According to the Aggregated Portfolio of Gurus, a Premium feature of GuruFocus, four stocks that Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) and David Rolfe (Trades, Portfolio)’s Wedgewood Partners both own as of the third quarter are Apple Inc. (AAPL, Financial), Visa Inc. (V, Financial), U.S. Bancorp (USB, Financial) and Johnson & Johnson (JNJ, Financial).
Background
Buffett and co-manager Charlie Munger (Trades, Portfolio) seek long-term capital appreciation through a four-criterion investing approach that identifies good companies at fair prices. The Buffett-Munger Screener, a GuruFocus Premium feature, lists the companies that have a business predictability rank of at least four stars, strong competitive advantages, no meaningful long-term debt and an attractive price-earnings-to-growth ratio.
Likewise, Rolfe’s Wedgewood seeks companies with a dominant product with little or no substitutes, a sustainable level of earnings growth, a high return on equity without the use of excessive debt and a strong, shareholder-oriented management team.
Rolfe said in his third-quarter shareholder letter that he sold his longtime holding in Berkshire, having trimmed the position over the past several quarters.
The Wedgewood manager said in his second-quarter shareholder letter that Berkshire started becoming too large and that the conglomerate’s “cash drag” has impeded Wedgewood’s goal to achieve a 10% growth rate. Rolfe than further underscored in his third-quarter shareholder letter that Berkshire’s $125 billion cash hoard continues to impede Wedgewood’s growth.
Apple
Berkshire and Wedgewood have a combined holding of 35.85% in Apple as of third quarter-end according to the Aggregated Portfolio. Both Berkshire and Wedgewood have Apple as their largest holding: Buffett’s conglomerate owns 248,838,679 shares, occupying 25.96% of the equity portfolio, while Rolfe’s firm owns 498,382 shares, occupying 9.89% of the equity portfolio.
The Cupertino, California-based tech giant designs consumer electronic products like the iPhone, iPad, Mac and Apple Watch. GuruFocus ranks Apple’s profitability 10 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank and operating margins that outperform 96.37% of global competitors despite contracting approximately 3.4% per year on average over the past five years.
Rolfe said in his shareholder letter that while Wedgewood expects Apple to accelerate revenues as the company completes the development of 5G-capable iPhones, the company’s stock continues to trade at “undemanding earnings multiples.” GuruFocus lists several cautionary signs for Apple, including a share price, a price-earnings ratio and a price-sales ratio all near a 10-year high.
Despite the company’s high valuations, 36 gurus have a combined weight of 76.05% in Apple according to the Aggregated Portfolio of all Premium gurus, a GuruFocus Premium feature. Other gurus with holdings in Apple include Ken Fisher (Trades, Portfolio), Spiros Segalas (Trades, Portfolio) and Bill Nygren (Trades, Portfolio).
Visa
Berkshire and Wedgewood have a combined holding of 9.57% in Visa. Wedgewood’s 571,932 shares represent 8.72% of the equity portfolio, its third-largest holding.
The San Francisco-based company manages an open-loop global payment network that enables authorization, clearing and settlement of electronic payment transactions. GuruFocus ranks the credit card company’s profitability 10 out of 10 on several positive investing signs, which include a strong Piotroski F-score of 8, a five-star business predictability rank and operating margins that are near a 10-year high of 67.03% and outperform 93.35% of global competitors.
Rolfe said in his letter that companies like Visa and Mastercard Inc. (MA, Financial) “should have been layups” for Berkshire, given the conglomerate’s major holding in American Express Co. (AXP, Financial). The letter further mentions that Mastercard and Visa have “created strong wealth” during the “Great Bull Market” since 2009: Both Mastercard and Visa have returned a cumulative return in the four-digits. Instead of Berkshire having just a 0.85% equity portfolio weight in Visa and a 0.62% equity portfolio weight in Mastercard, Rolfe said Berkshire “should have had a 15% equity portfolio weight” in the two companies combined.
U.S. Bancorp
Berkshire and Wedgewood have a combined holding of 3.66% in U.S. Bancorp. Buffett’s conglomerate dedicated 3.41% weight in the Minneapolis-based regional bank, the conglomerate’s seventh-largest holding.
U.S. Bancorp operates four financial service segments: wholesale and commercial real estate banking; consumer and small-business banking; wealth management and securities services; and payment services. According to GuruFocus, U.S. Bancorp’s cash-to-debt ratio and debt-to-equity ratio are underperforming over 67% of global competitors, suggesting poor financial strength. The website also warns that U.S. Bancorp has increased its long-term debt by $2.1 billion over the past three years, a significant amount.
Johnson & Johnson
Berkshire and Wedgewood have a combined holding of 0.09% in Johnson & Johnson.
The New Brunswick, New Jersey-based company operates three business segments: pharmaceutical, medical devices and diagnostics and consumer. GuruFocus ranks Johnson & Johnson’s profitability 8 out of 10 on several positive investing signs, which include a strong Piotroski F-score of 8 and operating margins that are outperforming 87.95% of global competitors despite contracting approximately 1.6% per year on average over the past five years.
Disclosure: No positions.
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