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Greg Abel did not have an easy task when he was named the new CEO of Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB). Not only is Berkshire an incredibly large company to run, but Abel was stepping into the shoes left by none other than Warren Buffett.
Buffett previously ran Berkshire for six decades, transforming the company from a struggling textile manufacturer into one of the world's largest conglomerates. Buffett is also viewed as one of, if not the greatest, investors of all time, having generated terrific returns for Berkshire's massive $350 billion equities portfolio and the stock.
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After nine months on the job, Abel has begun to make his mark, including on the equities portfolio. Let's take a look at what changes he's making, and which stocks are in and which are out.
In his first letter to shareholders earlier this year, Abel began to lay out his vision for how he plans to run the company, including the stock portfolio. Interestingly, Abel listed four stocks he views as "core" to the company, and that will likely see "limited activity" moving forward, barring any changes to these companies' fundamental theses.
The four listed were Apple (Berkshire's largest holding), American Express, Coca-Cola, and Moody's. Abel also views the company's investments in Japan's five largest trading houses in a similar light.
But also interesting were the names Abel did not mention. He didn't mention Bank of America, which consumed over 7% of the portfolio at the end of the second quarter. In fact, Berkshire slightly trimmed its stake in Bank of America in the second quarter.
Abel also didn't mention Berkshire's large holdings in U.S. oil companies, including Chevron, which accounts for over 5% of the portfolio, and Occidental Petroleum, which accounts for 4.5%. Berkshire also owns 26.5% of Occidental's outstanding shares.
Berkshire has acquired several energy assets in recent years, and with Abel having run Berkshire Hathaway Energy, I thought there was a chance these two names would be long-term holdings. They still could be, but oil is very volatile, so perhaps Abel is not willing to commit just yet.
It also looks like Alphabet has become a core position. Buffett initiated a position in Google's parent company last year, but under Abel's leadership, Berkshire has plowed tens of billions into the stock, which now accounts for 10.6% of the portfolio.
Alphabet is really the first artificial intelligence hyperscaler Berkshire has gone big on.
Berkshire has made some other minor moves in the portfolio under Abel.
Berkshire initiated its stake in Delta, which now accounts for 1.3% of the portfolio. Following the pandemic, Buffett dumped all of Berkshire's airline positions, noting the industry had fundamentally changed. However, the airlines had been making strides in recent years due to pent-up demand and a greater reliance on add-ons, such as extra legroom. The Iran war has put a bit of a dent in the airlines because jet fuel is now so much higher, but the core thesis persists.
Berkshire has also increased its exposure to the housing sector by increasing its stake in stocks such as the major homebuilder and real estate company Lennar this year. High mortgage rates have crushed the housing sector in recent years. In the long term, this could be a good time to come in and play contrarian. Housing could bounce back if inflation slows and interest rates come down. It could also be intriguing down the line if the country finds ways to increase inventory, a move that seems to be desired by the broader public.
Finally, Abel has resumed share repurchases of Berkshire stock after the company had essentially been on pause in recent years. Now, some of this could be due to Berkshire sitting on hundreds of billions in cash.
While the market may have afforded Buffett that latitude, Abel may not receive the same luxury. After all, investors want to see at least some of that cash put to work. I think capital returns will need to be more prevalent under Abel's leadership.
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Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, American Express, Apple, Berkshire Hathaway, Chevron, Lennar, and Moody's. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
Greg Abel Is Reshaping Berkshire's Portfolio. Here's Who's In and Who's Out. was originally published by The Motley Fool
