Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway has revealed its latest 13F filing for the third quarter of 2024, offering a glimpse into the legendary investor's evolving strategies in a turbulent economic environment. As always, the report sheds light on the stocks Buffett and his team bought, sold, or trimmed, but what stands out this time is the sheer size of Berkshire's cash reserves. With a record $325.2 billion in cash and cash equivalents, up from $276.9 billion just three months prior, Buffett's latest moves signal caution, strategic diversification, and an eye toward future opportunities.

Let's dive deeper into what Berkshire Hathaway's latest adjustments reveal about Buffett's approach and how these changes fit within his long-standing value-investing philosophy.

Major Reductions: The Apple and Bank of America Pullbacks

Berkshire Hathaway's portfolio reshuffle this quarter was led by substantial reductions in its two largest holdings—Apple (AAPL, Financial) and Bank of America (BAC, Financial). These moves come as a surprise to some, given the weight these companies have carried in Berkshire's portfolio over the years.

• Apple (AAPL, Financial): Apple has long been a cornerstone of Berkshire's equity portfolio, accounting for as much as 50% of its stock holdings at its peak in 2023. However, this quarter saw a significant reduction, with over $20 billion in Apple shares sold. This move appears to be driven by a combination of reasons, including diversification, valuation concerns, and growing geopolitical risks tied to Apple's heavy reliance on China for manufacturing and sales. Buffett has expressed in the past his admiration for Apple's ecosystem, branding, and customer loyalty, calling it “probably the best business I know in the world.” Yet, with growing concerns over U.S.-China relations and fears of sanctions akin to those imposed on Russia, Buffett may be positioning Berkshire to mitigate risks tied to Apple's global supply chain.
• Bank of America (BAC, Financial): A long-time holding for Berkshire, Bank of America was also trimmed by 23%. This reduction likely reflects broader challenges facing the banking sector, including rising unrealized bond losses due to the Federal Reserve's high interest rate policy. Additionally, trimming BAC aligns with Buffett's broader trend of scaling back exposure to financial institutions, which began during the pandemic and has accelerated in recent quarters.

New Investments: Domino's Pizza and Pool Corp Signal Strategic Shifts

Despite the pullbacks, Buffett made room for new investments, introducing Domino's Pizza (DPZ, Financial) and Pool Corp (POOL, Financial) to Berkshire's portfolio. These additions highlight Buffett's continued focus on well-managed, consumer-facing businesses with strong market positions and economic moats.

• Domino's Pizza (DPZ, Financial): Domino's is a textbook Buffett pick. The company operates a franchise-heavy model with consistent cash flows and strong returns on invested capital. Analysts at Morningstar praise Domino's “fortressing” strategy, which prioritizes delivery efficiency by clustering stores in high-demand areas. This approach, combined with its lean menu and international scalability, underpins Buffett's confidence in the company's long-term profitability.
• Pool Corp (POOL, Financial): Pool Corp is another new addition, albeit a less conventional one. As a leading distributor of swimming pool supplies and related products, Pool Corp operates in a niche market that has seen stable demand. Its inclusion in Berkshire's portfolio reflects Buffett's willingness to explore opportunities outside traditional industries like banking, insurance, and consumer goods.

Incremental Gains: Heico and Sirius XM Show Niche Focus

Berkshire continued to build positions in two existing holdings: Heico Corp (HEI, Financial) and Sirius XM Holdings (SIRI, Financial).

• Heico Corp (HEI, Financial): An aerospace and defense supplier, Heico specializes in niche replacement parts for commercial aircraft and defense products. Its narrow economic moat stems from high switching costs and long product cycles, making it a reliable, if expensive, investment.
• Sirius XM Holdings (SIRI, Financial): Berkshire's increased stake in Sirius XM is somewhat puzzling, given the company's challenges. Sirius XM faces intense competition from streaming platforms like Spotify and Apple Music, which offer superior value propositions for most consumers. However, Sirius XM's strong cash flow generation may appeal to Buffett's preference for businesses with predictable returns. Berkshire now owns nearly one-third of Sirius XM's outstanding shares.

Exits and Trims: Strategic Retrenchment

In addition to reducing stakes in Apple and Bank of America, Berkshire made significant cuts to positions in Capital One (COF, Financial), Charter Communications (CHTR, Financial), Nu Holdings (NU, Financial), and Ulta Beauty (ULTA, Financial). The firm also exited its position in Floor & Decor (FND, Financial) entirely. These moves suggest a continued focus on consolidating the portfolio around core holdings and reducing exposure to more volatile or speculative sectors.

One of the more surprising moves this quarter was Berkshire's near-complete exit from Ulta Beauty (ULTA, Financial), just one quarter after initiating the position. This rapid turnaround is unusual for Buffett, who is known for his long-term investment horizon. The reasoning behind this exit remains unclear, but it may point to a reassessment of Ulta's valuation or growth potential. With Ulta shares trading at elevated multiples earlier in the year, it's possible that Buffett saw better uses for Berkshire's capital amid rising interest rates and tightening economic conditions.

The Record Cash Pile

Perhaps the most striking feature of Berkshire's Q3 2024 filing is its cash position, which reached a record $325.2 billion.

This immense war chest has fueled speculation about Buffett's plans:

• Market Correction: Analysts believe Buffett may be waiting for a significant market downturn to deploy this cash. Historically, Buffett has capitalized on market corrections to make bold acquisitions, as seen during the financial crisis of 2008.
• Future Buybacks: Some speculate that the cash hoard could be earmarked for substantial stock buybacks under Vice Chairman Greg Abel's leadership.
• Special Dividend: A one-time dividend for Class A shareholders could also be a possibility, though this would mark a departure from Berkshire's traditional reluctance to issue dividends.

Interestingly, Berkshire did not repurchase its own shares in Q3 2024, a first since 2018. Morningstar analysts attribute this to the stock trading close to its fair value for much of the quarter, making buybacks less attractive.