It's not that following Warren Buffett's buys and sells doesn't make sense -- it does. But it's
buys and sells to pay attention to that matter.
In the last quarter, the "Oracle of Omaha" added on to seven existing positions and dipped a toe into two more, but the stock hikes that most people are paying attention to aren't the ones that really matter. After all, the two biggest position hikes for the quarter were
, positions that each already make up close to 20% of
$75 billion stock portfolio.
In other words, we already know that he likes these two names -- and we've known it for a long, long time.
So while it's interesting that Buffett increased his firm's positions in those two stocks, you've got to look at the some of the smaller names to see where his firm's conviction buying lies.
It's also worth noting that this quarter's changes at Berkshire were likely heavily influenced by Todd Combs and Ted Weschler, the former hedge fund managers Buffett hired to ultimately take over the investing duties at the Omaha-based firm. So investors who want to invest like Buffett's handpicked portfolio managers had better pay attention.
So which companies that made Berkshire's "buy" list are worth watching? Here's a look at
Even though Warren Buffett has owned
for a while now, the mega-retailer is a position worth watching right now; that's because Berkshire piled onto its position by around 17% in the last quarter alone. Clearly, Buffett and company think that 2012 is as good a time as any to buy shares of Wal-Mart's stock. Berkshire added 7.67 million shares to its holdings according to its most recent filings with the SEC.
Wal-Mart is the biggest retailer in the world, with nearly 10,000 big box locations spanning the globe and close to $450 billion in annual revenue. When it comes to Wal-Mart, scale is everything -- its size gives the firm major cost advantages over smaller rivals and the ability to demand pricing from suppliers that few retail names can command. That pricing power trickles down to WMT's customers, who are more cost-conscious than many of the buyers that other retailers court.
Despite sensitivity to economic conditions, those customers aren't at risk of leaving WMT's stores simply because rivals can't compete on price the same way that Wal-Mart can. Better still, the firm does it while earning net margins that fall in the mid-single digits and while paying out a 2.4% dividend yield.
Warren Buffett admits that his timing on the Wal-Mart buy was unfortunate; the firm got hit with a bribery scandal over its Mexican division. Now that the weak hands have been shaken out of shares, it looks like a good time to be a buyer in WMT.
Wal-Mart also shows up in
as of the most recently reported quarter.
Dialysis center operator
is another name that got piled on by Berkshire in the most recent quarter. The $7.8 billion firm runs more than 1,700 clinics and in-patient hospital dialysis units across the U.S., serving patients who suffer from chronic kidney failure.
Berkshire more than doubled its position in DVA in the latest quarter, adding 3.3 million shares to its war chest, and raising its stake in the firm to 6.4% of shares.
DaVita's clinics are unique in that they serve patients who suffer from chronic long-term kidney issues. Typically, the only way around dialysis is a kidney transplant, and demand vastly outstrips supply of transplant organs in this country. That means that DVA's nearly 140,000 patients are likely to stick with its facilities for the long-term.
Health care tends to be a sticky business -- barring a major bad experience, patients are likely to stay with their providers -- which makes DVA's revenues consistent and predictable in large part.
A pending $4.4 billion merger with privately held HealthCare Partners is transformative for DVA. Up until now, the firm has been a pure play on the dialysis care business, but the combination will put medical practices, hospitals, and pharmacy services under DVA's umbrella. The merger should give DVA some cost advantages, especially given its big geographic footprint.
Berkshire's managers are making a big bet on DaVita ahead of the merger. Retail investors should pay attention.
is having a solid year in 2012. So far, shares have rallied more than 8.5%, handily outperforming the broad market over that same period. The $30.4 billion firm operates the biggest satellite television network in the U.S., with close to 20 million subscribers. DirecTV also owns stakes in Latin American satellite TV providers that serve more than 11 million subscribers.
Berkshire hiked its stake in the firm by more than 10%, adding 2.65 million shares to its portfolio. That gives the Berkshire 3.4% ownership of DirecTV.
Competition is fierce in the television service space, but DirecTV has managed to churn out some impressive performance over the last few years. The company targets bigger spenders who spend more per household for TV services than the average. As a result, DTV gets access to ample cross-selling opportunities that dramatically widen margins. Because the firm is a satellite firm, it's also able to grow its subscriber base without having to pay the massive capital expenditures that similar fixed-line services have to shell out.
Even though DTV's subsidy is around $800 per customer, similar setup costs for
FiOS is estimated by some analysts to run close to $4,000 per household. Latin America has been the big growth driver for DTV in the last few years, and it should continue to be in 2012.
DirecTV also shows up in
and is one of the
Speaking of DirecTV, that brings us to Berkshire's position hike in
, the holding company that owns stakes in entertainment and communications businesses. Liberty owned a 50% stake in DirecTV until 2009, when it spun the position off through a Reverse Morris Trust transaction. Berkshire, in turn, owns a 2.68% stake in Liberty after nearly doubling its position to 3 million shares in the most recent quarter.
Liberty owns a diverse basket of assets, from Starz Media to the Atlanta Braves to material positions in stocks like
. That basket of investments makes Liberty a difficult firm to value fundamentally, particularly given the fact that it's constantly undertaking major transactions (often complex ones). That opacity ratchets up the risks of being an investor in LMCA, but it also ramps up the reward.
The fact that many of the assets on Liberty's balance sheet are liquid and salable is ultimately a good thing for investors-- it gives the firm the ability to raise cash quickly in a crunch, though that doesn't guarantee that LMCA will be able to sell its holdings at attractive prices.
Even so, Berkshire's material stake in the firm is worth paying attention to in 2012, even if its ongoing feud with Sirius XM adds headline risks.
Liberty Media is also one of the
and shows up in
Bank of New York Mellon
Unlike most banks,
Bank of New York Mellon
has built its business around serving other financial firms' back office needs, building itself as one of the biggest asset custodians in the industry, and establishing a big presence as an asset manager. Those twin fee-driven businesses make BK a very different company than most; it earns hefty net margins that weigh in near those of a regional bank, and isn't as sensitive to the ebb and flow of the lending environment as traditional banks.
When it comes to custody and trust services, scale matters. BNY Mellon's positioning as one of the biggest in the world gives it cost advantages and lowered counterparty risk that makes it more attractive than most of the rivals it comes up against. As the firm grows its focus on asset management, it should be able to collect more cash for every dollar on deposit than it currently can.
BNY Mellon isn't as susceptible to the lending cycle, but it is sensitive to the investing cycle: a drop in the value of the assets that it holds for clients would translate into a drop in its custody, trust, and management fees. The corollary of that is that the firm thrives when markets are rallying, even if shares haven't reflected that post-crash.
Berkshire more than doubled its position in BK in the most recent quarter, raising its stake to 5.61 million shares.
BK is one of
To see the rest of Warren Buffett's plays - including a complete list of which stocks he added or sold off, check out the
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.