Warren Buffett's Berkshire (BRK.A, BRK.B) continues to sell stock, though the stocks he is selling are listed under the ‘other’ investments in his letters to shareholders. Buffett only details the holdings over $1 billion, all else being lumped together under this ambiguous heading. However, the value of these ‘other’ holdings has fallen from nearly $9 billion to around $5.5 billion, indicating a sizeable shaving of the portfolio. Buffett holds his positions within his investment company, Berkshire Hathaway (NYSE:BRK.A). The following are six stocks which Buffett has sold part or all of his position in recently:
Becton, Dickinson and Company (BDX): During the fourth quarter of 2010, Buffett sold out his remaining stake of 1,889,889 shares in the New Jersey-based medical technology company. At today’s share price of $87.16 (down 2.03% on the day of writing), the company is valued at $19.07 billion. The share price has retreated a bit from near its 52 week high of $89.75, and compares with analysts median 12 month target for the shares of $89.17. EPS is expected to dip slightly this year from $5.7 to $5.63, before recovering through 2012 to $6.22 on revenues seen rising from $7.78 billion to $8.24. The company's numbers stack up reasonably when compared to its competitors. Its operating margin, at 22.62% is in line with its main competitors, such as Baxter International Inc's (BAX) 23.42% and Abbott Laboratories (ABT) number of 19.24%, though Becton, Dickinson and Company's earnings per share are greater at $5.70 versus $3.67 and $3.28 respectively. Perhaps the main difference, financially, between the companies in this sector is the year on year growth. Here Becton, Dickinson, and Company disappoints. With quarterly growth showing just 6.8% year on year as against an industry average of 12.50%, there are clearly better buys in the market going forward.
Moody’s Corporation (MCO): The company provides credit ratings and research, with ratings on over 12,000 corporate instruments and 25,000 public issuers including U.S. debt. Moody's has a market capitalization of $8.47 billion, and its shares, at $37.17, are near the low of its tight trading range for the last 52 weeks of $36.79 to $41.93. With EPS of $2.35 last year, and a dividend yield of 1.5%, analysts see steady growth in the company’s fortunes, pencilling in EPS rising over the next 24 months to $2.60. Buffett has been reducing his stake in Moody’s since the second quarter of 2009, and made a further reduction in Q4 2010 when he sold 458,506 shares to cut his remaining stake to 28,415,250 shares. Moody's is a steady business in a sector which is unexciting. Its main competitor, Dun and Bradstreet Inc (DNB) has similar growth prospects and is rated equally for them. For funds who are seeking to outperform the market, Moody's is not a stock that is likely to produce the necessary share price growth in the medium to long term. There are other stocks which offer better growth prospects, and for this reason we expect Buffett to continue to cut his holding in Moody's.
Republic Services Inc (RSG): This stake was bought in the third quarter of 2009, and Buffett sold out a year later, when he sold 10,827,700 shares valued at approximately $322 million. The company provides services in waste collection and disposal services in the U.S. Its shares are trading at the bottom of their 52 week range of $30.25 to $33.10. At $30.27, shares are down 2.37% on the day of writing. Trading on a PE ratio of 19.42, its EPS of $1.56 allowed the company to pay a dividend of $0.80 last year. The EPS figure is expected to increase at a pace over the next two years as ecological concerns work in the company’s favor. By fiscal end 2012, EPS are expected to hit $2.15, on revenues of around $8.65 billion. Republic should do well as it continues to compete with Waste Management (NYSE:WM) in several markets. In comparison to Waste Management, whose current earnings per share of $2.00 are expected to grow to $2.54 over the next two years (an increase of 28%), Republic Services earnings growth of nearly 38% should perhaps warrant a higher PE rating than it currently enjoys. For this reason, perhaps this is a sale that Buffett will regret.
Iron Mountain Inc (IRM): The company is a document storage giant. Shares are changing hands on the day of writing at $34.68, down 0.23%, at the top end of their 52 week range of $19.75 to $35.79. The company has a negative EPS of -$0.02, though fortunes are due to turn around with EPS pencilled in for this year of $1.22. Buffett sold out of his 8,000,000 share stake, valued at $179.7 million during the third quarter of 2010. IRM's forays into electronic storage will be met with stiff competition from Hewlett-Packard (NYSE:HPQ), Dell (NASDAQ:DELL) and EMC (EMC). Though much smaller than all these, as previously said the company is set for very strong growth in earnings. Its smaller size may mean a greater ability to react more quickly to a changing market, but Hewlett Packard, Dell, and EMC, will protest strongly to any attack on their market shares. All these are forecast to see strong growth in revenues, with earnings per share increasing by as much as 195% (analysts see EMC's earnings per share increasing from $0.91 to $$1.93 over the next 2 years, Dell's by 16% from $1.67 to $1.93, and Hewlett Packard's by 32% to $5.37). The risk for Iron Mountain is that its markets are blocked by the competitive pressure of this peer group. However, if it succeeds as analysts think it will over the coming years, then the shares do not look overvalued at current levels. A final consideration is the prospect of a competitor looking more closely at Iron Mountain: What better way of negating competition than buying it? This does not look a good sale to me.
Carmax Inc. (KMX): Buffett has been reducing his holding in Carmax since the beginning of 2009, and finally eliminated his stake when Berkshire sold its remaining 7,725,900 shares in Q3 2010. The company is valued at $7.35 billion, at its current share price is $24.75 at the time of writing. The shares have traded as high as $37.02 and as low as $19.75 during the last 52 weeks. Carmax operates 105 used car stores near major metropolitan markets. This network supports revenues expected to grow to throughout the next two years, hitting $10.15 billion this year, and $11.16 billion next, with EPS rising to $2.06 during this period compared to last year’s $1.77. The last two years, with interest rates so low and car drivers more willing to trade down, have been good for the used car sales industry. AutNation Inc. (AN) and Penske Automotive Group Inc. (PAG) have also seen good growth through this time, and all three companies' share prices are near their all time highs. However, in an environment that will see further belt tightening due to spending cuts weakening the economy, there is an argument that, for now, the best times have been and gone.With the shares having risen from around the $8 mark at the end of 2008, the steam may have run out. A wise sell.
NRG Energy Inc (NRG): NRG is a wholesale power generation company. It also owns a stake in generation facilities in Austria and Germany. On the day of writing, shares dipped 0.8% to $24.75, capitalizing the company at $5.97 billion. The 52 week range for the shares is $18.22 to $25.54. Analysts have a median 12-month price target of $33, and expect earnings per share to increase from last year’s reported $0.60 to $1.02 at the end of fiscal 2012, though expectations are for revenues to fall from $10.12 billion this year to $9.59 billion next. Buffett reduced his stake significantly during 2009, finally selling out of his remaining 6,000,000 shares during the second half of 2010. Although the economic outlook is still clouded by continuing debt problems at home and abroad, along with food and water, people will always need energy. With main competitors such as GenOn Energy (GEN), and AES Group (AES) posting lower earnings - indeed GenOn is expected to continue making losses through the next two years (last year's loss of $1.08 is forecast to be followed by losses of $0.25 and $0.23, though AES's meagre earnings of $0.06 last year are forecast to rise to $1.29 over the same period - NRG seems a reasonable hold for an exposure to the market. Unless, of course, one is expecting a collapse in energy usage.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.