Last week, Berkshire Hathaway (BRKA +0.00%)(BRKB 0.47%) reported its last quarterly earnings. These results were the last with Warren Buffett as CEO and offered plenty to dig into for insights. Operating earnings fell nearly 30% versus the year prior. That drop was accompanied by a 54% drop in insurance underwriting profits, as well as a 25% drop in insurance investment income.
Investors sent shares sliding by several percentage points on the poor news. But Berkshire’s management team was unfazed. “The amount of investment gains (losses) in any given quarter is usually meaningless and delivers figures for net earnings per share that can be extremely misleading to investors who have little or no knowledge of accounting rules,” Berkshire’s leadership noted.
Apart from quarterly results, however, Berkshire Hathaway did reveal a few nuggets that potentially show how its portfolio managers feel about current market conditions. Two major stock purchases that the firm executed last quarter tell a compelling story.
Image source: Getty Images.
Berkshire is loading up on these two energy and insurance stocks
The top 10 positions by weight account for roughly 80% of Berkshire’s publicly traded portfolio. Within that top 10, two stocks saw their positions decrease last quarter, while two other stocks saw continued buying.
According to the latest filings, Berkshire purchased 2,916,288 more shares of Chubb (CB 0.30%), while also adding 8,091,570 additional shares of Chevron (CVX +0.45%) stock. Chevron now accounts for roughly 7% of the company’s publicly traded portfolio, while Chubb has a weighting of around 4%.
Today’s Change
(-0.30%) $-0.97
Current Price
$321.79
Key Data Points
Market Cap
$126B
Day’s Range
$320.86 – $321.86
52wk Range
$264.10 – $345.67
Volume
1.4K
Avg Vol
1.8M
Dividend Yield
1.18%
Berkshire heavily sold two stocks last quarter: a tech stock and a bank stock. Chevron and Chubb, meanwhile, are involved in the energy and insurance sectors. I don’t think it’s a coincidence that bank stocks are historically more sensitive to economic disruptions and bear markets.
Tech stocks, meanwhile, collectively have some of the highest valuations available on the market today, theoretically also making them more sensitive to market downturns. By contrast, energy stocks can actually benefits from geopolitical challenges, which can raise the price of oil and natural gas. Insurance companies, meanwhile, are traditionally less volatile than the overall market, especially compared to other financial stocks.
Warren Buffett and Berkshire Hathaway have long advised against market timing. But it’s curious to see Berkshire’s portfolio grow increasingly defensive. Meanwhile, Berkshire’s cash position remains near historic levels at around $370 billion.
Today’s Change
(0.45%) $0.87
Current Price
$192.66
Key Data Points
Market Cap
$383B
Day’s Range
$191.77 – $193.35
52wk Range
$132.04 – $193.35
Volume
14K
Avg Vol
11M
Gross Margin
14.66%
Dividend Yield
3.60%
It’s unclear whether Berkshire is purposely trying to position its portfolio to be less sensitive during an economic or market downturn. But its recent trades and elevated cash position speak for themselves. Already, Berkshire’s Chevron position is proving quite profitable following rising geopolitical tensions around the world, which have caused oil prices to spike sharply. Chubb stock, meanwhile, is up in value by nearly 6% this year, versus a 3% drop for the S&P 500 index.
Chevron and Chubb have merit as potential investments regardless of overall market conditions. But Buffett and Berkshire seem to be putting more and more emphasis on sectors that can thrive even in atypical environments. And so far, Chevron and Chubb have proven to be profitable bets to start the year.
