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Key Takeaways
- Investors will home in on Berkshire’s cash pile, which hit a record last quarter, and the company’s plans to deploy those funds.
- Despite citing a lack of new investment opportunities, Buffett increased the firm’s stake in Sirius XM last quarter.
- Market watchers will also look out for how Buffett’s portfolio changed, given the very public trimming of Bank of America shares.
- Q2 operating income was driven by gains in the insurance business as claim costs eased. The health of the insurance business will be in focus in Q3.
Warren Buffett’s Berkshire Hathaway (BRK.A) (BRK.B) is set to report its third-quarter earnings on Saturday morning. Here are some things investors will be watching out for.
Berkshire’s Cash Stash
Berkshire Hathaway’s cash pile swelled to a record $277 billion in the second quarter, up nearly $100 billion from the prior quarter. The majority of that money, roughly $235 billion, was invested in U.S. Treasurys.
Investors will be looking at this upcoming earnings report for any clues about how Berkshire plans to use or invest its massive war chest. Will Buffett unveil new positions or will the company use the money to buy back shares as it has in the past?
Buffett said early this year that there were “only a handful of companies” in the U.S. that aligned with the firm’s value-minded acquisition and investment strategy. The firm has since substantially trimmed a few major equity holdings.
CFRA’s Berkshire analyst Catherine Seifert expects the company to pursue “transactions as it deploys part of its $277B cash hoard (as of June 30, 2024) amid a declining interest rate environment.”
How Has Buffett’s Portfolio Changed?
Though cut in half this year, Apple Inc. (AAPL) likely remained Berkshire’s largest equity position in the third quarter while Buffett continued to sell one of his long-favored stocks—Bank of America (BAC.)
Berkshire trimmed its Bank of America position by about 20% to 800 million shares in the third quarter, according to filings with the Securities and Exchange Commission. And it has since sold more stock. Those sales have shrunk Berkshire’s stake in the bank to less than 10%, meaning the firm is no longer required to promptly disclose changes to its position.
Buffett reportedly enjoys listening to Frank Sinatra on Channel 70 on Sirius XM. And like many of his other investments in products that he enjoys, like Coca-Cola (KO), he’s betting on Sirius XM as well.
In September, Sirius XM and Liberty Media, which owned tracking shares of Sirius XM, underwent a complicated split-off transaction to create one new entity. Berkshire, which previously owned both Sirius XM as well as the tracking shares, ended up with roughly 105 million shares in the new Sirius XM entity (SIRI). It upped its stake in October, to over 108 million shares, accounting for more than a third of all outstanding shares in the satellite radio provider.
Investors will be curious to see if Buffett changed some of his other significant holdings in the quarter. He unveiled new stakes in beauty products company Ulta Beauty (ULTA) and aerospace and electronics manufacturing company Heico Corp. (HEI) during the second quarter.
Operating Income, Insurance Business in Focus
Buffett has time and again expressed his dislike for traditional earnings metrics, choosing instead to look at operating income to appropriately capture the state of Berkshire’s businesses.
In the second quarter, operating income increased to $11.6 billion, driven primarily by underwriting and investments in its insurance businesses. The insurance business thrived as claims and catastrophe-related costs scaled back.
The size of claims and catastrophe-related losses, and the outlook for the insurance business, will be in focus on Saturday, especially with several major hurricanes having hit the Southeast in recent months.