As CEO and primary shareholder of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), Warren Buffett, the world's most famous investor, has developed a well-known reputation of buying big stakes in companies he believes in. When Buffett buys shares of a company for Berkshire Hathaway, the markets translate his moves as a vote of confidence for a firm's continued success. Warren Buffett's investing style of discipline, patience and value has consistently outperformed the market for decades and is therefore closely followed by many here on Seeking Alpha.
Although Berkshire Hathaway's holdings change, the company's latest SEC filings released this month give us all great insight on where the 'Oracle of Omaha' is most heavily invested. As you may have noticed Warren Buffett isn't one to invest in companies like Facebook (NASDAQ:FB). For him, there's a big difference between a hyped IPO stock rather obviously supported by underwriters, and a truly sustainable business model proven over decades.
It's not to say that Facebook won't turn out to have a profitable and sustainable business for years to come, but it's already quite clear that the company would have to greatly expand its current business ventures to be able to generate the kind of net income and cash flow similar to the likes of Google (NASDAQ:GOOG) or Apple (NASDAQ:AAPL).
Although Apple and Google have been able to successfully monetize their presence in the smartphone and tablet market, for companies like LinkedIn or Facebook this will be much more difficult long term. Problem: the fickle consumer. I'm sure Buffett will keep an eye on these latest IPOs but for now let's see where he did put his money. Instead of looking at all the major holdings, it seems more interesting to look at the companies in which he actually increased or decreased his holdings.
DaVita (DVA) : DaVita is the second-largest provider of dialysis services for patients with chronic kidney failure in the United States. The company provides outpatient services through the operation of its more than 1,700 clinics, treating around 138,000 patients. The company also provides dialysis services to hospitals on an in-patient basis, as well as laboratory services for patients with renal disease.
DaVita is a pure-play dialysis services company and a leader in the market, and it appears to be navigating the bundling-related rule changes well. Berkshire Hathaway increased its holdings of DVA by 3.32 million shares (+124%) since the previous reporting period. Holding Value: $493.4 million, Shares: 6,000,000, Stake in Company: 6.38%.
DirecTV (DTV) : DirecTV has continued to take share in the U.S. television business, most recently using its NFL Sunday Ticket platform to lure customers. On the flip side, margins have come under pressure as content costs continue to rise faster than revenue. Cost pressure will remain an issue for the foreseeable future as consumers' options for television service expand. At the same time, DirecTV's Latin American business is expanding and the business is growing market share. BRK has increased its holdings of DTV by 2.65 million shares (+13%) since the previous reporting period. Holding Value: $1.08 billion, Shares: 22,999,600, Stake in Company: 3.51%.
DirecTV Group is the largest satellite television provider in the U.S., with 19.8 million customers. It also owns satellite operations in Latin America: 93% of Sky Brazil, 41% of Sky Mexico, and 100% of PanAmericana, which covers much of the remainder of the region. These businesses serve about 11 million customers combined. The firm added three regional sports networks and a 60% stake in the Game Show Network and FUN Technologies under the Liberty Media deal.
Wal-Mart Stores (NYSE:WMT) :
Wal-Mart is the largest retailer in the world with more than $400 billion in annual revenue and fast approaching 10,000 stores across the globe. The company mainly operates supercenters, followed by wholesale warehouse clubs and also is testing a smaller store format for urban areas, which the company has yet to penetrate.
The move from "Always Low Price, Always" to "Save Money, Live Better" was a subtle signal at the time, but turned out to be a major strategic shift for Wal-Mart. However, moving from a low-cost to more of value-proposition store has yet to resonate with consumers, but Buffett seems to like what he sees. Berkshire has increased its holdings of WMT by 7.67 million shares (+20%) since the previous reporting period. Holding Value: $2.77 billion, Shares: 46,708,142, Stake in Company: 1.14%.
Kraft Foods (KFT) :
Kraft is the leading packaged food firm in North America and the second-largest packaged food company in the world behind Nestle. However, management intends to break up the firm into a global snacks business and North American grocery brands. The company has a product portfolio that includes well-known brands such as Nabisco, Oscar Mayer, Maxwell House, Jell-O, Chips Ahoy, and Kool-Aid.
Over the past few years, Kraft has greatly enhanced its global distribution platform as well as the strength of its brand portfolio, particularly following the acquisition of Cadbury. However, management now appears to have reversed course, instead opting to split up the business into global snacks and North American grocery. Berkshire Hathaway has decreased its holdings of KFT by 9.02 million shares (-10%) since the previous reporting period. Holding Value: $3.28 billion, Shares: 78,017,165, Stake in Company: 4.33%.
Procter & Gamble (NYSE:PG) : Procter & Gamble has become the world's largest consumer product manufacturer, with a line-up of famous brands. The brands are sold through three global business units. During the last decade the company has doubled the sales it derives from developing markets; acquired and integrated Wella and Gillette; and sold its pharmaceutical, coffee, and food businesses.
During the past several years, Procter & Gamble has divested non-core businesses, repositioned its product portfolio toward more value offerings, significantly increased spending to reclaim and defend market share. Unfortunately, the firm's stock hardly budged and investors were asking whether P&G was doing enough to fix its problems. In February, management responded with a massive $10 billion cost savings plan that will reduce headcount as the firm aims to return to 8%-10% EPS growth and free up funds to reinvest in its business. Nonetheless, Buffett decreased its holdings of PG by 3.5 million shares (-5%) since the previous reporting period. Holding Value: $4.92 billion, Shares: 73,254,136, Stake in Company: 2.71%.
Wells Fargo (NYSE:WFC) : Wells Fargo is one of the four largest banks in the United States, with $1.3 trillion in assets at the end of 2011. The company is split into three segments for reporting purposes: community banking, wholesale banking, and wealth, brokerage, and retirement. The company is a major player in the residential mortgage market, servicing $1.8 trillion in loans.
Having doubled in size with its 2008 purchase of Wachovia, Wells Fargo stands out from its peers not only due to its long history of superb management, but also because of its relatively simple business model, making it Warren Buffett's clear favorite among the "Big 4" American banks. In this case simpler is indeed better. Berkshire Hathaway has increased its holdings of WFC by 10.63 million shares (+3%) since the previous reporting period. Holding Value: $12.71 billion, Shares: 394,334,928, Stake in Company: 7.44%.
International Business Machines (NYSE:IBM) : IBM is one of the largest information technology companies with an array of offerings, including system hardware, infrastructure software, outsourcing, and systems integration services. The firm has operations in more than 170 countries and generates about 65% of revenue from abroad.
Buffett has long refused to invest in high-tech companies because he has said it's too difficult to predict which technology businesses will prosper in the long run, exactly the problem with previously mentioned Facebook and LinkedIn. But he changed his view of IBM based on what he read in the company's annual reports and what he learned by talking to information-technology departments at Berkshire subsidiaries.
He recently said he should have realized years sooner that the heart of IBM's business is providing service and equipment to IT departments. Warren Buffett increased its holdings of IBM by 489,769 shares (+1%) since the previous reporting period. Holding Value now: $12.88 billion, Shares: 64,395,700, Stake in Company: 5.36%.
It's undeniable that Warren Buffett is smart. He absorbs reams of information and has an encyclopedic recall that amazes attendees at Berkshire's annual shareholder meeting -- where he takes questions without notes for several hours each year. But remarkably, his investing style is simple: buy great companies at a good price.
Part of Buffett's appeal is the charm and charisma he brings to the normally pretentious world of finance. All the while, though, he's articulating some of the most practical investing advice available to individual investors like us. There's a lot to be learned, and fortunately these SEC fillings gives us some insight on where we should be investing as well.