Where the U.S. Economy Is Heading According to Buffett
Economics / US Economy Mar 30, 2015 - 05:20 PM GMTBy: Investment_U
Marc Lichtenfeld writes: Many investors like to follow the “smart money.” And it doesn’t get much smarter than Warren Buffett. So it’s worth examining what stocks Buffett is buying and selling, not just for individual names, but to gauge his overall comfort with the market.
In the quarter ending in December, Buffett’s Berkshire Hathaway (NYSE: BRK) sold all of its shares in Exxon Mobil (NYSE: XOM) and ConocoPhillips (NYSE: COP). It also reduced its holdings in National Oilwell Varco (NYSE: NOV) by about 18%. A lot of Buffett watchers have interpreted his reduced holdings in energy as bad news for the industry.
Buffett also sold his entire position (less than half a million shares) in Express Scripts (Nasdaq: ESRX). Sign of a coming collapse in healthcare? I doubt it.
What hasn’t been widely reported - probably because it doesn’t support the popular doom and gloom mentality - is that the Oracle of Omaha is loading up on stocks that suggest an economic resurgence in America.
In the fourth quarter, Buffett bought 17 million shares of Deere & Co. (NYSE: DE). He also picked up 8.4 million shares of Burger King/Tim Horton parent company Restaurant Brands (NYSE: QSR) and nearly 5 million Class A shares of Twenty-First Century Fox (Nasdaq: FOXA).
He added meaningfully to his holdings in Charter Communications (Nasdaq: CHTR), MasterCard (NYSE: MA), TV station operator Media General (NYSE: MEG), Precision Castparts (NYSE: PCP), Suncor Energy (NYSE: SU), Viacom (NYSE: VIA.B) and Visa (NYSE: V).
In total, Buffett purchased 4.6 million shares of stock in the fourth quarter. Not exactly a gloomy scenario.
Let’s take a closer look at what he added and subtracted and what it may say about the economy.
As noted earlier, Berkshire Hathaway reduced its holdings in the energy sector, selling a combined 41.5 million shares of Exxon Mobil and ConocoPhillips. More than 41 million of those shares were in Exxon.
Buffett sold an additional 11 million shares of Conoco at the beginning of this year. And he sold over 1 million shares of National Oilwell Varco, leaving him with 5.2 million shares.
But he hasn’t abandoned the oil industry completely. He bought close to 4 million shares of Canadian oil sands company Suncor Energy - upping his total to over 22 million shares. And he added another 6% to his holdings in Phillips 66 (NYSE: PSX), which now totals more than 6.5 million shares.
What’s most interesting to me is what nobody is talking about.
Buffett often states that he’s bullish on America, but right now he’s letting his money do the talking. He’s added to positions in several media companies, which are indirect beneficiaries of consumer spending. When consumers have more cash on hand, the businesses they frequent will advertise more, which helps media companies.
Additionally, Buffett bought stock in a fast-food chain, an industrial parts company, agriculture equipment and two credit card companies that directly benefit from consumer spending.
And he maintained his large positions in American Express (NYSE: AXP), Coca-Cola (NYSE: KO), Davita Healthcare Partners (NYSE: DVA), General Motors (NYSE: GM) International Business Machines (NYSE: IBM), Procter & Gamble (NYSE: PG), U.S. Bancorp. (NYSE: USB), Wal-Mart (NYSE: WMT) and Wells Fargo (NYSE: WFC).
So it looks like Warren Buffett isn’t exactly ducking for cover. In fact, it appears he expects consumers and businesses to spend. He has large positions in the three major credit card companies, which would be foolish if he thought the economy was headed toward recession.
Fast food... consumer products... autos... banks... these are all businesses that should do well during periods of economic growth.
Now, the permabears conveniently leave this last part out. They prefer pointing only to the sales of oil companies.
Buffett is widely regarded as one of the greatest investors that ever lived. So why would you instead listen to someone who always cries that the sky is falling?
In his 2014 annual letter to shareholders, Buffett wrote that he has always “considered a ‘bet’ on ever-rising U.S. prosperity to be very close to a sure thing.” He added, “Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to emigrate.”
Warren Buffett expects to make money on a growing economy. How about you?
Good investing,
Marc
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