billion for the ninth time in the last 10 quarters.
Buffett stepped into his firm’s share as A shares fell 1.7% and Class B shares fell 2.4% in the second quarter. He was not as bullish on broader stocks as the S&P 500 rode 20%. Berkshire had its largest net sale of shares in more than a decade.
Along with the acquisitions signal purchases from Bank of America Corp. in recent weeks, as well as a July deal for natural gas assets that Buffett is no longer waiting on the sidelines. He grabs his spots: Bank of America is a long-time Berkshire investment and Buffett’s company is very active in the energy sector.
“All of these are real things that he’s comfortable with,” said Paul Lountzis, who oversees investments, including Berkshire shares as president of Lountzis Asset Management. ‘I do not think he is leaving his comfort zone. He still tries to be very careful and very conservative. ”
And with a record $ 146.6 billion on hand at the end of June, Berkshire said the company could warm up to the effects of the pandemic.
“Our operating business groups are preparing for reduced cash flows from declining revenues and economic activity as a result of Covid-19,” Berkshire said in a regulatory submission Saturday. “We currently believe our liquidity and capital strength, which is extremely strong, to be more than adequate.”
Here are some other takeaways from Berkshire’s earnings in the second quarter:
Sell shares
Berkshire sold nearly $ 13 billion in shares, on a net basis, in the quarter. That included Buffett’s decision to dump airline strikes, which was announced at its annual general meeting in May. Another chunk of the relegation seems to come from Berkshire’s bet on financials. Berkshire and other investment firms are expected to announce their 14F holdings by 14 August.
Aerospace Woes
Berkshire continued to feel the pain of the airline industry’s environment, even after dumping its shares in four of the major US airlines. Buffett’s company paid $ 10 billion in damages to its Precision Castparts company in the second quarter, warning it could take a fax to get that market back to more normal levels.
Profit drop
Operating profit fell by 10%, hit by lower earnings from the BNSF railway and from Berkshire’s collection of factories, services and retail businesses.
The pandemic weighed on units ranging from Precision Castparts to the shoe and clothing companies. Berkshire warned that the effects on most operations were “relatively small to severe” and warned that it is difficult to predict when the environment will normalize or how this consumer behavior will change in the future.
BNSF reported reduced revenues on the variety of goods it carries on its rails, including agricultural products, consumer coins, industrial cargo and coal, but the company was able to get more cost savings in a quarter.
Stock swings
Net income grew nearly 87% in the second quarter, driven by fluctuations in Berkshire’s $ 207 billion portfolio. Unrealized gains on shares held for a profit of $ 34.5 billion.
Berkshire’s Apple Inc. stake, its largest common stock law, ended the quarter at $ 91.5 billion, meaning it accounted for about 44% of the company’s equity portfolio.
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