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Veteran investor Eric Schleien explains why Warren Buffett’s Berkshire Hathaway invested in Verizon and Chevron, sold Pfizer, and slashed its Apple, JPMorgan, and Wells Fargo stakes


Warren Buffett

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Warren Buffett’s Berkshire Hathaway plowed billions into Verizon and Chevron, exited its brief Pfizer bet, and cut its stakes in Apple, JPMorgan, and Wells Fargo last quarter.

Eric Schleien, the founder and CEO of Granite State Capital Management and host of “The Intelligent Investing Podcast,” outlined the likely reasons for those moves in an interview with Insider.

Schleien has been studying Buffett since high school, when he wrote a letter to the billionaire investor and received one back inviting him to Berkshire’s annual shareholder meeting and promising him a good time.

The value investor and podcast host has owned Berkshire shares since the age of 18, and has attended every annual meeting since 2006 (excluding the virtual gathering last year of course).

Here’s what Schleien told us about Berkshire’s latest bets:

Verizon’s yield of more than 4%, modest valuation, and leading role in expanding next-generation wireless internet across the US probably appealed to Buffett, Schleien said.

“You get a dividend yield higher than a government bond,” he said. “The company has consistently high returns on equity and you’re getting it for 10 times earnings. There’s also upside for the 5G rollout.”

Meanwhile, Buffett and his team probably saw Chevron as a safe place to park some of Berkshire’s vast cash reserves, and increase their exposure to a potential recovery in oil prices.

“It’s a well-managed, big oil company that will obviously do well if oil bounces back,” Schleien said. “May just be an alternative for cash the way he saw buying ExxonMobil.”

Berkshire also boosted its stakes in three pharmaceutical companies last quarter, but sold its Pfizer position despite only establishing it in the preceding quarter. The company may have decided the drugmaker was no longer a bargain after its stock jumped by more than 20% last quarter, Schleien said.

As for JPMorgan and Wells Fargo, Berkshire likely slashed its stakes in the two banks once again because it wants to narrow its focus on Bank of America, Schleien said. After all, Berkshire snapped up more than $2 billion of Bank of America stock in the third quarter of 2020.

“He wants to be concentrated in the bank he likes the most, which it seems is Bank of America,” Schleien said. “There may also be more upside to normalized returns on equity than over JPMorgan. He may also not have confidence in the Wells Fargo management, or that they will ever be able to fix the culture issues at the bank.”

Schleien also dismissed the idea that Buffett trimmed his Apple stake because it had become too large a proportion of Berkshire’s stock portfolio at north of 45%.

“Buffett has no problem being extremely concentrated,” he said. “It may be a valuation thing and that’s it.”

Finally, Schleien highlighted one thing he’s hoping to see in Buffett’s annual shareholder letter, which is slated for release on Saturday. He wants the billionaire to expound on his thinking when it comes to repurchasing Berkshire shares, or buying other stocks.

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Source:: Business Insider

      

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