Berkshire Hathaway released its most recent 13-f yesterday afternoon. The information revealed unusual activity in Berkshire Hathaway's portfolio during the fourth quarter. There was a lot of buying and selling of various positions.
Overall, Warren Buffett was a net seller in the fourth quarter of 2009. This is hardly surprising since Warren Buffett needed to raise cash to finance the acquisition of Burlington North Sante Fe. Warren Buffett reduced his stake in 11 out of the 41 stocks that are reported in Berkshire Hathaway's 13-F. The companies Buffett reduced his stake in were CarMax, Conoco Phillips, Exxon Mobil, Gannett, Ingersoll Rand, Johnson & Johnson, Moody’s, Proctor & Gamble, Sun Trust Bank, United Health Group, and WellPoint. He added to several positions including one of his favorite companies Wells Fargo.
One of the strangest moves Warren Buffett made was his large decrease in Exxon Mobil. Warren Buffett only acquired a stake in the company during the 3rd quarter of 2009. It is very uncharacteristic of Warren Buffett to trade so quickly especially since there was no significant increase (in fact there was likely a decrease) in the stock price from the time Buffett made the purchase. The move was not insignificant; Warren Buffett reduced his stake in Exxon Mobil by approximately 70%.
The move is extra bizarre because Warren Buffett had initially only purchased a small stake in Exxon Mobil. In the third quarter of 2009 he purchased slightly under $100 million of the company. Warren Buffett never makes transactions of less than 100 million, leading many to suspect (myself included) that he would be buying more stock of the company over time.
I doubt he reduced his stake in Exxon Mobil to raise cash for the BNI deal. He only had a small stake in the company to begin with as I mentioned above. If he wanted to raise cash he would have sold a few more shares of large holdings like Johnson & Johnson and Wells Fargo.
This leads to only two possibilities in my mind: either Warren Buffett is becoming a trader or there was a material change in Exxon Mobil. I highly doubt it is the former and assume it to be the later.
I have thought of two possibilities of why Warren Buffett made this decision and they both have to do with the big news that hit the wires on December 14, 2009: Exxon Mobil was going to buy XTO energy in a multibillion dollar transaction.
The company announced that it would be purchasing XTO energy for $41 billion which includes $41 billion of existing XTO debt. A large part of the transaction would be financed through issuing stock to the shareholders of XTO. Exxon Mobil has agreed to issue 0.7098 of a share of common stock for each common share of XTO.
Exxon Mobil is not exactly over valued currently. A quick analysis of the company shows that it is trading at 9 time’s future P/E, and 6.7 times EBITDA. It seems that Exxon would be better off issuing debt when interest rates are at zero to finance the deal as opposed to issuing more undervalued stock. Warren Buffett is no fan of company buyouts with undervalued stock. The main reason Buffett has been so opposed to the Kraft-Cadbury deal is because Kraft is partially financing the deal with its stock. Warren Buffett believes Kraft to be undervalued and is therefore making a mistake by conducting the transaction with so much stock.
The second reason that I believe Warren Buffett is against the deal has to with the reason Exxon made the offer to buy XTO. According to many analysts the deal is a pure play on natural gas. XTO is one of the largest natural gas producers in the country.
I am not an expert on energy policy but I see two possibilities for the United States getting reducing its dependence off oil and coal in the near future; natural gas or nuclear technology. The United States has a huge supply of domestic natural gas. While natural gas does produce carbon emissions, it produces far less than oil or coal which currently the United States is heavily dependent on. It would be an alternate energy source for the country at least in the near future.
Nuclear power produces zero emissions; however there are many cons about nuclear technology which I will not get into now. Lately it looks like the Obama administration is taking the Nuclear power route to make the country more energy independent. For the 2011 budget, President Obama proposed y issuing over $54 billion in loan guarantees to expand nuclear power and reduce carbon emissions. In fact Obama recently issued $8 billion loan guarantees recently for two nuclear plants to be built in the Georgia (although this action happened after Buffett’s sale of XOM, maybe Buffett saw this coming especially since Obama consults with him on economic policy from time to time). This is a significant move since this could lead to the first nuclear plant being built in America in over three decades.
This is very bad news for natural gas (and other energy sources). If Obama stresses nuclear power while simultaneously Exxon Mobil is hedging its future on natural gas, XOM is in big trouble. This is not a small bet by Exxon Mobil. The company has proposed a deal worth tens of billions of dollars that is an all in play on natural gas. Maybe, this is another reason why Warren Buffett aggressively sold so much stock in Exxon Mobil.
Disclosure: long Brk.B, XOM, IR, WLP, COP, WFC and PG
I give Credit to Guru Focus columnist Ravi Nagarajan of rationalwalk.com for pointing out the sale of Exxon Mobil by Warren Buffett.
Overall, Warren Buffett was a net seller in the fourth quarter of 2009. This is hardly surprising since Warren Buffett needed to raise cash to finance the acquisition of Burlington North Sante Fe. Warren Buffett reduced his stake in 11 out of the 41 stocks that are reported in Berkshire Hathaway's 13-F. The companies Buffett reduced his stake in were CarMax, Conoco Phillips, Exxon Mobil, Gannett, Ingersoll Rand, Johnson & Johnson, Moody’s, Proctor & Gamble, Sun Trust Bank, United Health Group, and WellPoint. He added to several positions including one of his favorite companies Wells Fargo.
One of the strangest moves Warren Buffett made was his large decrease in Exxon Mobil. Warren Buffett only acquired a stake in the company during the 3rd quarter of 2009. It is very uncharacteristic of Warren Buffett to trade so quickly especially since there was no significant increase (in fact there was likely a decrease) in the stock price from the time Buffett made the purchase. The move was not insignificant; Warren Buffett reduced his stake in Exxon Mobil by approximately 70%.
The move is extra bizarre because Warren Buffett had initially only purchased a small stake in Exxon Mobil. In the third quarter of 2009 he purchased slightly under $100 million of the company. Warren Buffett never makes transactions of less than 100 million, leading many to suspect (myself included) that he would be buying more stock of the company over time.
I doubt he reduced his stake in Exxon Mobil to raise cash for the BNI deal. He only had a small stake in the company to begin with as I mentioned above. If he wanted to raise cash he would have sold a few more shares of large holdings like Johnson & Johnson and Wells Fargo.
This leads to only two possibilities in my mind: either Warren Buffett is becoming a trader or there was a material change in Exxon Mobil. I highly doubt it is the former and assume it to be the later.
I have thought of two possibilities of why Warren Buffett made this decision and they both have to do with the big news that hit the wires on December 14, 2009: Exxon Mobil was going to buy XTO energy in a multibillion dollar transaction.
The company announced that it would be purchasing XTO energy for $41 billion which includes $41 billion of existing XTO debt. A large part of the transaction would be financed through issuing stock to the shareholders of XTO. Exxon Mobil has agreed to issue 0.7098 of a share of common stock for each common share of XTO.
Exxon Mobil is not exactly over valued currently. A quick analysis of the company shows that it is trading at 9 time’s future P/E, and 6.7 times EBITDA. It seems that Exxon would be better off issuing debt when interest rates are at zero to finance the deal as opposed to issuing more undervalued stock. Warren Buffett is no fan of company buyouts with undervalued stock. The main reason Buffett has been so opposed to the Kraft-Cadbury deal is because Kraft is partially financing the deal with its stock. Warren Buffett believes Kraft to be undervalued and is therefore making a mistake by conducting the transaction with so much stock.
The second reason that I believe Warren Buffett is against the deal has to with the reason Exxon made the offer to buy XTO. According to many analysts the deal is a pure play on natural gas. XTO is one of the largest natural gas producers in the country.
I am not an expert on energy policy but I see two possibilities for the United States getting reducing its dependence off oil and coal in the near future; natural gas or nuclear technology. The United States has a huge supply of domestic natural gas. While natural gas does produce carbon emissions, it produces far less than oil or coal which currently the United States is heavily dependent on. It would be an alternate energy source for the country at least in the near future.
Nuclear power produces zero emissions; however there are many cons about nuclear technology which I will not get into now. Lately it looks like the Obama administration is taking the Nuclear power route to make the country more energy independent. For the 2011 budget, President Obama proposed y issuing over $54 billion in loan guarantees to expand nuclear power and reduce carbon emissions. In fact Obama recently issued $8 billion loan guarantees recently for two nuclear plants to be built in the Georgia (although this action happened after Buffett’s sale of XOM, maybe Buffett saw this coming especially since Obama consults with him on economic policy from time to time). This is a significant move since this could lead to the first nuclear plant being built in America in over three decades.
This is very bad news for natural gas (and other energy sources). If Obama stresses nuclear power while simultaneously Exxon Mobil is hedging its future on natural gas, XOM is in big trouble. This is not a small bet by Exxon Mobil. The company has proposed a deal worth tens of billions of dollars that is an all in play on natural gas. Maybe, this is another reason why Warren Buffett aggressively sold so much stock in Exxon Mobil.
Disclosure: long Brk.B, XOM, IR, WLP, COP, WFC and PG
I give Credit to Guru Focus columnist Ravi Nagarajan of rationalwalk.com for pointing out the sale of Exxon Mobil by Warren Buffett.
