Berkshire halves Apple stake, boosts cash to $277 billion even as operating profit sets record By Reuters

By Jonathan Stempel

(Reuters) – Warren Buffett appears to be getting a kick out of stocks, allowing Berkshire Hathaway Inc’s cash pile to soar to nearly $277 billion and selling about half his stake in Apple Inc, even as the company posted record quarterly operating profit.

Berkshire’s results suggest that the 93-year-old Buffett, one of the world’s most respected investors, has become increasingly wary of the broader U.S. economy or stock market valuations that have become too high.

The results came out on Saturday after a sell-off in the stock market pushed the Nasdaq into correction territory, while a weak jobs report raised concerns about economic activity in the United States and whether the Federal Reserve had waited too long to cut interest rates.

“If you look at the big picture for Berkshire stock and the macroeconomic data, the safe conclusion is that Berkshire has become defensive,” said Kathy Sievert, an analyst at CFRA Research, who rates Berkshire stock a “buy.”

Cash rose to $276.9 billion as of June 30 from $189 billion three months earlier, largely because Berkshire sold a net $75.5 billion in stock in the quarter. It was the seventh straight quarter that Berkshire has sold more stock than it bought.

Berkshire Hathaway sold about 390 million shares of Apple (NASDAQ:AAPL), in addition to the 115 million shares it sold from January to March, as Apple’s stock price rose 23%. It still owned about 400 million shares worth $84.2 billion as of June 30.

Second-quarter earnings from Berkshire’s dozens of businesses rose 15% to $11.6 billion, or about $8,073 per Class A share, compared with $10.04 billion a year earlier.

Nearly half of that gain came from Berkshire’s insurance business, including a more than tripling of underwriting profits at auto insurer Geico.

But revenue rose just 1% to $93.65 billion, little changed at major companies such as railroad operator BNSF and energy company Berkshire Hathaway.

Net income fell 15% to $30.34 billion from $35.91 billion a year earlier, as higher stock prices in both periods boosted the value of Berkshire’s investment portfolio, including Apple.

Buffett has long urged shareholders to ignore Berkshire’s quarterly investment gains and losses, which often result in huge net profits or net losses.

Buffett wants to spend, but doesn’t.

Berkshire Hathaway pledges to hold at least $30 billion in cash, but it often allows that amount to accumulate when it can’t find entire companies or individual stocks to buy at fair prices.

However, short-term Treasury yields are expected to decline once interest rate cuts begin.

Berkshire is also using less cash to buy back its own shares, buying back just $345 million in the second quarter and not buying any shares in the first three weeks of July.

“We like to spend it, but we won’t spend it unless we think we’re doing something that has little risk and can make us a lot of money,” Buffett said at Berkshire’s annual meeting on May 4.

Berkshire did not immediately respond to a request for comment Saturday.

Buffett remains a big fan of Apple, reflecting the iPhone maker’s strong pricing power and committed customer base.

He said at the meeting that he expected Apple to remain Berkshire’s largest equity investment, but that the sale made sense because the 21% federal tax rate on gains was likely to grow.

Since mid-July, Berkshire has also sold more than $3.8 billion of shares in Bank of America, its second-largest stock holding.

Buffett has led Omaha, Nebraska-based Berkshire since 1965, building it into a conglomerate with dozens of companies including several industrial and manufacturing companies, a major real estate brokerage firm, Dairy Queen and Fruit Loom.

Vice Chairman Greg Abel, 62, is expected to eventually succeed Buffett as Berkshire’s CEO.

GEICO triples profits

Quarterly insurance profit rose 54% to $5.58 billion, helped by higher investment income and Geico’s ability to charge higher premiums even as drivers filed fewer claims.

BNSF’s earnings fell 3% as the railroad set aside more money for litigation, offsetting lower operating costs and increased shipments of consumer and agricultural products.

The lawsuits also hit Berkshire Hathaway Energy, with earnings down 17% due to its utility unit PacifiCorp, which many homeowners and businesses blame for causing wildfires in Oregon in 2020.

Pacific Corp. has set aside $2.7 billion for wildfire losses through June 30, up from $2.4 billion three months ago, and said losses could grow significantly.

Berkshire’s Class A shares closed Friday at $641,435. They’re up 18% this year, while GE shares are up 12%.