In this article, we discussed Warren Buffett's hedge fund Berkshire Hathaway's adjustments in the 13F portfolio and examined its top 10 stock picks. You can skip our detailed discussion of the Oracle of Omaha's investment strategy and returns and go directly to Warren Buffett's Top 5 Stock Picks.
The world’s most renowned stock market investor Warren Buffet’s Berkshire Hathaway has made several changes in its 13F securities portfolio during the fourth quarter of 2020 to adjust its positions according to the changing market trends.
The latest filings with the Securities and Exchange Commission revealed that Buffett’s Berkshire securities portfolio continues trimming its financial stock positions. The firm, which ended the fourth quarter of 2019 with a 45% stake in the finance sector, is no longer a shareholder of JPMorgan Chase (NYSE: JPM) and PNC (NYSE: PNC) at the beginning of 2021. Berkshire Hathaway has also significantly trimmed its stake in Wells Fargo (NYSE: WFC) and US Bancorp during the fourth quarter of 2020 but kept its positions in Bank of New York (NYSE: BK), Bank of America, and American Express. Financial stocks now represent 19% of overall Berkshire’s $260 billion 13F portfolio, according to the fourth quarter filings. Early in 2020, Berkshire Hathaway sold its entire stake in airline companies.
Warren Buffett of Berkshire Hathaway
On the other hand, Warren Buffett’s investment firm found buying opportunities in only a few stocks including Chevron and Verizon communications. We will discuss these two stock picks later in the article because both are now standing in the top ten list of Buffett’s portfolio.
Warren Buffett's hedge fund has made several other key changes in its portfolio to beat the market trends in 2021. His firm sold all of its stake in Pfizer (NYSE: PFE) and Barrick Gold (NYSE: GOLD). Meanwhile, the company has added to its 6 existing positions including AbbVie (NYSE: ABBV), Bristol Myers Squibb (NYSE: BMY), and Merck (NYSE: MRK). The firm bought these three pharma stocks during the third quarter of of 2020.
It appears that Oracle of Omaha has been shifting investments towards health care, consumer staples, and the information technology sectors. Healthcare sector weightage increased from 1.47% at the end of 2019 to 4.09% of the portfolio at the end of 2020. Information technology holds 48% of the overall portfolio despite selling over 6% of Apple’s stake in the latest quarter.
While Warren Buffett's reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 78 percentage points since March 2017. Between March 2017 and February 5th 2021 our monthly newsletter's stock picks returned 187.5%, vs. 75.8% for the SPY. Our stock picks outperformed the market by more than 111 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let start reviewing Warren Buffett’s Berkshire Hathaway’s top 10 stock picks for 2021 to see whether these stocks have the potential to offer hefty returns and outperform the market trends. The top 10 holdings account for 85% of Buffett’s 13F portfolio.
10. DaVita Inc. (NYSE: DVA)
The healthcare services provider DaVita Inc. (NYSE: DVA) is the tenth-largest stock holding of Warren Buffett’s portfolio, according to the latest 13F filings. The firm has benefited from DaVita’s share price surge in 2020 but shares of DVA are down 11% since the beginning of this year. The latest selloff is the outcome of lower-than-expected results for the December quarter. The company generated $2.91 billion in fourth-quarter revenue, down $20 million from the Wall Street consensus estimate.
Despite weak fourth-quarter results, its 2020 earnings per share from continuing operations increased 38% to $6.39. Moreover, the company expects earnings from continuing operations of up to $8.75 per share for 2021.
9. Chevron Corporation (NYSE: CVX)
Warren Buffett has created a huge position in Chevron Corporation (NYSE: CVX) during the fourth quarter to take advantage of the massive growth in oil prices. It appears that the stock-picking strategy worked in the case of Chevron. This is because shares of the oil and gas giant rallied more than 9.5% compared to the S&P 500 growth of just over 4%. Moreover, Chevron has the ability to offer increasing cash returns to shareholders. The company currently offers a dividend yield of 5.5%.
“Integrated oil and gas company Chevron Corp. shares meaningfully declined during the quarter as OPEC+ failed to reach a deal, allowing us to establish a position in this lower risk, more diversified company at a sufficient discount to our estimate of intrinsic value.”
8. U.S. Bancorp (NYSE: USB)
Shares of U.S. Bancorp (NYSE: USB) bounced back strongly in the past two quarters after experiencing a historic selloff early in 2020. It is the eighth largest stock holding of Warren Buffett’s Berkshire Hathaway, according to the latest filings. The firm has sold a small U.S. Bancorp stake during the fourth quarter.
Shares of USB are up 4.4% so far in 2021 but are still down 11% in the last twelve months. On the positive side, Berkshire has been collecting big dividends from USB over the years. Its dividend yield currently stands around 3.4%. U.S. Bancorp is among the few banks that have generated positive earnings growth in the December quarter, thanks to strong growth in non-interest income. Its fourth-quarter earnings per share of 95 cents increased from 90 cents in the same period last year.
7. Moody's Corporation (NYSE: MCO)
Berkshire Hathaway made no changes to its stake in Moody's Corporation (NYSE: MCO) during the fourth quarter. It represents the seventh-largest stock holding of Buffett’s securities portfolio. Moody's share price underperformed in 2020 and extended the sluggish performance since the beginning of this year. The credit ratings and assessment services company offers a dividend yield just below 1%.
Moody’s December quarter revenue of $1.29 billion increased close to 5% and topped the analysts’ consensus estimate by $70 million. Moreover, its FY 2020 diluted earnings per share increased 27% year over year to $9.39. The company anticipates FY 2021 diluted EPS of $9.70 to $10.10, while adjusted diluted EPS is expected to be in the range of $10.30 to $10.70.
6. Verizon Communications (NYSE: VZ)
Warren Buffett has created a big position in Verizon Communications (NYSE: VZ) during the fourth quarter, accounting for 3.19% of the overall portfolio. Shares of Verizon underperformed in the last twelve months and extended the downtrend since the beginning of this year. However, the company offers a dividend yield of 4.64%.
Mott Capital Management, an investment management firm, continues showing confidence in Verizon Communications despite sluggish financial performance. Here is what Mott Capital Management stated in an investors' letter.
“Verizon finished the year lower by around 4.3% and has been a hard holding over the past 6 years. It has gone nowhere and has been the one stock I struggle with. However, 5G has finally arrived. If 5G can deliver on the promise I think it can, then Verizon should eventually come around. I remain hopeful.”
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Disclosure: None. The article Warren Buffett's Top 10 Stock Picks is originally published on Insider Monkey.