Warren Buffett might have just found his next elephant-sized deal: Buying back his own stock.
Berkshire Hathaway Inc. spent $16 billion buying back its stock in the first nine months of 2020, more than triple its previous annual record. The repurchases even surpass many of Berkshire’s biggest investments in recent years, including 2019’s Occidental Petroleum Corp. financing deal, and total more than Berkshire has ever spent in one year buying Apple Inc. stock.
The record buybacks, coupled with investments in Japanese trading houses and deals for natural gas assets, mark a shift from the start of the pandemic, when Buffett, 90, took a more cautious approach and even dumped his stakes in major U.S. airlines. The billionaire investor has long hungered for an “elephant-sized” deal to put huge sums of capital to work but has failed to find lucrative, large acquisitions in recent years.
With a large deal looking unlikely, “share buybacks all of a sudden look like a very pleasant option,” CFRA Research’s Cathy Seifert said.
Buybacks have gotten cheaper too. Shares fell drastically in March and have since started to climb back, but overall Berkshire Class A shares are still down 7.6% this year. Those shares rose 5.8% at 9:36 a.m. in New York.
Berkshire, in its earnings report filed Saturday, also hinted that the buying didn’t stop with the third quarter’s $9 billion haul. Decreased share counts imply Buffett repurchased at least $2.3 billion of stock from the end of September through Oct. 26.
“We believe the large share buyback was a display of conservatism, given the elevated values of targets with diminished earnings expectations and coronavirus uncertainty are impediments to acquisitions," said Bloomberg's Matthew Palazola, senior industry analyst, and Derek Han, associate analyst, in a statement.
Here are other key takeaways from Berkshire’s third-quarter earnings:
Profit Slump
Berkshire’s businesses were hit by the pandemic in the third quarter, contributing to a 32% drop in operating profit. All of Berkshire’s reporting segments except its energy operation reported lower earnings.
Still, Berkshire’s net income, which is impacted by the swings in its $245 billion equity portfolio, benefited from the stock market’s rally. Investment gains fueled an 82% jump in net income from a year earlier.