Warren Buffett's Berkshire Hathaway (NYS: BRK.B) has released its 13F for the second quarter of 2024. The report indicates that Berkshire was a big seller of stocks last quarter―most notably, peeling back its massive stake in Apple (NAS: AAPL) stock by about half. In fact, Berkshire closed the second quarter with a record $276.9 billion in cash and cash equivalents, up from $189.0 billion at the end of March 2024.

Here's a look at some of the stocks that Warren Buffett and his team bought and sold during the second quarter, as well as several of the most undervalued Buffett stocks to buy in Berkshire Hathaway's portfolio today.

Despite being a net seller of stocks during the quarter, Berkshire initiated new positions in two companies: Ulta Beauty (NAS: ULTA) and Heico (NYS: HEI).

Stocks Berkshire Hathaway bought last quarter

Ulta Beauty is the largest specialised beauty retailer in the United States. Morningstar thinks Ulta has carved out a narrow economic moat, based on the strength of its brand, explains Morningstar senior analyst David Swartz. We also think management has done an exceptional job of allocating capital and therefore award the company an Exemplary Morningstar Capital Allocation Rating. We assign Ulta stock a $405 fair value estimate, and as of this writing, shares are about 18% undervalued.

Heico is an aerospace and defense supplier focusing on niche replacement parts for commercial aircraft and components for defense products. Morningstar assigns Heico a narrow Morningstar Economic Moat Rating thanks in part to switching costs stemming from the importance of its products operating correctly and their placement on long-cycle products, explains Morningstar analyst Nicolas Owens. We think the stock looks overvalued, as it trades 36% above our $173 fair value estimate.

Berkshire Hathaway's new 13F indicates that the company added to its existing stake in Occidental Petroleum (NYS: OXY) during the period; Berkshire owns nearly 29% of Oxy's stock. The purchase isn't surprising: Oxy's stock was down 5% during the second quarter, giving Buffett an opportunity to accumulate more shares of one of Berkshire's "Rip Van Winkle" investments that he expects to own indefinitely. Berkshire also added to its position in one-time "mystery stock" Chubb (NYS: CB) as well as to its stake in Sirius XM (NAS: SIRI) stock and Liberty Media's tracking shares.

Stocks Berkshire Hathaway sold last quarter

Even after peeling back its position in Apple, the stock remained Berkshire's top holding at the end of June. Berkshire also scaled back in several other names during the second quarter, including Chevron (NYS: CVX), Capital One Financial (NYS: COF), T-Mobile US (NAS: TMUS), Louisiana-Pacific Corp (NYS: LPX), Liberty Media's Liberty Live (NAS: LLYVA), and Floor & Decor (NYS: FND).

Berkshire eliminated its entire position in Paramount Global (NAS: PARA) during the second quarter; Buffett revealed this during Berkshire's annual meeting in May. "After Buffett announced that Berkshire had eliminated the stake in Paramount, he admitted that 'we sold it all, and we lost quite a bit of money, that happens in this business, too,' and that he was '100% responsible' for the Paramount decision – both buying in and getting out," reported Morningstar strategist Greggory Warren shortly after the meeting.

"This was news to us, as we had assumed that the position, which had been built up since the start of 2022, was the purview of one of Berkshire's two investment managers – Todd Combs and Ted Weschler (likely, in our view, the latter) – who mostly operate independently of Buffett."

Berkshire also swept out its position in Snowflake (NYS: SNOW) – the provider of data lake, data warehousing, and data sharing solutions – during the second quarter.

Also of note, Berkshire sold 90 million shares of another top holding, Bank of America (NYSE: BAC), in late July and early August, which isn't included in this 13F, which only includes purchases and sales through June 30.

Why did Warren Buffett sell Apple stock?

Buffett himself hasn't commented on Berkshire's second-quarter Apple stock sale, though he did suggest during Berkshire's annual meeting that the company's first-quarter sale of some Apple stock was tax-driven.

"Since the passage of the 2022 Inflation Reduction Act, Berkshire (which has a lot of deferred income taxes derived from its insurance investment portfolio and benefits from tax credits related to ongoing investments in renewables at Berkshire Hathaway Energy) has been exposed to the corporate Alternative Minimum Tax provision, given that it is a large corporation with average annual financial statement income (including unrealised gains and losses on its investment portfolio) exceeding $1 billion and tends not to always meet the threshold of paying more than 15% of pretax earnings as taxes over a rolling three-year tax period,” explains Morningstar's Warren.

"By selling some of its stock portfolio holdings, and thereby realising gains on these investments, it can not only offset losses (like it experienced with Paramount Global this year) but increase the amount of taxes it is paying in any given year," he continues. Morningstar's Warren estimates that the Apple sales likely netted the firm some $70 billion-$75 billion in taxable gains and that the firm has increased its tax bill this year by at least $11 billion-$12 billion (assuming a 21% federal corporate tax rate) as a result.

The upshot: Buffett may just be getting ahead of a period where corporate tax rates might be higher than they are right now.

"Buffett noted during the annual meeting this year that 'it doesn't bother me in the least to write that cheque and I would really hope with all that America's done for all of you, it shouldn't bother you that we do it,'" reminds Morningstar's Warren.

"Buffett went on further to highlight that 'if I’m doing it at 21% this year [the current federal corporate tax rate] and we're doing it a little higher percentage later on [assuming that the corporate tax rate goes up in the not so distant future], I don't think you'll actually mind the fact that we sold a little Apple this year.'"

Of course, taxes may not be the only reason for taking some chips off the table with Apple. Morningstar's Warren notes that Apple had accounted for 45% of the company's reported 13F holdings on average the past several years; perhaps the peel back was a derisking move, too. In addition, he points out that Berkshire has been a net seller of equities for seven straight quarters.

"It also doesn't hurt that he could dump the proceeds from the sales into T-bills with 5% yields," he adds.

3 Berkshire Hathaway stocks that look cheap

Many of the publicly traded stocks held by Berkshire Hathaway are fairly valued or overvalued today, according to Morningstar's metrics. Here are the three stocks among its holdings in the latest quarter that looked undervalued according to Morningstar's analysts as of August 13 2024:

Here's a little bit about why our analysts like each of these stocks at these prices, along with some key metrics for each. All data is as of August 13 2024.

Charter Communications

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Narrow
  • Industry: Telecom Services

Berkshire Hathaway owns about 2.7% of Charter Communications' stock. The company is the result of a 2016 merger of three cable companies: legacy Charter, Time Warner Cable, and Bright House Networks. We think the company has carved out a narrow economic moat, thanks to its efficient scale and cost advantage. Charter Communications stock currently trades around 25% below our $490 fair value estimate.

Here's what Morningstar director Mike Hodel had to say about the stock after the company's second-quarter earnings release:

Morningstar Investor members can review our analysis of Charter here

Kraft Heinz

  • Morningstar Rating: 5 stars
  • Morningstar Economic Moat Rating: Narrow
  • Industry: Packaged Foods

Berkshire Hathaway owns more than 26% of Kraft Heinz's stock. The packaged-foods manufacturer has revamped its road map and is now focused on consistently driving profitable growth. We think Kraft Heinz stock is worth $57 per share, and shares are trading at a 39% discount to that fair value today.

Here's what Morningstar director Erin Lash thinks of Kraft Heinz's second-quarter results:

Erin Lash, Morningstar director

Review Morningstar's company report for Kraft Heinz

VeriSign

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Industry: Software – Infrastructure

Berkshire Hathaway owns 13% of VeriSign's stock. We think VeriSign has carved out a wide economic moat thanks to its monopoly position to register websites with dot-com and dot-net top-level domains with fixed pricing terms, explains Morningstar analyst Emma Williams. We assign VeriSign a $195 fair value estimate, and shares are trading 10% below that.

Here's what Williams thinks of VeriSign's second-quarter results:

Review Morningstar's company report for VeriSign

More articles about Warren Buffett:

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  • John Rekanthaler looks at Buffett's sweetest ever investment

  • Where to find investments with Buffett's favourite quality

  • Joseph Taylor asks why more managers haven't been able to replicate Buffett

  • A 15 step share checklist from Buffett's forgotten inspiration

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar's Fair Value estimate results from a detailed projection of a company's future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company's stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn more about how to identify companies with an economic moat, read this article by Mark LaMonica.