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New Warren Buffett Purchases Also Owned by George Soros

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Holly LaFon

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Warren Buffett rose to prominence buying stocks in large American icons and holding long term, and purchasing large companies through his insurance conglomerate, Berkshire Hathaway. George Soros, founder of the best-performing hedge fund in history, the Quantum Fund, became famous after he made $1 billion speculating on the British pound during the 1992 currency crisis. He has said that he invests based on the belief that the market is driven by the emotions of human beings who buy stocks, bonds and currencies, rather than logical calculations. He also benefits from an uncanny ability to predict the emergence of financial bubbles.

These are three new third-quarter purchases of Warren Buffett that the two masters of finance have in common: DirecTV (DTV), IBM (IBM), and CVS (CVS).

George Soros and Warren Buffett also both own Kraft (KFT), SanofiAventis ADS (SNY), Wells Fargo (WFC), Visa (V), MasterCard (MA), and General Dynamics (GD).

IBM (IBM)

George Soros owns 25,400 shares of IBM, valued as $4 million as of Sept. 30, 2011, which accounts for 0.08% of his equity portfolio. Warren Buffett owns 57,348,984 shares of IBM, valued as $10.029 million as of Sept. 30, 2011, which accounts for 16.98% of his equity portfolio.

Buffett broke a lifelong personal rule against investing in tech stocks in the third quarter, with IBM being his largest new position. He said on CNBC’s Squawk Box that he read IBM’s annual report for 50 years but suddenly saw the company from a new perspective in 2011, though it had likely been a good investment for several years and he just did not recognize it. He liked that IBM was a go-to company for many IT departments, who were frequently loyal to IBM for years, and that it had drifted away from hardware to become more of a services company. Major share buybacks and a shareholder-centric management were factors he appreciated as well.

IBM’s 2010 annual report told of record pre-tax earnings, record earnings per share, record free cash flow and improved profit margins, with increased revenues. It described the growth as a result of a long-term vision for where the world was heading and the moves it made accordingly a decade ago. After achieving the goals it set out in its previous five-year plan, it has laid out another plan for the next five years, which Buffett believes it will execute based on prior performance. The plan focuses on growth markets, business analytics and optimization, and cloud and smarter computing.

Soros cut back his IBM position in the third quarter, selling 125,000 shares of his stake of 150,400. He opened and closed small positions in the stock at a profit numerous times in the last decade.

DirecTV (DTV)

George Soros owns 401,503 shares of DTV, valued as $17 million as of Sept. 30, 2011, which accounts for 0.11% of his equity portfolio. Warren Buffett owns 4,249,400 shares of DTV, valued as $180 million as of Sept. 30, 2011, which accounts for 0.30% of his equity portfolio. CVS is a new, rather small holding for Berkshire Hathaway (BRK.A)(BRK.B), indicating that it was likely acquired by one of Buffett’s future successors than Buffett himself.

DirecTV is a provider of digital multichannel television entertainment in the United States and Latin America. It began as a small start up in 1994 and has grown to be the world’s leading provider of digital television.

DirecTV has a market cap of $33.69 billion; its shares were traded at around $45.63 with a P/E ratio of 14.4 and P/S ratio of 1.4. DirecTV had an annual average earnings growth of 34.7% over the past 10 years.

Buffett has never owned DTV stock before the third quarter of this year, but Soros has a profitable history with DTV. He has bought and sold the stock intermittently for over five years, and most recently began buying shares in the second quarter of 2009 at an average price of $24.02. In the third quarter of 2011, he sold 631,750 shares at an average of $46.35. Buffett likely bought DirecTV after the stock price nosedived in early August to lows not seen since the beginning of the year. At the same time, on August 4, DirecTV announced that it had reached a historic milestone: It signed up its 30 millionth customer.

In the third quarter, both DirecTV’s North American and Latin American divisions, as well as its sports networks, saw revenue growth. The increase was helped by the net addition of 327,000 subscribers in the U.S., up from 174,000 the previous year. In Latin America, 574,000 net new customers subscribed, up from 206,000 the previous year. In the cut-throat world of cable and satellite TV providers, DirecTV ranked No. 1 in customer satisfaction over all of them, based on a 2011 American Customer Satisfaction Index Survey.

Further, the company’s free cash flow grew for the last four years and became $2.8 billion in 2010. It does not pay a dividend but has been repurchasing shares generously since 2005.

CVS (CVS)

George Soros owns 231,735 shares of CVS, valued as $8 million as of Sep. 30, 2011, which accounts for 0.13% of his equity portfolio. He has traded the stock for at least five years and in the third quarter sold 277,100 shares. Warren Buffett bought 5,661,000 shares of CVS in the third quarter, valued as $190 million as of Sept. 30, 2011, which accounts for 0.32% of his equity portfolio.

CVS/Caremark is the nation's premier integrated pharmacy services provider, combining one of the nation's pharmaceutical services companies with the country's largest pharmacy chain. CVS Caremark has a market cap of $52.14 billion; its shares were traded at around $38.77 with a P/E ratio of 14.3 and P/S ratio of 0.5. The dividend yield of CVS Caremark stocks is 1.3%. CVS Caremark had an annual average earnings growth of 13.4% over the past 10 years. GuruFocus rated CVS Caremark the business predictability rank of 4.5-star.

CVS is another stock whose stock price saw drop of about $4 in early August after advancing robustly for the year, similar to DirecTV, meaning he got it at a discount. The price has already rebounded to July’s prices as of Tuesday. CVS has a record of strong financial performance, though revenue dipped slightly, to $96.4 billion in 2010 from $98.7 billion in 2009. Since 2007 it has had copious free cash flow, reaching $2.8 billion in 2010.

CVS is the largest retail pharmacy chain in the U.S. based on number of stores. Currently the retail drug chain industry is facing the threat of lowered reimbursement for Medicaid programs due to state and federal budget deficits. Already, in October, California’s Department of Health and Human Services (HHS) approved reimbursement cuts for Medi-Cal, California’s Medicaid program. The congressional super committee charged with reducing the national deficit by at least $1.2 trillion is currently debating the Democrats’ second budget proposal, which would cut $400 billion in Medicare and Medicaid.

To see more stocks held by two or more gurus in common, go to GuruFocus’ Aggregated Portfolio Screener.


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