Warren Buffett's Berkshire Hathaway (BRK.B) -) boasts a record that's so good it's turned him into one of the world's wealthiest people, so it's safe to say he knows a thing about finding winning stocks.
Buffett's net worth is nearly $120 billion, and in addition to owning many companies outright, including GEICO, Berkshire Hathaway manages a stock portfolio valued at $348 billion.
Given his success, it's worth paying attention to what Warren Buffett buys. Fortunately, Berkshire Hathaway must file a quarterly 13-F report disclosing its holdings to the Securities and Exchange Commission.
Here's what stocks Warren Buffett targeted last quarter.
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Buffett makes some surprising buys in Q2
The Federal Reserve has increased interest rates substantially in the past year. As a result, Treasury yields have soared, causing mortgage interest rates to spike.
For example, the average national 30-year mortgage rate was 6.96% on August 10, up from a low of 2.65% in January 2021 and the highest since 2002.
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Rising rates have taken a toll on home affordability, denting demand. Yet Warren Buffett's Berkshire Hathaway bought shares in three homebuilders last quarter: D. R. Horton (DHI) -), Lennar (LEN.B) -), and NVR (NVR) -).
The moves suggest that Buffett or Berkshire lieutenants Todd Combs and Ted Weschler believe the worst may be behind the industry. While demand has fallen because of higher rates, home prices have remained strong because of limited new home supply.
According to the U.S. Census Bureau, the average national home price was $494,700 in June. One year ago, it was $472,000. The number of months of supply available on the market totaled just 7.4 months in June, down from 9.5 months last year.
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The relatively strong pricing and limited housing supply have offset some slowing demand, but housing stocks reported mixed year-over-year revenue and profit growth last quarter.
For example, D.R. Horton's revenue grew 11% from one year ago in the quarter ending May 31, but its profit per share slipped by 16%. Lennar's sales fell 4%, its profit sank 37% in the three months ending May, NVR's sales declined 13%, and earnings per share fell 6% in Q2.
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Despite the uneven performance, all three companies remain profitable, and Wall Street analysts have been increasing their full-year earnings estimates.
For example, analysts expected D.R. Horton to earn $11.1 per share in 2023 ninety days ago. Now, they expect it will earn $13.24 per share. Lennar's estimate has increased to $12.61 from $9.99, and NVR's has increased to $453.12 from $422.81 over the past 90 days.
Berkshire Hathaway exited the second quarter owning $726 million worth of D.R. Horton's stock. It owned just $17 million in Lennar's stock and $71 million in NVR stock. As a result, all three positions represent less than 0.25% of Berkshire Hathaway's assets under management.
These homebuilders were likely bought by Weschler or Combs, not Buffett, given their small size. Still, the decision is intriguing, given Berkshire Hathaway has insight into housing demand via companies it owns outright, including Clayton Homes and Benjamin Moore companies.
In addition to purchasing shares in these homebuilders, Berkshire Hathaway also increased its bet on Capital One (COF) -), acquiring over 2.5 million shares during Q2. It now owns nearly 12.5 million shares, valued at $1.36 billion, representing roughly 0.40% of Berkshire Hathaway's portfolio.
This is another intriguing buy. Capital One is expected to see its earnings per share slide 34% in 2023 because rising credit card delinquency rates require it to set aside more money to protect against defaults. Capital One's 30-day delinquency rate in June increased to 3.7%, up from 2.4% last year.
Warren Buffett also took advantage of lower oil prices last quarter, using their impact further to boost his stake in energy giant Occidental Petroleum (OXY) -).
Berkshire Hathaway bought 12.4 million Occidental shares, increasing Buffett's stake to 224.1 million shares, or roughly 24% of the company.
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