By Jonathan Stempel
(Reuters) – Warren Buffett appears to have become disillusioned with stocks, allowing his cash at Berkshire Hathaway (NYSE:) to soar to nearly $277 billion and selling about half his stake in Apple even as the conglomerate posted a record quarterly operating profit.
Berkshire's results released Saturday suggest that Buffett, 93, one of the world's most revered investors, is increasingly concerned about the broader U.S. economy or stock market valuations that have risen too high.
The results followed a stock market sell-off that pushed the Nasdaq into correction territory and a weak jobs report that raised concerns about U.S. economic activity and whether the Federal Reserve waited too long to cut interest rates.
“If you look at the bigger picture for Berkshire and the macroeconomic data, a safe conclusion is that Berkshire is getting defensive,” said Cathy Seifert, an analyst at CFRA Research who rates Berkshire a “buy.”
Berkshire's cash holdings rose to $276.9 billion as of June 30 from a record $189 billion three months earlier, largely because Berkshire sold a net $75.5 billion of stock.
In the second quarter, it sold about 390 million shares of Apple (NASDAQ:), on top of the 115 million it sold between January and March, as the iPhone maker's stock price rose 23%. Berkshire still held about 400 million shares worth $84.2 billion as of June 30.
The second quarter was the seventh consecutive quarter in which Berkshire sold more shares than it bought.
Berkshire also bought back just $345 million of its own stock, down from $2.57 billion in the first quarter, and none in the first three weeks of July.
“Buffett doesn't seem to think there are attractive opportunities in publicly traded stocks, including his own,” said Jim Shanahan, an analyst at Edward Jones who has a “hold” rating on Berkshire. “I'm concerned about his thoughts on the markets and the economy.”
GEICO INCREASES RESULTS
Second-quarter profit from Berkshire's dozens of businesses rose 15% to $11.6 billion, or about $8,073 per Class A share, from $10.04 billion a year earlier.
Nearly half of those gains came from Berkshire's insurance businesses, including Geico auto insurance, where underwriting profits tripled as premiums rose and claims fell.
But revenue rose just 1% to $93.65 billion, with little change at major businesses such as the BNSF railroad and Berkshire Hathaway Energy, and a 12% drop at the Pilot truck stop chain.
Consumers also showed signs of cutting back, causing revenue to fall at Berkshire's more than 80 auto dealerships as they spent less per vehicle on new cars, trucks and SUVs.
Berkshire's short-term Treasury bond yields should decline once rate cuts begin.
Shanahan said that, along with revenue headwinds, “may make it difficult for Berkshire to achieve earnings growth in 2025.”
The Omaha, Nebraska-based conglomerate also owns many industrial and manufacturing companies, a large real estate brokerage, Dairy Queen and Fruit of the Loom.
Quarterly net profit fell 15% to $30.34 billion from $35.91 billion a year earlier as rising share prices in both periods boosted the value of Berkshire's stock investments.
Buffett has long urged shareholders to ignore Berkshire's quarterly investment gains and losses, which often lead to outsized net gains or losses.
BUFFETT WANTS TO SPEND, BUT DOESN'T
Berkshire pledges to hold at least $30 billion in cash, but often lets it grow when it can't find entire companies or individual stocks to buy at fair prices.
Since mid-July, Berkshire has also sold more than $3.8 billion worth of Bank of America stock, its second-largest holding.
“We'd love to spend it, but we won't unless we think we're doing something that has very little risk and can make us a lot of money,” Buffett said at Berkshire's annual meeting on May 4, referring to Berkshire's cash.
Buffett said he expected Apple to remain Berkshire's largest stock investment, but selling made sense because the 21% federal tax rate on profits would likely rise.
The sales came just two years after Buffett labeled Apple one of Berkshire's “four giants,” along with its insurance businesses, BNSF and Berkshire Hathaway Energy.
Berkshire and Apple did not immediately respond to requests for comment on Saturday.
BNSF's earnings fell 3% as the railroad set aside more money for lawsuits, offsetting lower operating costs and increased shipping of agricultural and consumer products.
The lawsuits against utility unit PacifiCorp also hit Berkshire Hathaway Energy, where profit fell 17%.
Many homeowners and businesses blame PacifiCorp for causing Oregon’s 2020 wildfires. The utility set aside $2.7 billion for wildfire losses as of June 30, up from $2.4 billion three months earlier, and said losses could rise significantly.
Berkshire Class A shares closed Friday at $641,435. They are up 18% this year, while Berkshire shares are up 12%.
Buffett has led Berkshire since 1965. Vice Chairman Greg Abel, 62, is expected to succeed him as chief executive.
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