Warren Buffett’s stock-buying frenzy slowed sharply in the second quarter, even amid the market’s major correction, and analysts said the “Oracle of Omaha” could receive capital for other uses. Berkshire Hathaway’s net stock purchases fell to $3.8 billion in the second quarter, compared with more than $41 billion in the first quarter, the conglomerate’s earnings reports showed. Buffett’s relatively quiet activity may surprise some, as the S&P 500’s biggest one-quarter drop since March 2020 has created a good environment for dip buying. After all, the legendary investor dove into the market for bargains during the first quarter when the S&P 500 fell just 5%. CFRA Research analyst Cathy Seifert said Buffett could manage liquidity needs ahead of his Allegany deal closing in the next few months. The conglomerate’s deal to buy insurance company Alleghany for $11.6 billion, or $848.02 per share in cash, is expected to close in the fourth quarter of this year. The acquisition would be Buffett’s biggest deal since 2016. Seifert also expects Berkshire to increase its stake in Occidental Petroleum to more than 20%. Buffett has steadily increased his stake in the oil giant since March, giving Berkshire a 19.4% stake in Occidental worth about $10.9 billion. Ramp up buybacks? Berkshire could also save money to buy more of its own stock. The conglomerate said it spent about $1 billion on share buybacks in the second quarter, a slower pace of buybacks than in the first quarter when the company repurchased $3.2 billion of its own stock. After Berkshire’s stock tumbled after its second-quarter sell-off, the conglomerate could reignite buyback activity in the coming quarter. “We wouldn’t be surprised if BRK stock buybacks continued in Q3’22 given the discount the stock appears to be trading at to its intrinsic value,” said Brian Meredith, UBS analyst for Berkshire, in a message. The conglomerate’s Class A shares fell more than 22% in the second quarter and are now down nearly 20% from an all-time high hit March 28. Stock buybacks typically depend on Buffett believing the stock is trading at a large enough discount to its intrinsic value and other uses of cash. Berkshire Hathaway Energy? Berkshire’s most recent quarterly filing also revealed that Vice Chairman Greg Abel, Buffett’s potential successor, sold his 1% stake in the company’s Berkshire Hathaway Energy unit for $870 million. Berkshire now owns 92% of Berkshire Hathaway Energy, with the rest owned by the family of the late philanthropist Walter Scott, who passed away last September at the age of 90 for nearly $7 billion, according to Edward Jones analyst James Shanahan. “I don’t know what they have in mind, but I think Buffett would love to own the entire BHE,” Shanahan said. Huge CAPEX Losses While Berkshire reported a 38% increase in operating profits, the conglomerate wasn’t immune to the broader market turmoil with a whopping $53 billion loss on its investments in the second quarter. Buffett again urged investors not to focus on quarterly swings in his stock investments. “The level of investment gains/losses in any given quarter is typically meaningless and provides net earnings per share figures that can be highly misleading to investors with little or no knowledge of accounting regulations,” Berkshire said in a statement. Still, the pullback in his existing portfolio may have given Buffett pause, Seifert said. Most of the losses came from Berkshire’s largest positions, including Apple (down $34 billion on Berkshire’s position in Q2), Bank of America (down $10 billion), and American Express (down $7 billion). . These positions have recouped some of the losses in the current quarter. “We estimate that a rebound in prices for Berkshire-owned stocks reversed a significant portion of the decline in book value in the second quarter,” Shanahan said.
