Buffett’s Berkshire Gets More Cautious on Stocks and Buybacks 

Article content

(Bloomberg) — Warren Buffett’s capital-deployment machine pulled back on several fronts at the start of the year as the billionaire took a more cautious stance on stocks.

Berkshire Hathaway Inc.’s net stock sales in the first quarter were the second-highest in almost five years and the conglomerate, where the billionaire is chief executive officer, slowed its buyback pace, according to a regulatory filing Saturday. That helped push Berkshire’s cash pile up 5.2% from three months earlier to a near-record $145.4 billion at the end of March.

Buffett has struggled in recent years to keep up with Berkshire’s ever-gushing cash flow. That’s led him to repurchase significant amounts of Berkshire stock, pulling a lever for capital deployment that he had previously avoided in favor of big acquisitions or stock purchases. He set a record in the third quarter of last year, snapping up $9 billion of stocks, but slowed that pace during the first quarter with repurchases of $6.6 billion.

“If Buffett does not perceive there to be acquisitions available at fair prices and it’s evident, as a net seller of stocks, that he doesn’t see a lot of opportunities in the open market to buy publicly traded stocks, are we looking at cash growing to $175 billion over the course of the next year or so? Because that appears to be where we’re heading,” Jim Shanahan, an analyst at Edward D. Jones & Co., said in an interview. “If buybacks are going to decelerate, then what levers are left to pull?”

Article content

Berkshire repurchased more stock in January and February than the company did in March, when the stock climbed nearly 5.8%, according to the filing. Buffett’s long been disciplined on the price of buybacks, noting in 2018 when the company loosened its repurchase policy that he and his longtime business partner and Berkshire Vice Chairman Charlie Munger can repurchase shares when they’re below Berkshire’s intrinsic value.

Berkshire has come up short on well-priced and sizable acquisitions in recent years, one of Buffett’s more preferred ways to put cash to work. He struck a deal last year for some natural gas assets from Dominion Energy Inc. and invested in some Japanese trading companies. But he’s long been sensitive to prices, not wanting to overpay for an asset, according to Shanahan, and the competitive landscape for deals has intensified with the boom in private equity and special purpose acquisition companies.

Still, Berkshire’s businesses pulled off a strong quarter, with earnings reaching the second-highest level in data going back to 2010. Operating profit of about $7.02 billion was only surpassed by the third quarter of 2019. The gains were partly fueled by the firm’s insurers and its group of manufacturers, servicing businesses and retailers.

Net earnings, which reflect Berkshire’s $282 billion equity portfolio, swung to a profit of $11.7 billion in the quarter, compared to a loss of $49.7 billion a year earlier, when the pandemic started to race across the U.S. and stocks slumped.

Article content

Despite buybacks that fell short of Buffett’s quarterly record, the billionaire investor has continued to go after Berkshire’s own stock since the end of March, with at least $1.25 billion of repurchases through April 22, according to the filing. And given that Berkshire has no set amount allocated for buyback plans, sizable repurchases are still a nice bit of capital deployment, according to CFRA Research analyst Cathy Seifert.

“The fact that Berkshire allocated over $6 billion to buybacks this quarter is going to be positively received by investors,” Seifert said.

What Bloomberg Intelligence Says

“The $6.6 billion 1Q buyback was an expected drop from 4Q, but still significant. Nearly all segments showed accelerated revenue and earnings.”

–Matthew Palazola, senior industry analyst

Berkshire Class A shares climbed almost 11% in the first quarter, outpacing the 5.8% gain in the S&P 500 during the same time.

Buffett, 90, will join Munger, 97, for Berkshire’s annual meeting Saturday. The pair will field questions from investors for hours during the virtual event.

Follow the TopLive blog when the meeting starts here.

©2021 Bloomberg L.P.

Bloomberg.com