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Buffett Trimmed Kraft Stake as He Acquired Railroad

Berkshire Hathaway CEO Warren Buffett
Berkshire Hathaway CEO Warren Buffett tours the exhibition floor prior to the Berkshire Hathaway annual meeting in Omaha. Photographer: Daniel Acker/Bloomberg

Warren Buffett’s Berkshire Hathaway Inc. sold stakes in U.S. financial firms and cut stock holdings in some of the country’s biggest companies as the billionaire chairman seeks takeovers and looks abroad for growth.

Berkshire eliminated its stake in health insurers WellPoint Inc. and UnitedHealth Group Inc., lender SunTrust Banks Inc. and property-casualty carrier Travelers Cos., the Omaha, Nebraska- based company said yesterday in a regulatory filing disclosing U.S. equity investments at the end of the first quarter. Buffett’s firm reduced holdings in Kraft Foods Inc., Johnson & Johnson and Procter & Gamble Co.

Buffett, 79, has tapped Berkshire’s U.S. equity portfolio to fund the $27 billion acquisition of railroad Burlington Northern Santa Fe and arrange investments in securities that don’t trade on public exchanges. He invested abroad in the first quarter, making Berkshire the biggest shareholder of German reinsurer Munich Re, and told investors this month to expect “modest” returns from stocks.

“He’s going to try to get more creative on the domestic portfolio given the more slow-growth economy,” said Michael Yoshikami, chief investment strategist at Berkshire shareholder YCMNet Advisors. “He’s expanding his playing field to include more global assets and, I would add, to include more alternative assets in the United States.”

Buffett’s preferred stock holdings in Goldman Sachs Group Inc. and General Electric Co., which were executed in private deals during the 2008 financial crisis, boosted investment income last year. He told shareholders he’s ready to spend another $10 billion buying a whole company following the Burlington Northern deal, which was completed in February. Next year, he’ll visit Japan and India looking for opportunities.

Fewer U.S. Stocks

The number of U.S. stocks in Berkshire’s portfolio slipped to 33 as of March 31, compared with 39 a year earlier and 37 in 2008. The firm held a stake in Atlanta-based SunTrust since at least 2005, while its holdings of WellPoint and UnitedHealth date from at least 2007, according to Bloomberg data. Berkshire acquired New York-based Travelers in the third quarter.

Berkshire reduced investments in Johnson & Johnson, the health-care products company based in New Brunswick, New Jersey, by 12 percent, and in newspaper firm Gannett Co. by 21 percent. The firm cut its Procter and Gamble holding 9.6 percent. Berkshire’s Kraft stake fell 23 percent in the period as Buffett criticized the maker of Oreo cookies and Cheez Whiz for its takeover of Cadbury Plc and the sale of its pizza brands.

‘Particularly Dumb’

“Both deals were dumb,” Buffett told Berkshire investors May 1 in Omaha, where his company held its annual shareholders’ meeting. “The pizza deal was particularly dumb.”

Kraft slipped 52 cents, or 1.7 percent, to $30.03 at 4:15 p.m. in New York Stock Exchange composite trading. SunTrust dropped $1.85, or 6.2 percent, to $28.03, its biggest plunge in eight months. UnitedHealth fell 26 cents to $30.18. WellPoint lost 44 cents to $53.08. Travelers declined 29 cents to $49.83. Berkshire slipped 0.8 percent.

“The Cadbury acquisition is a great one for Kraft Foods,” said Michael Mitchell, a spokesman for the company, in an interview. He said Buffett cut other stakes as well, and “it does appear he has reduced his holdings in a number of companies to pay for the Burlington acquisition.”

Buffett, who is also Berkshire’s chief executive officer, advised investors to buy U.S. stocks during the 2008 slump and has since touted the long-term prospects of the country’s equities. Berkshire’s stock portfolio advanced 2.9 percent in the three months ended March 31 to $60.8 billion, according to the firm’s 10-Q quarterly filing.

“Over the next 10 years or 20 years I’d much rather own U.S. equities than cash or 10- and 20-year bonds,” Buffett said on May 1. “Equities are likely to give you some positive, modest positive, real return over time.”

Buffett’s Moves

Buffett uses Berkshire’s earnings and the premiums the firm collects from insurance customers to invest in stocks and bonds and acquire companies. Gains on long-time shareholdings such as Coca-Cola Co. and American Express Co. have swelled since the depths of the stock market slump in early 2009. Still, in recent years, Buffett has spent more on bonds and takeovers than on new equity holdings.

WellPoint, the largest U.S. health insurer by enrollment, has dropped 17 percent since March 30, when President Barack Obama signed legislation that added new taxes and regulations on the insurance industry while expanding coverage for the uninsured. UnitedHealth of Minnetonka, Minnesota, the second-biggest health plan, has lost 7.9 percent in that time.

Buffett makes most of the investment decisions at Berkshire, while Lou Simpson, 73, manages the portfolio for car-insurance unit Geico Corp. Buffett has cautioned investors against assuming all changes in the equity portfolio are his.

Berkshire Holdings

Berkshire’s filing showed a 9.4 percent reduction in its stake of ConocoPhillips, the third-biggest U.S. energy company. Holdings of Costco Wholesale Corp., the largest U.S. warehouse club, fell by 18 percent. Berkshire Vice Chairman Charles Munger is on Costco’s board of directors.

Buffett urged Americans to buy U.S. stocks in an October 2008 op-ed in the New York Times, saying he was adding equities in his personal portfolio. In the 18 months ended in March, Berkshire’s equity sales exceeded its purchases by $5.8 billion. Net purchases of fixed-income securities were $8.7 billion in the same period.

Munger said Buffett’s views should be taken as a relative endorsement of stocks over other asset classes rather than a prediction of historically outsized gains.

“Equities are the best of a bad lot of alternatives,” said Munger, 86, who shared the stage with Buffett at the meeting in Omaha. “I think we’re in for a long period where the ordinary result is not going to be that exciting.”

Stakes Trimmed

Berkshire trimmed its stake in CarMax Inc., the Richmond, Virginia-based used-car dealer, by 3.4 percent. The investment in Franklin Lakes, New Jersey-based Becton, Dickinson & Co., a maker of medical devices and supplies, climbed 16 percent. The firm added 2.5 million shares of Phoenix-based trash hauler Republic Services Inc., an increase of about 30 percent.

Hugh Suhr, a spokesman for SunTrust, and Cheryl Randolph of UnitedHealth declined to comment. WellPoint had no immediate comment.

Buffett has said higher returns are harder to realize as Berkshire grows. In the last decade, he’s focused on takeovers in regulated industries like power production to record steady profits. In February, Buffett completed his biggest takeover, buying the 77.5 percent of Burlington Northern that Berkshire didn’t already own. In recent years, some of his biggest stock bets have been outside the U.S.

Berkshire’s 2008 investment in Chinese carmaker BYD Co. soared to a market value of $1.99 billion at the end of December from a purchase price of $232 million. The stake in Munich Re, which competes with Berkshire selling reinsurance coverage, had a market value of about $2 billion as of yesterday.

Buffett’s firm disclosed a stake in the world’s largest reinsurer in January when the holding exceeded 3 percent. Berkshire now owns almost 8 percent of the Munich-based firm, according to Bloomberg data.

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