1 big buy and an even bigger sell for Buffett

Any move made by the Oracle of Omaha is immediately investigated and analysed. Even just a headline saying that Buffett bought into a stock will undoubtedly send prices up. It’s a flawed strategy, as many times the stock in question has already made its move. Nonetheless, it is worth keeping an eye what the world’s greatest investor is up to. Lately, Buffett hasn’t been too active, but he has put sizable money in one sector while taking out even more from another.

Omaha 66
Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) has been a holder of oil giant ConocoPhilips (NYSE: COP) since around 2006. The company was, for a while, Berkshire’s biggest energy-sector holding. Last year, Conoco spun off a refining and marketing company, Phillips 66 (NYSE: PSX), giving one share of the new company for every two shares of Conoco. Since then, Berkshire’s stake in Conoco has been reduced, and the Phillips 66 shares have been held steady — until recently.

Buffett, or one of his two new money managers, has identified further value in the spinoff. As of the latest 13-F, Berkshire has invested US$1.1 billion more in the company currently trading near its 52-week high.

Phillips is the refining and marketing portion of its former parent company. The company’s refining business brought in an adjusted US$853 million during the second quarter, up from US$353 million the year before. Management cites better margins and improved operating efficiency as the reasons for the substantial gains. The company also authorised a US$1 billion share repurchase.

Even though Phillips 66 is trading near its 52-week high, it still trades at less than eight times forward earnings. Several analysts consider the stock to still be an attractive value play.

Berkshire’s bullish call on Philips, though at a lower cost than available now, is worth looking into for value-oriented investors.

One of Buffett’s longer holds has been Johnson & Johnson (NYSE: JNJ). It fits the profile of an investment Buffett has been attracted to in the later years of his career, given the large capital base of Berkshire Hathaway. The classic American company provides a bevy of consumer goods and pharmaceuticals.

Though, recent mishaps have investors — and Buffett himself — cooling off on the near-US$200-billion conglomerate. In fact, Buffett was quoted earlier this year as saying, “[Johnson & Johnson] obviously messed up in a lot of ways over the last few years.”

The company has suffered through product recalls, manufacturing mistakes, and legal trouble. In a court battle, a J&J subsidiary was ordered to pay a US$1.2 billion fine for concealing some of the dangers of an antipsychotic drug.

In the 13-F filing, we find that Buffett and Berkshire have dropped the majority of their stake in the classic American company — approximately 2/3 of the nearly US$2 billion position.

Buffett had mentioned earlier that if he were looking to free up capital, Johnson & Johnson would be on his “sell list.” Well, Berkshire has plenty of cash on the books, so unless Buffett is readying for a major capital outlay, it looks as though he just became too disenchanted with J&J’s operations to remain invested.

Berkshire still holds on to roughly 10 million shares of the company, so it’s not a total abandonment, but investors are wise to look at this as a suggestion to reconsider the strength of Johnson & Johnson.

Following the best
Investing on the heels of the greatest investors is not always a bulletproof method. Overpaying and choosing portfolio laggards are frequent problems with this strategy. Though, overall, I find it enriching to keep an eye on what the superstar investors are up to.

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The Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Michael Lewis, originally appeared on

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