What is Warren Buffett Buying?

It’s filing season again, that time of year when we get to peek at what big, high-profile investors are buying.  And perhaps no portfolio is waited for in more anticipation that Warren Buffett’s Berkshire Hathaway (NYSE:$BRK-A).

Buffett is still bullish these days, even with all the talk of the fiscal cliff.  If we fell over the cliff and the economy got whacked with higher taxes and massive spending cuts, Congress and the White House would hash out a deal before the economy slipped into recession.  “We’re not going to permanently cripple ourselves,” he said recently in a CNN interview.

That may be true, but I’m a little more worried than Mr. Buffett.  I agree that a deal will get made eventually, but the psychological damage can still be huge.  And we could easily get a deep stock correction or a recession in the meantime.  Policy paralysis has consequences.

With that said, what is Buffett and his team buying and selling these days?

To start, he’s buying broadcast TV.  Berkshire Hathaway bought nearly 20% of Media General  (NYSE: $MEG).  This is a small holding for a portfolio of Berkshire’s size, but it does show bullishness on the part of Buffett for traditional media.

I like to think I am a contrarian investor.  But then I look at Warren Buffett and I realize that I’m not nearly as big of a contrarian as I thought.  I wouldn’t touch traditional media right now because I can’t see where the profits will come from.  Advertising is an industry in flux, and TV competes with the internet for eyeballs.

But then, there is a proper price for everything, and Buffett seems to believe that, at .16 times sales, Media general is simply too cheap to ignore.

Buffett additionally made three additions in the gritty industrial sphere, buying nearly 4 million shares of Deere & Co (NYSE:$DE), the producer of tractors and others heavy-duty equipment,  1.2 million shares of Precision Castparts Corp (NYSE:$PCP), which is essentially a metal shop with a worldwide presence,  and 1.5 million shares of Wabco Holdings Inc (NYSE: $WBC), a world leader brake and control systems for large commercial vehicles.

Truck parts and tractors.  Buffett clearly believes that industrial activity will be picking up in the years ahead, both in the United States and overseas.

Now, what’s Buffett and his team selling?

He sold out of Dollar General (NYSE:$DG), Moldelez International (Nasdaq:$MDLZ), Ingersoll-Rand PLC (NYSE:$IR) and CVS Corp (NYSE: $CVS).

The sales have little obvious in common, other than all but Ingersoll-Rand have a strong consumer focus.  Dollar General is a discount retailer of assorted sundries, CVS Corp is national chain of pharmacies, and Mondelez is a producer of packaged foods.   Yet Berkshire still maintains enormous positions in Coca-Cola (NYSE:$KO), Procter & Gamble (NYSE:$PG) and Wal-Mart (NYSE:$WMT), so  you can’t reach the conclusion that Buffett is bearish on the consumer.

Still, Berkshire’s portfolio has been consistently drifting away from consumer-oriented stocks for months and towards grittier industrial stocks and business services stocks such as IBM (NYSE:$IBM).

Disclosures: Sizemore Capital is long PG and WMT.  SUBSCRIBE to Sizemore Insights via e-mail today.

What Says the Big Money?

It’s that time of year again, dear reader.  Twice per year, Barron’s does a survey of large professional money managers to get their outlook for the market (see “Reason to Cheer”). I get a lot of value out of reading the survey results, but not necessarily for the reasons you might think.  This is a […]

It’s that time of year again, dear reader.  Twice per year, Barron’s does a survey of large professional money managers to get their outlook for the market (see “Reason to Cheer”).

I get a lot of value out of reading the survey results, but not necessarily for the reasons you might think.  This is a topic I first covered for Market Watch late in 2011 (see “Big Money Looks Bullish”).

It generally pays to invest with the Big Money.  After all, these are some of the best and brightest minds in the business, and they have the ability to move the market.  But even professionals can succumb to herding behavior at times.  When it appears that “everyone” is on the same side of a trade, surveys like these can be useful for crafting contrarian bets.  Ideally, you like to see a general consensus among the Big Money but not quite unanimity.

So what says the Big Money today?

They are more bullish than they were six months ago, which makes sense when you consider that the survey was done before April’s volatility put a damper on the first-quarter rally.  55% of those surveyed were “bullish” or “very bullish” about the market’s prospects through June 2013.  31% were “neutral,” and only 14% were “bearish” or “very bearish.”

This is the sort of bullish consensus I like to see; the Big Money is optimistic without being euphoric. 

Sentiment towards other asset classes tells a very different story, however.  81% of the investors surveyed were bearish on U.S. Treasuries.  17% were neutral, and only 2% were bullish.

Normally, skewed sentiment like that would get my pulse racing, and I would be tempted to take the other side of that bet.  2% bullishness would suggest that there is “no one left to sell,” in trader parlance.  Unfortunately, with Treasury yields what they are, there is simply not enough upside potential to make the trade worthwhile.  Even if the 10-year note were to fall in yield from its current 1.96% to something along the lines of 1.50%, this would not be a particularly profitable trade unless you used reckless amount of leverage.  Some trades are best left alone.

Bullishness is surprisingly high for Latin American stocks, at 53%.  39% are neutral on the region, and only 8% are outright bearish.

Interestingly, the Big Money is not particularly bearish on Europe, despite Spain’s recent travails.  56% were neutral on the region, and 27% and 17% were bullish and bearish, respectively.  It would appear that the Big Money agree with Sizemore Capital’s view that the attractive valuations on offer in Europe more or less compensate investors for the short-term risks they face in investing there (Sizemore Capital has a large allocation to Europe in its Tactical ETF Portfolio).

Returning to the U.S. market, the Big Money appears to be a bit torn with respect to Apple (Nasdaq:$AAPL).  Apple made the “favorite” list, but was also ranked as one of the eight most overvalued stocks.  Go figure.

At the sector level, I see some evidence of mild herding (see chart).  Technology, presumably led by Apple, was picked as the best performer for the next 6-12 months by 31% of respondents and as the worst by none.  Meanwhile, utilities were picked as the worst performer by 30% and as the best by only 3%.

During last year’s volatile second and third quarters, the utilities sector performed extraordinarily well relative to the rest of the market.  Given the low expectations for the sector, could another solid run be a possibility?

Given investor hunger for yield these days, utilities could easily enjoy a nice run in an otherwise choppy market.  Investors wishing to test this theory can buy shares of the Utilities Select SPDR (NYSE:$XLU).  It yields a handsome 4% in dividends and should provide some measure of protection should the market experience another wave of volatility.

Disclosures: Sizemore Capital has no position in any securities mentioned.