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.

Warren Buffett Buying the Sizemore Investment Letter’s Picks

Lest I be accused of hero worship, I’ll spare readers another Warren Buffett lovefest article.  Yes, Buffett is a living legend, and yes, he is arguably the best investor of all time.  But these facts are nothing new, and there have already been more articles than I can count written about the man and his methods over the years.  Buffett has been elevated to something akin to a demigod in the minds of many value investors, and the art of investing like Buffett is a subject that has been thoroughly beaten to death by the financial press.

With all of this as a caveat, I’ll let readers in on a little secret:  I do like to keep tabs on what Buffett is buying or selling.

It is never a good idea to blindly ape the trades of another investor—even one with a track record like Buffett’s.  Due to the time lag in reporting with the SEC, an investor you follow may very well have sold the position you are copying by the time you buy it.  And what makes sense in that investor’s portfolio might make no sense at all in yours.

Still, given Buffett’s penchant for long investment time horizons, he’s a little easier to follow than most.  And, again, his track record over the years make him a man worth watching.

Imagine my pleasure this afternoon when I saw Berkshire Hathaway’s updated portfolio holdings for the third quarter of 2011 (see Warren Buffett’s portfolio).  Three out of Buffett’s five new additions were Sizemore Investment Letter recommendations.

Buffett initiated positions in SIL recommendations DirecTV ($DTV), Intel ($INTC), and Visa ($V).  His other two additions were pharmacy chain CVS ($CVS) and defense contractor General Dynamics ($GD).

While I was not invited to Buffett and partner Charlie Munger’s strategy sessions before these purchases were made (I’m sure my invitation was lost in the mail), I have a pretty good idea of what Buffett sees in DirecTV, Intel, and Visa.  Each is a leader in its respective industry, and all three benefit from durable, long-term macro trends.

Let’s start with DirecTV, the world’s largest provider of paid satellite television.  Given that TV-over-internet options like Netflix ($NFLX) and Hulu are increasingly crowding the turf of traditional paid TV—and given that the paid TV market in the United States is already saturated—Buffett’s choice here might raise a few eyebrows.

I can assume that Mr. Buffett’s rationale was the same as my own:  DirecTV is a direct play on rising living standards in the fast-growing markets of Latin America, where it already has 11.1 million subscribers (vs. 19.8 million in the United States).  Latin American revenues were up 46 percent in the 3rd quarter, due primarily to subscriber growth.  But even in the United States—where everyone already has paid TV service in one form or another—revenues were up 8 percent.  Not bad, given the precarious financial situation of the average American.  DirecTV is also very reasonably priced at just 10 times expected earnings.

Moving on to Intel, my only question to Buffett is “What took you so long?”

Intel absolutely dominates the market for computer processor chips.  But this very strength is what has caused investors to shun Intel.  You see, the PC is dead.  Smart phones and the iPad killed it.  And given that Intel is still quite weak in the mobile market, the company is resigned to be a slow-growth behemoth.  Who wants to own a dinosaur like Intel?

That story would seem to make sense at first.  The problem is that it’s simply not true.

The PC is far from dead.  Smart phones and tablet computers are growing at a much faster rate, of course.  And the PC market does depend more heavily on the corporate and enterprise market, which is not in the best of shape in this economy.  But tablets and smart phones do not replace a computer for most users.  And in most emerging markets, PCs are still very much a growth industry.

Intel’s revenues and earnings are growing at 28 percent and 17 percent year over year, respectively.  And that is in near recessionary conditions.  Meanwhile, the stock trades at just 9 times expected earnings and yields 3.4 percent.  At current prices, I consider Intel a safer investment than most AAA-rated bonds.

Finally, we come to Visa.  Visa and rival MasterCard ($MA)—also a Berkshire holding—have become somewhat trendy of late, but it wasn’t like that for most of the year.  Regulatory uncertainty cast a pall over credit card stocks, as did fears of a consumer slowdown.  Yet investors who were, in Buffett’s words, greedy when others were fearful did quite well in Visa and MasterCard.  Both are among the best-performing stocks of 2011.

Visa and MasterCard benefit from two powerful macro trends—the transition to a global cashless society and the rise of the emerging-market middle class.  As electronic payments become a larger share of commerce, credit and debit cards—as well as newer payment methods such as PayPal—will increasingly replace cash and checks.  And while this process is well on its way in the United States and other developed markets, it is only just beginning in most emerging markets.  This is a trend that will be with us for a while.

Visa trades for 14 times expected earnings, which is a bargain for a company with Visa’s brand, financial strength and growth prospects.

DirecTV, Intel, and Visa are all long-term holdings of the Sizemore Investment Letter.  And while Buffett’s reasons for purchasing may have been very different from our own, we’re glad to see the Sage of Omaha sharing our enthusiasm.

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