Warren Buffett’s Favorite Stock To Buy Has Reached A Milestone Only 8 Public Companies Have Ever Reached

For nearly six decades, Berkshire Hathaway (BRK.A 1.85%) (BRK.B 1.61%) CEO Warren Buffett has been put on a pedestal by Wall Street — and with good reason.

Since the “Oracle of Omaha,” as Buffett came to be known, took the reins in the mid-1960s, he has overseen a cumulative return of more than 5,710,000% in Berkshire’s ( BRK.A ) Class A shares , starting with the closing bell. on August 29. It also practically doubled the annualized total return, including dividends, of the widely followed S&P 500 for the same duration.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

Riding Buffett has been a winning strategy for long-term investors. Thanks to the quarterly 13F filing — a 13F that allows investors to look over the shoulder at what stocks Wall Street’s top money managers bought and sold in the most recent quarter — which reflects the trading activity of Berkshire’s brightest minds, which includes Warren Buffett. and his two “lieutenant” investors, Todd Combs and Ted Weschler, can easily be done.

However, the real apple of Buffett’s eye, and the stock that recently hit a milestone, only eight other public companies have ever realized, will not be found in Berkshire’s quarterly 13Fs.

The Oracle of Omaha has been a selective buyer lately

Despite being a staunch supporter of the US economy and American business, what Buffett and his team do in the short term doesn’t always match the long-term ethos that Charlie Munger has built at Berkshire Hathaway.

Based on both Berkshire’s public 13Fs and quarterly cash flow statements, investors will see that Buffett’s company has been a net seller of shares for seven straight quarters, worth nearly $132 billion . With Buffett overseeing the sale of about $5.4 billion Bank of America since mid-July, there’s a good chance we’ll see this net equity selling activity extended into an eighth quarter.

While Buffett has unwavering faith in the long-term American economy, he is also a value investor at heart. He wants to pay a “fair price” for “wonderful companies” and is willing to sit on his hands and wait until stock valuations make sense.

But that doesn’t mean Buffett’s buying activity has been non-existent—it just is very selective.

For example, he bought shares of the integrated oil and gas company Occidental Petroleum (OXY -0.40%) with some degree of consistency from early 2022. In addition to providing on-demand energy products, Occidental is very interested in its drilling segment. Generating a higher percentage of its revenue from drilling than other integrated operators can allow Occidental to enjoy a huge operating cash benefit if spot crude oil prices remain high.

During the COVID-19 pandemic, global energy companies have been forced to reduce their capital expenditures (capex) due to a cliff in demand for energy commodities and unprecedented uncertainty. Even with capital levels now back to normal, crude oil supply constraints remain, which may help boost the spot price.

Warren Buffett and his team were also buyers of the satellite radio operator Sirius XM Holdings (SIR 0.92%) and Liberty Media’s Sirius XM tracking stock, Sirius XM Liberty Group (LSXMA 1.67%) (LSXMK 1.66%).

In just over a week, Sirius XM and Liberty Sirius XM Group will merge to create a single class of shares. Sirius XM is also conducting a 1-for-10 reverse stock split upon completion of the merger to reduce its number of outstanding shares, boost its stock price and hopefully attract more interest from institutional investors.

The merger between legal satellite radio monopoly Sirius XM and Liberty Sirius XM Group has all the hallmarks of a rare arbitration game from the Oracle of Omaha.

Image source: Getty Images.

Warren Buffett’s favorite stock to buy just joined the exclusive company

But at the end of the day, neither Occidental Petroleum nor Sirius XM are Warren Buffett’s favorite stocks to buy. “Preferred stock” is a term reserved for the company for which the Oracle of Omaha acquired it 24 consecutive quarters.

As mentioned earlier, this “preferred stock” will not be found in Q13F. Rather, you’ll need to dig into Berkshire’s Hathaway’s quarterly operating results, which provide buying activity down to the penny of Warren Buffett’s favorite stocks. Near the end of each report, just before the executive certifications, you’ll find detailed information on stock repurchase activity, and you’ll come to the realization that Buffett’s stock buys more than any other (drum roll) shares of the own company.

Prior to mid-July 2018, there was no share repurchase activity at Berkshire. The guidelines in place allowed share buybacks only if Berkshire Hathaway’s stock fell to or below 120% of book value as of the most recent quarter. With the stock not falling at or below that threshold, Buffett and right-hand man Charlie Munger (who died in November 2023) were forced to sit on their hands.

On July 17, 2018, Berkshire’s board changed the criteria governing share buybacks to allow Buffett and Munger to enter the game. Berkshire’s board has not established any cap or end date for repurchase activity as long as:

1. The Company has at least $30 billion in cash, cash equivalents and U.S. Treasuries on its balance sheet; and
2. Buffett believes stocks are intrinsically cheap.

While the second point is entirely subjective, Berkshire, which has nearly $277 billion in cash, is a sizeable buffer that allows Buffett to regularly buy back shares of his own company. Over six years, he oversaw nearly $78 billion in buyouts.

It just so happens that Buffett’s favorite stock to buy hit a milestone last week that only eight other companies in history have ever achieved. As of the closing bell on Aug. 28, Berkshire became just the ninth public company to end a trading session with a market capitalization of at least $1 trillion. Seven of these eight exclusive companies are members of the “Magnificent Seven”, while the eighth is Saudi Aramco, which is not traded on US exchanges.

BRK.A distributes outstanding YCharts data.

Because Berkshire doesn’t pay dividends, relying on share buybacks is Buffett’s way of rewarding his company’s shareholders. Shrinking Berkshire’s shares outstanding by nearly 12.7% over the past six years has steadily increased the holdings of its remaining investors. More importantly, it shows the importance of long-term investing, which Charlie Munger preached during his decades at Berkshire.

Additionally, companies with flat or increasing net income and a decreasing number of shares outstanding through buybacks tend to see their earnings per share (EPS) increase. Over time, share buybacks have made Berkshire’s stock fundamentally more attractive to investors.

It can also be argued that overseeing nearly $78 billion in cumulative buybacks over six years is a testament to Warren Buffett’s faith in the company he has overseen for nearly 60 years.

Berkshire owns about five dozen businesses, and the Oracle of Omaha oversees a 45-stock, $318 billion investment portfolio that is comprised mostly of cyclical businesses. In other words, Buffett and his team bet heavily on the US economy and the expansion of top American businesses over time. It’s a simple numbers game that undoubtedly favors the long-term optimists.

While Berkshire Hathaway’s $1 trillion market cap is a big number, there’s no reason to think the stock won’t head even higher.