In this article, we discuss the adjustments of Warren Buffett’s Berkshire Hathaway hedge fund to the 13F portfolio and examine its 10 major stock choices. You can skip our detailed discussion of Oracle of Omaha’s investment strategy and returns and go directly to Warren Buffett’s top 5 stock options.
The world’s most renowned stock market investor, Warren Buffet, Berkshire Hathaway, made several changes to his 13F bond portfolio during the fourth quarter of 2020 to adjust his positions according to changing market trends.
The latest filings with the Securities and Exchange Commission revealed that Buffett’s Berkshire bond portfolio continues to reduce its stock financial positions. The company, which ended the fourth quarter of 2019 with a 45% stake in the financial sector, is no longer a shareholder in JPMorgan Chase (NYSE: JPM) and PNC (NYSE: PNC) in early 2021. Berkshire Hathaway also owns significantly reduced its stake in Wells Fargo (NYSE: WFC) and US Bancorp during the fourth quarter of 2020, but retained its positions in Bank of New York (NYSE: BK), Bank of America and American Express. The financial shares now represent 19% of Berkshire’s total $ 260 billion 13F portfolio, according to the fourth quarter files. In early 2020, Berkshire Hathaway sold its entire stake in airlines.
Warren Buffett of Berkshire Hathaway
On the other hand, Warren Buffett’s investment firm found buying opportunities in just a few stocks, including Chevron and Verizon Communications. We will discuss these two stock choices later in this article, because both are now on the top ten list in Buffett’s portfolio.
Warren Buffett’s hedge fund made several other major changes to its portfolio to overcome market trends in 2021. His company sold its entire stake in Pfizer (NYSE: PFE) and Barrick Gold (NYSE: GOLD). Meanwhile, the company has increased its 6 existing positions, including AbbVie (NYSE: ABBV), Bristol Myers Squibb (NYSE: BMY) and Merck (NYSE: MRK). The company bought these three pharmaceutical stocks during the third quarter of 2020.
It appears that Oracle of Omaha has been targeting its investments in the healthcare, consumer staples and information technology sectors. The health sector’s weight increased from 1.47% at the end of 2019 to 4.09% of the portfolio at the end of 2020. Information technology holds 48% of the overall portfolio, despite selling more than 6% of Apple’s share last quarter.
While Warren Buffett’s reputation remains intact, the same cannot be said of the hedge fund industry as a whole, as his reputation has been tarnished in the past decade, during which his covered returns failed to keep up with the market’s uncovered returns indexes. On the other hand, the Insider Monkey survey was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 78 percentage points since March 2017. Between March 2017 and February 5, 2021 , our stock choices returned 187.5% from the monthly newsletter, against 75.8% for SPY. Our stock choices outperformed the market by more than 111 percentage points (see the details here) We were also able to identify in advance a select group of hedge fund holdings with significantly less performance than the market. We have been monitoring and sharing the list of these actions since February 2017 and they lost 13% by November 16. That is why we believe that the sentiment of hedge funds is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s start reviewing Warren Buffett’s top 10 Berkshire Hathaway stock picks for 2021 to see if those stocks have the potential to deliver substantial returns and outpace market trends. The 10 largest holdings account for 85% of Buffett’s 13F portfolio.
10. DaVita Inc. (NYSE: DVA)
Healthcare provider DaVita Inc. (NYSE: DVA) is the tenth largest shareholding in Warren Buffett’s portfolio, according to the latest 13F documents. The company benefited from DaVita’s share price increase in 2020, but DVA’s shares have fallen 11% since the beginning of this year. The last sale is the result of lower than expected results for the December quarter. The company generated $ 2.91 billion in revenue in the fourth quarter, $ 20 million below the Wall Street consensus estimate.
Despite poor fourth quarter results, its 2020 earnings per share from continuing operations increased 38% to $ 6.39. In addition, the company expects gains from continuing operations of up to $ 8.75 per share in 2021.
9. Chevron Corporation (NYSE: CVX)
Warren Buffett created a huge position at Chevron Corporation (NYSE: CVX) during the fourth quarter to take advantage of the massive growth in oil prices. It seems that the stock selection strategy worked in the case of Chevron. That’s because the shares of the oil and gas giant rose more than 9.5% compared to the S&P 500’s growth of just over 4%. In addition, Chevron has the ability to offer increasing cash returns to shareholders. The company currently offers a dividend yield of 5.5%.
Diamond Hill Capital also stated in a letter to the investor that Chevron Corporation is an attractive choice for long-term investors. Here’s what Diamond Hill Capital said:
“The shares of the integrated oil and gas company Chevron Corp. decreased significantly during the quarter, as OPEC + was unable to reach an agreement, which allowed us to establish a position in this less risky and more diversified company, with a sufficient discount on our intrinsic value estimate. ”
8. US Bancorp (NYSE: USB)
US Bancorp (NYSE: USB) shares have rebounded strongly in the past two quarters, after a historic liquidation in early 2020. It is Warren Buffett’s eighth largest shareholding in Berkshire Hathaway, according to the latest reports. The company sold a small stake in US Bancorp during the fourth quarter.
USB shares have risen 4.4% so far in 2021, but have still fallen 11% in the past twelve months. On the positive side, Berkshire has collected huge dividends from USB over the years. Its dividend yield is currently around 3.4%. US Bancorp is among the few banks that generated positive earnings growth in the December quarter, thanks to strong growth in non-interest income. Its earnings per share of 95 cents in the fourth quarter increased from 90 cents in the same period last year.
7. Moody’s Corporation (NYSE: MCO)
Berkshire Hathaway made no changes to its stake in Moody’s Corporation (NYSE: MCO) during the fourth quarter. It represents the seventh largest shareholding in the Buffett securities portfolio. Moody’s share price underperformed in 2020 and extended the slow performance since the beginning of this year. The credit rating and valuation services company offers a dividend yield of just under 1%.
Moody’s December quarter revenue of $ 1.29 billion increased by about 5% and exceeded analysts’ consensus estimate by $ 70 million. In addition, its diluted earnings per share in fiscal 2020 increased 27% year-over-year to $ 9.39. The company predicts diluted EPS for fiscal year 2021 from $ 9.70 to $ 10.10, while adjusted diluted EPS is expected to be in the range of $ 10.30 to $ 10.70.
6. Verizon Communications (NYSE: VZ)
Warren Buffett created a large position at Verizon Communications (NYSE: VZ) during the fourth quarter, accounting for 3.19% of the overall portfolio. Verizon’s stock underperformed in the past twelve months and prolonged the downward trend since the beginning of this year. However, the company offers a dividend yield of 4.64%.
Mott Capital Management, an investment management company, continues to show confidence in Verizon Communications, despite its poor financial performance. Here’s what Mott Capital Management stated in a letter to investors.
“Verizon ended the year with a drop of around 4.3% and has been a strong company for the past 6 years. It has gone nowhere and it has been the only action with which I have difficulty. However, 5G has finally arrived. If 5G can deliver on the promise I think it can, then Verizon must finally come back. I remain hopeful. “
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Disclosure: None. The article Warren Buffett’s Top 10 Stock Options is originally published in Insider Monkey.