‘Defensive’ Berkshire halves Apple stake as it boosts cash to $277bn

New York — Warren Buffett appears to have soured on stocks, letting cash at Berkshire Hathaway soar to nearly $277bn and selling about half its stake in Apple, despite the conglomerate posting a record quarterly operating profit.

Berkshire’s results released on Saturday suggest the 93-year-old Buffett, one of the world’s most revered investors, is growing wary about the broader US economy, or stock market valuations that have become too high.

The results followed a stock market sell-off that pushed the Nasdaq into correction territory, and a weak jobs report that sparked worries about US economic activity and whether the Federal Reserve waited too long to cut interest rates.

“If you look at the entire Berkshire picture and the macroeconomic data, a safe conclusion is that Berkshire is getting defensive,” said Cathy Seifert, an analyst at CFRA Research who rates Berkshire a “buy”.

Berkshire’s cash stake grew to $276.9bn by June 30 from a then-record $189bn three months earlier, largely because Berkshire sold a net $75.5bn of stocks.

It sold about 390-million Apple shares in the second quarter, on top of 115-million sold from January to March, as the iPhone maker’s stock price rose 23%. Berkshire still owned about 400-million shares worth $84.2bn by June 30.

The second quarter was the seventh consecutive one in which Berkshire sold more stocks than it bought.

Berkshire also repurchased just $345m of its own stock, down from $2.57bn in the first quarter, and none in the first three weeks of July.

Profit rose

“Buffett doesn’t seem to think there are attractive opportunities in publicly traded stocks, including his own,” said Jim Shanahan, an Edward Jones analyst with a “hold” rating on Berkshire. “It makes me worry what he thinks about markets and the economy.”

Second-quarter profit from Berkshire’s dozens of businesses rose 15% to $11.6bn, or about $8,073 per class A share, from $10.04bn a year earlier.

Nearly half of that profit came from Berkshire’s insurance businesses including Geico car insurance, in which underwriting profit more than tripled as premiums rose and claims fell.

But revenue rose just 1% to $93.65bn, with little change in big businesses such as the BNSF railroad and Berkshire Hathaway Energy, and a 12% drop at the Pilot truck stop chain.

Consumers also showed signs of cutting back, causing revenue to decline at Berkshire’s more than 80 auto dealerships because they spent less per vehicle on new cars, trucks and SUVs.

Berkshire’s returns from short-term Treasuries should decline once rate cuts begin.

Shanahan said that and revenue headwinds “may make it tough for Berkshire to deliver earnings growth in 2025”.

The Omaha, Nebraska-based conglomerate also owns many industrial and manufacturing companies, a big real estate brokerage, Dairy Queen and Fruit of the Loom.

Quarterly net income fell 15% to $30.34bn from $35.91bn a year earlier, as rising stock prices in both periods boosted the value of Berkshire’s stock investments.

Fair prices

Buffett has long urged shareholders to ignore Berkshire’s quarterly investment gains and losses, which often lead to outsize net profits or net losses.

Berkshire pledges to keep a minimum $30bn of cash, but often lets it build up when it can’t find whole businesses or individual stocks to buy at fair prices.

Since mid-July, Berkshire has also sold more than $3.8bn of shares in Bank of America, its second-largest stock holding.

“We’d love to spend it, but we won’t spend it unless we think we’re doing something that has very little risk and can make us a lot of money,” Buffett said at Berkshire’s May 4 annual meeting, referring to Berkshire’s cash.

Buffett said he expected Apple to remain Berkshire’s largest stock investment, but selling made sense because the 21% federal tax rate on the gains is likely to grow.

The sales came only two years after Buffett labelled Apple one of Berkshire’s “four giants” with its insurance businesses, BNSF and Berkshire Hathaway Energy.

Berkshire and Apple did not immediately respond to requests for comment on Saturday.

Profit at BNSF fell 3% as the railroad set aside more money for lawsuits, offsetting lower operating costs and greater shipping of consumer and agricultural products.

Lawsuits against the PacifiCorp utility unit also weighed on Berkshire Hathaway Energy, where profit fell 17%.

Many homeowners and businesses blame PacifiCorp for causing Oregon wildfires in 2020. The utility set aside $2.7bn for wildfire losses by June 30, up from $2.4bn three months earlier, and said losses could grow significantly.

Berkshire’s class A shares closed Friday at $641,435. They are up 18% this year, while the Standard & Poor’s 500 is up 12%.

Buffett has led Berkshire since 1965. Vice-chair Greg Abel, 62, is expected to succeed him as CEO.

Reuters