Who’s in Berkshire Hathaway’s Q3 holdings reshuffle?

Investment legend Warren Buffett’s (pictured above) Berkshire Hathaway has gone big on house decor and oil in the third quarter.

Its latest 13F filing to the Securities & Exchange Commission revealed that the group has taken up new positions in Royalty Pharma [RPRX] and Floor & Décor Holdings [FND], and upped its position in Chevron [CVX]. It has sold its position in pharma giant Merck [MRK] and Liberty Global [LBTYA] and reduced its position in Charter Communications [CHTR], AbbVie [ABBV], Bristol-Myers Squibb [BMY], Marsh & McLennan [MMC] and US Bancorp [USB].

 

The winners

Royalty Pharma —The company finances drug discovery for a portion of royalties when the medicines become commercial. It owns royalties in cancer fighting drugs, and treatments for cystic fibrosis and Crohn’s disease amongst many others. Its share price has had its ups and downs this year, dropping 29% between January and early October. However, since then it has gained 20% to sit at around $42 to date. During the Q3, as reported by Yahoo Finance, Berkshire bought 13.1 million shares.

In its most recent Q3 results, Royalty reported a 9% increase in total income and other revenues to $586m and adjusted cash receipts totalling $587m, up 24% year-over-year. It raised its full-year 2021 guidance and now expects cash receipts between $2.11bn to $2.13bn.

Buoyed by an increased global focus on pharma and the potential of new drugs and clinical trials during COVID-19, analysts are also bullish about the stock. According to Market Screener, the consensus rating is a ‘buy’, and the average target price is $51.25.

Floor & Décor Holdings — The group sells tiles, wood, natural stone and laminate flooring from 153 warehouse-formatted stores. It has made hay since the end of lockdown and re-opening of society. Customers — both professional builders and homeowners — have come back to shop, looking to spruce up homes that many people are still working remotely from. In the third quarter, according to Yahoo Finance, Berkshire bought 816,863 shares in the group. Its share price has climbed 39% between mid-June this year and the close on 24 November. From 2016 to 2020, sales rose from $1.05bn to $2.43bn, translating into a compound annual growth rate of 23.3%, according to a Yahoo Finance report.

In its recent Q3 results, it reported a 28% leap in net sales to $876.6m compared with the same period last year, with same-store sales up 10.9%.

 

According to Market Screener, analysts have a consensus ‘buy’ rating on the stock and a $151.1 target price.

Chevron — The Brent Crude price has risen from around $71.32 on 9 September to around $80.97 a barrel to date, driven by supply shortages, supply chain squeezes and rising demand as economies crank into gear following lockdowns affecting Chevron’s share price. It has climbed around 23% between mid-August this year and the close on 24 November, boosted by the oil price boom.

In Q3, Chevron’s revenues soared around 80% to $44.7bn, with earnings of $6.1bn compared with a loss of $207m in the same period in 2020. “Third-quarter earnings were the highest since first quarter 2013 largely due to improved market conditions, strong operational performance and a lower cost structure,” said Mike Wirth, Chevron’s chairman and CEO.

According to Market Screener, despite the pressure on Chevron and other oil stocks as governments look towards net-zero carbon emission targets, analysts have a consensus outperform rating on the stock. The target price is $128.03 compared with its $117.19 level at the close on 24 November.

Buffett likes the direction of travel adding 5.6 million shares in the September quarter, according to Yahoo Finance.

The loser

Merck — Shares in the pharmaceutical group have risen 11% over the last 12 months compared with peers such as Pfizer [PFE], which has gained 45% over the same period. The main difference is the COVID-19 vaccine which Pfizer was able to develop with BioNTech [BNTX]. Merck, in contrast, bowed out of the vaccine race after the shots it was working on produced weak immune responses. However, there is hope that a new coronavirus pill and its cancer drug Keytruda — now going through clinical trials — could help it recover.