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Eight of Buffett's Ten Biggest Holdings Up for 2011

Holly LaFon

Holly LaFon

248 followers
While Berkshire Hathaway (BRK.A)(BRK.B) stock is down over five percent as the year draws to a close, most of Warren Buffett’s top holdings in his investment portfolio have delivered a positive return year to date. In a year clouded by scandal, natural disasters and market volatility, Buffett’s addiction to high-quality, large-cap stocks paid off. Eight of his 10 largest holdings have gone up year to date, while the only two banks in his top 10, Wells Fargo (WFC) and US Bancorp (USB), are down. His best performing stocks in 2011 are: IBM Corp. (IBM), Moody’s (MCO), Kraft (KFT) and GlaxoSmithKline (GSK).

This is the complete list of his stocks with positive year-to-date returns:

IBM 22.94%

MCO 22.83

KFT 15.8

GSK 14.46

COST 14.35

XOM 9.63

AXP 9.23

WMT 8.05

SNY 7.88

TMK 5.81

JNJ 3.96

KO 2.54

PG 1.26

COP 0.44



IBM Corp. has a market cap of $221 billion. It is undeniably a high quality company, having just celebrated its 100th anniversary, transformed through numerous technological changes, and continuing to grow. Buffett made IBM his second largest holding over the course of the year. He began quietly accumulating the stock in the first quarter of 2011, buying 4,517,774 shares at about $159 per share. In the second quarter he bought 20,336,970 shares at about $162 per share, and in the third quarter he bought 32,494,240 shares at about $173 per share. On a November 14 CNBC interview, he said that in total he owned 64 million shares, as one more small purchase would be disclosed in the fourth quarter. At an average total cost of $170, he has already made a 10% gain.

Some people viewed the IBM investment as Buffett turning a new corner and embracing technology stocks. Buffett, however, did not explain it that way. In the CNBC interview where he dropped the news, he said he had been reading the centenarian company’s annual report for 50 years and never invested, but something new changed his mind this year. Rather than a high-tech company, he believes IBM has morphed into “a company that helps IT departments do their job better.”

He also said that “big, strong American companies look cheap compared to investment alternatives.” Big, strong American companies are the type Buffett has almost always gone for, and he has to in order to make a worthwhile profit for Berkshire.

Moody’s Corp., Buffett’s stock with the second-largest return so far this year, is in the industrial goods and services sector, which he has long favored. He has held Moody’s stock since it spun off from Dun & Bradstreet Corp. (DNB) (which he owned shares of) in 1998 and traded for about $10 per share.

Buffett sold many shares in the latter half of 2009 and in 2010, after the stock went down to the $20 range, when he famously could have sold in 2006 and 2007 when it was at its all-time highs around $70 per share. At Wednesday’s price of about $34, the investment is still quite profitable.

Moody’s in many ways has had less solid financial results in the last three years than it did in the middle of the decade. Cash flow has increased annually since 2008, but is still near 2005 levels. Similarly, revenue has increased for three years, but is lower than it was in 2005.

For 2011, the company has reaffirmed its earnings per share guidance, but lowered its revenue guidance, which it expects to grow in the low-double-digit range. In the second quarter of the year, it had raised revenue guidance to the low-teens percent range.

The company has also made major acquisitions this year. It acquired Barrie & Hibbert Limited, which provides risk management modeling tools for insurance companies, for $77.6 million cash. It also bought a majority stake in Copal Partners, which provide outsourced research and analytical services to institutional customers.

Buffett’s third-best performing stock, Kraft Foods, is also a well-established, gigantic company — the world’s second-largest food company. He bought 69,583,800 shares at about $33.50 per share for his first purchase in the second quarter of 2007. He accumulated more over the next three quarters at close to the same price until he built a holding of 106,734,745 shares. He has since reduced his holding to 89,746,708 at the end of the third quarter this year. At $37 on Wednesday, Kraft shares have not advanced much since he initiated his position.

The company has grown revenue by an annual rate per share of 6.1%, though free cash flow grew at a 10-year annual rate per share of 0.6%. Kraft pays a 3.1% dividend yield with a 53% payout ratio. Kraft is a vast company — it markets brands in approximately 160 countries, and 11 of its brands earn more than $1 billion a year. Forty of its brands have existed for at least a century.

Buffett’s sales began about the same time the company made some major changes. In January 2010, it bought Cadbury for over $19 billion in a hostile takeover, which Buffett vocally opposed. In August 2011, Kraft announced that it would split into separate snacks and grocery companies. That time, Buffett said he was “in the stock with both feet” and that “It’s a good business and now it’ll be two good businesses,” although he sold 9,720,916 shares that quarter.

GlaxoSmithKline (GSK) is a smaller holding, comprising .11% of Buffett’s portfolio, but it is up 15% year to date. He bought 1,510,500 shares in the fourth quarter of 2007 at about $51.50 and has been holding them since. The stock has yet to reach his purchase price again, so over the long-term, it represents a loss. The company does pay a 4.9% dividend yield, though revenue and earnings per share have both been declining since 2007.

To see more of Warren Buffett’s portfolio, go here.


Rating: 3.2/5 (15 votes)

Comments

The Science of Hitting
The Science of Hitting premium member - 2 years ago
Plus all those dividends rolling into Omaha for reinvestment...

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