Berkshire Hathaway (BRK) CEO Warren Buffett is arguably the greatest investor of all time. The firm’s publicly traded stock profile is worth more than $200 billion. A big part of this success is Buffett’s ability to identify undervalued stocks and anticipate changes in the market. 

For investors looking for trading ideas, Buffett’s recent moves in banking, tech and energy stocks are definitely worth a closer look.  

 

Buying: JP Morgan

Berkshire Hathaway bought more than $4 billion worth of JP Morgan stock (NYSE: JPM) in the quarter ending 30 September. Buffett personally owns shares in JP Morgan and the move effectively represents a doubling down on the stock. 

News of the investment triggered a 1.4% bump in the bank’s share price and analysts expect earnings per share to grow to 8.63% next year. On Thursday, the stock closed at $105.19, just 3% off its 52-week low.

JPM share price performance, NASDAQ interactive chart, as at 11 December 2018

 

Investors concerned over a slowdown in the global economy could look to the banking sector for gains. Even though it has underperformed this year, interest rates look set to rise, potentially boosting banks’ profit margins and delivering higher yields.

“Banks are less cyclical than they have been in decades and have more resilient earnings streams because of improved financial discipline and risk control,” Mike Mayo, a banking analyst at Wells Fargo told Finance News.

Buffett’s overweight position in the sector means he is well positioned to benefit. Berkshire Hathaway’s second and third-largest holdings are Bank of America (Buffett also upped his stake in BoA by 29%) and Wells Fargo. In the last quarter, the firm also increased its stake in US Bancorp, Goldman Sachs, PNC Financial Services Group and Bank of New York Mellon. 

 

Holding: Apple

Global sell-offs and the US-China trade war have not been kind to Apple (AAPL). Throw in its dethroning as the world’s most valuable company, and disappointing sales of the latest iPhone and you have a share price that has tumbled over 20% since November. 

Buffett, however, seems unfazed: "I do not focus on the sales in the next quarter or the next year. I focus on the ... hundreds, hundreds, hundreds of millions of people who practically live their lives by [the iPhone]."

Apple is the biggest holding in Berkshire Hathaway’s fund, with a value of $45.9 billion. In the most recent quarter, Buffett picked up an additional 522,902 shares in the tech giant.

“I do not focus on the sales in the next quarter or the next year. I focus on the ... hundreds, hundreds, hundreds of millions of people who practically live their lives by [the iPhone]” - Warren Buffett

Despite recent falls, Apple shares touched an all-time high of $227.6 this year and the current price could represent a good buying opportunity. The recent 90-day truce between President Trump and Xi Jinping hashed out at the G20 should also mitigate trade tariff risks, providing it holds.

Apple share price performance, NASDAQ interactive chart, as at 11 December 2018

 

Selling: Phillips 66

In less than a year Berkshire Hathaway has cut holdings in midstream refiner Phillips 66 (NYSE: PSX) by 80%. Go back to the start of 2018 and it owned almost a 16% stake in the refiner. 

It’s difficult to read Buffett’s mind on this one: Phillips 66 has had good results this year and delivered a huge 99% increase in earnings per share in Q3. 

One reason for selling might be that differentials between US and foreign refiners could shrink next year. Another is Buffett’s focus on the resurgent banking sector, while cutting positions in energy stocks. 

Phillips 66, with a PE of 6.86x and dividend above 3%, could still be a good bet for investors looking to get into energy stocks. The stock is, however, susceptible to volatility in oil markets and sentiment is negative, having seen a 15% drop since Q2 earnings were announced.

Phillips 66 share price performance, NASDAQ interactive chart, as at 11 December 2018

 

Where next?

Buffett’s buying of banking stocks could be a smart move. However, the continual backing of the tech stock, like Apple, is more of a gamble – the NASDAQ, which is made up of 50% tech companies, is up just 1% this year.

In a note, J.P Morgan analyst Sarah Dewitt told investors “[the bank] view Berkshire Hathaway as one of the best value plays in our coverage group.” Berkshire Hathaway’s share price grew 3%, but with the company buying back its own stock, confidence seems to be high at its Omaha headquarters.