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Buffett Hoards Cash Over Next Big Investment

NEW YORK ( TheStreet) - After reporting in second quarter earnings that cash at Berkshire Hathaway (BRK.A) had once more surpassed $40 billion, it's no surprise that the Warren Buffett's conglomerate made few large stock investments in the quarter.

In contrast to a $10.7 billion November stock purchase of IBM (IBM) -- instantly making Berkshire the tech giant's top shareholder -- Buffett and his investment managers Todd Combs and Ted Weschler made few notable large stock buys in the second quarter.

A $217 million purchase of shares in oil services company National Oilwell Varco (NOV - Get Report) and a new position in Phillips 66 (PSX - Get Report) -- a partial byproduct of the company's spinoff from longtime Buffett holding ConocoPhillips (COP) -- were the most notable additions. Berkshire's existing stake in ConocoPhillips of roughly 28 million shares entitled it to 14 million shares of Phillips 66 in the two-for-one spinoff. Berkshire revealed a Phillips 66 stake of roughly 27 million shares.

Stock sales in the quarter were more notable than stock buys: Berkshire liquidated a $200 million-plus share stake in chip maker Intel (INTC - Get Report), a position that Berkshire first made in three quarters ago. In fact, Berkshire had already begun reducing its Intel position during the first quarter 2012.

Berkshire increased bets on existing stock positions including stocks favored by Ted Weschler, DaVita (DVA) and satellite T.V. giant DirecTV (DTV).

Berkshire also added to bank positions, including Wells Fargo (WFC) and Bank of New York Mellon (BNY), according to a 13F filing with the Securities and Exchange Commission compiled by Bloomberg.

Buffett significantly pared long-time positions in consumer goods giants Procter & Gamble (PG), Johnson & Johnson (JNJ) and Kraft Foods (KFT). Berkshire sold over $1 billion in P&G and J&J shares, cutting the respective investments by roughly 23% and 64%, respectively.

The selling in the stock portfolio was previewed in Berkshire's second quarter earnings, released earlier in August. In that filing, Berkshire reported it was a net seller of equities in the second quarter, with consumer goods being the sector of its equities portfolio reduced the most significantly -- though it does not specify the individual securities in the quarterly financial report.

Berkshire also pared stakes in United Parcel Service (UPS) and Visa (V), by nearly 24% and 20% respectively.

As cash mounts at Berkshire, the firm's quarterly selling signals Buffett and his managers are holding off on making their next large stock investment that would compare to its leading IBM stake. Meanwhile, Buffett said in his annual meeting with shareholders that he is ready to use the company's growing cash hoard to make a large acquisition, after he acquired railroad Burlington Northern Santa Fe for $26.3 billion in 2009 and chemicals giant Lubrizol for $9 billion in 2011.

In second quarter results, Berkshire reported cash increased from $37 billion to $40 billion. The move and Buffett's disclosure that Berkshire was close to a $20 billion plus acquisition in the fourth quarter of 2011 give Berkshire watchers just enough information to make the suggestion that he could be selling stock in plans to finance a major transaction, if not simply freeing up more cash for his new hedge fund manager additions to deploy.

Meanwhile, after posting strong earnings growth from most businesses in the second quarter, Berkshire may need a next big investment idea to make use of recovering earnings at some housing-related units and growing revenue in new operations like Burlington Northern and Lubrizol.

In light of the improving Berkshire earnings, a shrinking investment portfolio and growing cash hoard, here's a look at four unconventional deals that Berkshire could target in coming quarters.

See why Warren Buffet shuns investment banks for more on other Berkshire investments.

-- Written by Antoine Gara in New York

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