A highlight of Buffett’s letter to shareholders is always the disclosure of his big equity holdings: investments worth $US700 million or more.
It gives a clue as to where he sees value and the sorts of shares he likes.
This year there are 17 companies on the list, up from 12 last year.
This increase came in a year when the Dow regained its previous record level and then moved through 12,000 points to a succession of new highs.
So Buffett and Berkshire didn’t just add new stocks and increase existing holdings (some of these appear on the list because the value moved above $700 million for the first time): they did it with market momentum moving the right way.
No wonder the value of the listed stocks jumped $US16 billion to $US62 billion at the end of last December.
There were two more stocks undisclosed even though their value exceeded the $US700 million minimum. For why he didn’t reveal the names, read below.
That means there are in fact 19 stocks worth $US700 million or more: so in effect there was a 50 per cent increase in the number of big equity holdings last year.
That sounds like a pretty big bet on market direction to me which he got right (hence that huge increase in value).
The names on the list for the first time were oil group Conoco Phillips, healthcare products giant Johnson and Johnson, Korean steel company POSCO, British supermarket giant Tesco, US Bancorp and USG.
A look back at SEC filings shows that USG has been held for some years but Berkshire more than doubled its stake in 2006, hence its appearance on the list. USG is the old US Gypsum, a building products giant and competitor for the likes of James Hardie.
US analysts say that the POSCO shares appear to have been held for a little while (without any one knowing) but rose above the $US700 million minimum.
It was considered a surprise in that it was in an area (steel products) that Buffett hasn’t been active in a significant way in the past.
The other four new stocks, Conoco, Johnson & Johnson, Tesco, and US Bancorp, were mentioned in filings made last year or market related stories.
Posco and Tesco are interesting moves because it shows Buffett is now looking outside the US for value in some industries: steel and retailing.
The only company that disappeared from the list between year end in calendar 2006 was Ameriprise (a financial advice company), in which Berkshire acquired its holding when it was spun off from American Express in 2005. Berkshire sold most but not all the shares.
There are two companies named in both the 2005 and 2006 lists where Berkshire has made relatively large changes: it increased its stake in Wells Fargo (banking) by around 15% and cut its position in brewer, Anheuser-Busch by 17%.
Here’s what he said in the letter to shareholders:
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We show below our common stock investments. With two exceptions, those that had a market of more than $700 million at the end of 2006 are itemized. We don’t itemize the two securities referred to, which have a market value of $1.9 billion, because we continue to buy them. I could, of course, you their names. But then I would have to kill you.
We are delighted by the 2006 business performance of virtually all of our investees.
Last year, we told you that our expectation was that these companies, in aggregate, would increase their earnings by 6% to 8% annually, a rate that would double their earnings every ten years or so. In 2006 American Express, Coca-Cola, Procter & Gamble and Wells Fargo, our largest holdings, increased per-share earnings by 18%, 9%, 8% and 11%. These are stellar results, and we thank their CEOs.
