(Bloomberg News circulated the following story by Erik Holm and Hugh Son on November 15.)
NEW YORK — Berkshire Hathaway Inc., run by billionaire Warren Buffett, boosted its stake in home lenders U.S. Bancorp and Wells Fargo & Co., betting on the recovery of stocks that fell amid the worst housing slump in 16 years. Berkshire also disclosed a stake in CarMax Inc., the biggest U.S. used-car dealer.
Berkshire reduced its investment in two railroads, Union Pacific Corp. and Norfolk Southern Corp., the Omaha, Nebraska- based company said yesterday in a regulatory filing disclosing holdings as of Sept. 30. The company reported no stake in Western Union Co. after saying it held 3.2 million shares on June 30.
Berkshire became the largest shareholder in U.S. Bancorp, the sixth-largest U.S. bank, and remains the top investor in Wells Fargo, the second-largest home lender. Both have fallen this year as foreclosures set a record in the second quarter and overdue payments on subprime loans reached a five-year high, according to the Mortgage Bankers Association.
“These two banks are likely to not have huge subprime exposure, and they’ve both been hammered down in sympathy with the rest of the financials,” said Frank Betz, who helps manage $800 million, including Berkshire shares, at Carret Zane Capital Management in Warren, New Jersey. “It’s an ideal time for Warren to be looking around in that area because he loves money, and the banks have plenty of it.”
Buffett is the fourth-biggest shareholder of CarMax with 14 million shares, according to Bloomberg data. The Richmond, Virginia-based company declined 20 percent in New York Stock Exchange trading this year as U.S. consumers cut back on spending. CarMax rose as much as 6.2 percent to $22.80 in extended trading yesterday. Berkshire reported no stake in the Richmond, Virginia-based company as of June 30.
Insurance, Ice Cream
Buffett built Berkshire Hathaway during the past four decades into a $213 billion company with businesses ranging from ice cream and underwear to insurance and corporate jet leasing. Berkshire had $78 billion invested in stocks at the end of September, according to the SEC filing. The company’s shares closed yesterday at $137,500 and have gained 25 percent this year.
Berkshire also increased holdings in Johnson & Johnson, the world’s largest health-products company, and the two largest U.S. health insurers, UnitedHealth Group Inc. and WellPoint Inc.
Berkshire’s stake in New Brunswick, New Jersey-based J&J rose 16 percent from June 30 to 61.6 million shares. Holdings in Minnetonka, Minnesota-based UnitedHealth rose 25 percent to 6 million shares, according to the filing. The stake in Indianapolis-based WellPoint increased 7.1 percent to 4.5 million shares.
Johnson & Johnson
Buffett’s interest in large health-care concerns makes sense “given the operating cash flow characteristics of the companies,” said Brian Wright, an analyst with Jefferies & Co. in New York. Johnson & Johnson’s operating cash flow was $14.2 billion last year. UnitedHealth’s was $6.53 billion and WellPoint’s, $4.04 billion.
Buffett increased his bet on banks as industry losses mount from subprime mortgage lending and mortgage-related investments. The world’s biggest banks and brokerages, including Citigroup Inc. and Merrill Lynch & Co., have written down a total of more than $40 billion of bad loans and securities tied to mortgages this year.
“Many of the other banks are more suspect, and still have too little transparency and haven’t really fessed up to how bad their individual situations are,” Betz said in an interview yesterday. “He’s picked good companies that are well managed and offer an attractive value.”
Berkshire’s stake in Minneapolis-based U.S. Bancorp jumped 77 percent to 65.5 million shares over three months. Berkshire now owns 3.8 percent of the company, according to Bloomberg data.
Wells Fargo
Berkshire increased its holdings of Wells Fargo by 8.5 percent to 279.7 million shares. Berkshire holds 8.3 percent of the stock in the San Francisco-based bank, about twice as much as the next largest shareholder.
Buffett bought more Bank of America Corp. stock as well, increasing his stake 4.6 percent to 9.1 million shares. The Charlotte, North Carolina-based company is the second-largest U.S. bank.
Buffett trimmed by 42 percent to 1.45 million shares Berkshire’s stake in Ameriprise Financial Inc., the investment advisor spun off by American Express Co. in 2005. He had cut the stake in the Minneapolis-based company by 41 percent in the second quarter to 2.52 million shares. The company has gained 14 percent this year in New York trading. Berkshire’s holding of American Express, its third-largest stock investment by market value, was unchanged in the third quarter.
Western Union
Western Union Co., the biggest U.S. money-transfer business, was spun off from First Data Corp. in September 2006. Third-quarter profit dropped 16 percent as expenses rose and transactions in the U.S. fell. Buffett had trimmed Berkshire’s stake in Western Union by 68 percent in the second quarter.
It’s difficult to determine exactly what Berkshire owns at any given time because Buffett sometimes asks the SEC for permission to temporarily delay disclosure of some holdings to avoid copycat investing. Yesterday’s filing says confidential information has been omitted, but doesn’t say for which investments.
Buffett has concentrated his U.S. railroad holdings in Burlington Northern Santa Fe Corp., as he further trimmed stakes in rivals Union Pacific and Norfolk Southern. He became the largest shareholder of Fort Worth, Texas-based Burlington Northern, the second-largest U.S. railroad, earlier this year.
Berkshire owned 4.5 million shares of Omaha-based Union Pacific as of Sept. 30, a 40 percent reduction from the second- quarter filing, and 1.9 million shares of Norfolk, Virginia- based Norfolk Southern, a 49 percent drop.
Railroad Stocks
Buffett announced stakes in Union Pacific, the largest U.S. railroad, and Norfolk Southern, the fourth-largest, in May. He withheld information about the two companies in Berkshire’s initial second-quarter filing and disclosed his June 30 holdings in them last month.
Buffett more than doubled his investment in Dow Jones & Co., the publisher of the Wall Street Journal, to 6.34 million shares. Rupert Murdoch’s News Corp. has offered $60 a share for the New York-based company in a proposal that will go before investors in a Dec. 13 vote. The shares traded below $52 in July, amid uncertainty about the proposed deal.
Berkshire’s largest stock holding, with a market value of $11.5 billion on Sept. 30, remains Coca-Cola Co. Buffett owns 200 million shares of the Atlanta-based company, according to Bloomberg data, a number that was unchanged from the second quarter. He has told investors at Berkshire’s annual meeting that he drinks Cherry Coke every day.
Wells Fargo is Berkshire’s second-largest holding, followed by American Express.