Is Buffett Turning Bearish? 7 Stocks Warren Completely Dumped in Q3
Warren Buffett wrote an op-ed for The New York Times during the financial markets collapse in 2008 titled, “Buy American. I Am.” At the time, the housing market was in free fall, Lehman Brothers had just imploded, and the stock market tumbled 20% on its way to losing more than half its value before hitting bottom. Buffett’s column was a clarion call to be bullish about the future.
Buying stocks is an outward expression of optimism. You’re buying something today, believing it will grow into something more wonderful later on. It’s very much like the old saying, “A society grows great when old men plant trees under whose shade they know they’ll never sit.” Of course, in investing, we hope to enjoy the fruit of our labor one day. Buffett knows this like no one else.
Yet, as optimistic as Buffett is, sometimes he can turn bearish. He may be in such a mood today. Even though he bought several new stocks for Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) in the third quarter, like Atlanta Braves Holdings (NASDAQ:BATRK) and Sirius XM Holdings (NASDAQ:SIRI), Buffett was a net seller of stocks.
In fact, this is the fourth consecutive quarter where Buffett sold billions of dollars more stock than he bought. In doing so, Berkshire Hathaway amassed a record $157 billion cash position. It suggests he’s keeping a lot of powder dry for a day when stocks crash, and he can swoop in to buy them up. What follows are the seven Warren Buffett stocks he completely sold off in the third quarter.
General Motors (GM)
Buffett bought General Motors (NYSE:GM) over a decade ago amid a recovering U.S. economy and auto industry. The carmaker had numerous joint ventures underway in China, which had become its largest market. But Buffett was souring on GM in recent periods. In the second quarter, he slashed his holdings in the carmaker by 45%, and in the third quarter, he finally got rid of the remaining 22 million shares Berkshire Hathaway held.
It could be Buffett didn’t like the additional costs GM would be saddled with due to the contract settled with the United Auto Workers union. The UAW sprung a new strategy this year by striking against all the automakers simultaneously. The industry ground to a halt. It is a tactic other unions may adopt going forward, but it will significantly impair GM’s profitability. Labor costs will grow by $9.3 billion over the contract term that expires in April 2028 while inflating the cost of a new car by $575 each. Buffett simply no longer saw GM as an attractive investment.
Celanese (CE)
Buffett also soured early on global chemicals specialist Celanese (NYSE:CE). He established the position in the first quarter of 2022 and then built it up over the year. He began shedding shares in this year’s first quarter. It’s a move that goes against the Oracle of Omaha’s typical buy-and-hold philosophy.
Certainly, Celanese looked to be a traditional Buffett stock. It’s a leader in its space and doesn’t have many competitors. It is profitable, produces substantial free cash flow, and pays a dividend yielding 2% annually. It’s not a growth company, however, and since the beginning of 2022, the chemicals stock has lost 16% of its value. It was trading at a discount when Buffett bought it, and it’s more so now, though shares are up 25% over the past month.
One of Buffett’s two investing lieutenants, Todd Combs and Ted Weschler, may have bought this stock. Although Buffett previously said any stock purchases over $1 billion would be his (the original CE purchase was for $1.1 billion), he has relinquished more control since then. The trade managers may have tired of the time a turnaround was taking.
Activision Blizzard (ATVI)
Buffett bought video game maker Activision Blizzard (NASDAQ:ATVI) as an arbitrage play. Microsoft (NASDAQ:MSFT) was solidifying its position in the gaming market with the acquisition of Activision. Buffett held a small stake in the gamer but bumped it up to almost 10% after announcing the deal.
As the merger negotiations with regulators dragged on, Buffett started selling. In the second quarter, he dumped almost all of the shares he had bought for the arbitrage. Perhaps he believed the deal wouldn’t pass muster with U.K. and European regulators. But Microsoft surprised the market by agreeing to sell all the online streaming rights for all of Activision’s existing PC and console games released over the next 15 years to the U.K.’s Ubisoft Entertainment (OTCMKTS:UBSFY). The deal made it over the regulatory hurdles and was completed in mid-October. Buffett finally closed out his position.
Mondelez International (MDLZ)
There was a time some 15 years ago when snacks giant Mondelez International (NYSE:MDLZ) was one of the most significant positions in Berkshire Hathaway. Buffett owned 132 million shares, representing a better than 9% stake in the portfolio. Mondelez, however, was known as Kraft Foods at the time. Buffett was betting on activist investor Nelson Peltz, forcing the company to spin off its businesses to buy back stock.
Mondelez and Kraft were subsequently separated, and Buffett helped private equity firm 3G Capital engineer a merger between Kraft and H.J. Heinz to form today’s Kraft Heinz (NYSE:KHC). Berkshire still has a substantial 325 million-share position in the company.
However, the Mondelez position languished. By 2013, Buffett had whittled the stake down to just 578,000 shares, and that’s where it stayed for the next decade. Ironically, the snacks company has outperformed the packaged food business. Since the spinoff in 2012, Mondelez has a total return of 215% compared to a 12% return by Kraft.
United Parcel Service (UPS)
Package delivery leader United Parcel Service (NYSE:UPS) is another long-standing stock Buffett got rid of, albeit another small one. He owned only 59,400 shares worth $10 million. That made it the smallest holding in Berkshire Hathaway. It was never a large position, though. At its peak, there were about 1.4 million shares.
It means that whether Buffett continued to hold onto the stock or sell it off, it was an inconsequential stake. Tidying up the portfolio to put money aside for bigger and better purchases may have been the motivating factor here. The position wouldn’t have an impact even if it rocketed higher, and if Buffett is feeling bearish about the economy, the delivery company would feel the effects more.
Interestingly, it’s another stock that that’s has taken off over the past month. It’s up 10% compared to a 6% gain by the S&P 500.
Procter & Gamble (PG)
After refusing to sell for over two decades, Procter & Gamble (NYSE:PG) is the third small position Buffett finally decided to shed. Like his ownership of Mondelez, how Buffett came to own the consumer products company is a bit convoluted.
He acquired it by owning shares of Gillette’s razor company. It was eventually bought out by P&G, giving Buffett shares in the new business. He went on to buy more Procter & Gamble shares on his own but nearly sold them all off during the financial markets crisis to help bail out Goldman Sachs (NYSE:GS) and others.
The small stake he just got rid of (315,000 shares) is the remnants of that deal. The position was worth about $48 million, a small change in a $363 billion portfolio. It’s worth noting that as small as the position is, it was still bigger than some he just bought. The Atlanta Braves holding, for example, is worth just $8 million.
Johnson & Johnson (JNJ)
Last on the cleaning house list, but certainly not least, is healthcare titan Johnson & Johnson (NYSE:JNJ). Buffett shed all 327,100 shares, which were worth about $57 million. The fact that he held the stock almost as long as he owned Procter & Gamble probably also made it time for it to go.
The company is facing substantial legal liability from the lawsuits launched against its baby powder. It purportedly carries elevated cancer risk despite long-standing claims by the Food & Drug Administration that such formulations are perfectly safe. But why hold onto a potential headache that can drag on for years when better opportunities exist?
Well, one could have been Johnson & Johnson’s dividend. The blue-chip stock has been in business for 130 years and is a Dividend King, having raised its payout for over 60 years. It yields 2.9% annually. The healthcare stock is another one that got a lift after Buffett sold out, as its stock is up 6.5% over the past month.
On the date of publication, Rich Duprey held a LONG position in JNJ and PG stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
