There aren't too many investors on Wall Street who garner as much attention as Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett, and the reason why is simple: He outperforms. In the roughly 60 years the Oracle of Omaha has been CEO, he's led Berkshire Hathaway's Class A shares (BRK.A) to a cumulative return of 5,864,600%, as of the closing bell on Feb. 19.
Investors have also come to appreciate Buffett's candidness. His annual letter to shareholders and Berkshire's yearly meeting in Omaha provides a forum for Buffett to express his thoughts on the U.S. economy, stock market, and occasionally specific holdings in his company's investment portfolio.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
But investors have the opportunity to pick Warren Buffett's brain more often than just once a year. No later than 45 days following the end of a quarter, institutional money managers with at least $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission. A 13F allows investors to see which stocks the smartest asset managers bought and sold in the most recent quarter.
Berkshire Hathaway's billionaire chief is overseeing a 44-stock, $299 billion investment portfolio, and is therefore required to provide a quarterly 13F that allows investors to track his trading activity.
During the December-ended quarter, Warren Buffett was a big-time seller of three of the banking industry's top financial institutions. Meanwhile, he piled more than $1.2 billion into a new position that speaks to the Oracle of Omaha's value-oriented roots.
Buffett is dumping shares of three leading bank stocks
Though Buffett completely exited three positions and reduced nine others during the fourth quarter, what stands out the most is the selling activity in a trio of top-tier bank stocks:
Bank of America(NYSE: BAC): 117,449,720 shares sold (15% reduction)
Citigroup(NYSE: C): 40,605,295 shares sold (74% reduction)
Capital One Financial(NYSE: COF): 1,650,000 shares sold (18% reduction)
Over the trailing year (ended Dec. 31), Berkshire's respective stakes in BofA, Citigroup, and Capital One Financial have been reduced by 34%, 74%, and 40%.
What's particularly intriguing about these sales is that Buffett's favorite sector to invest in is financials. If Berkshire's chief is dumping shares of his largest financial stocks, it would appear to mark a very clear warning to Wall Street that trouble is brewing.
To be fair, no one knows exactly what Buffett is thinking, and it's possible this selling activity is benign. In other words, Buffett could be taking advantage of a historically low peak marginal corporate income tax rate and locking in sizable unrealized gains. But there's likely more to this selling than simple profit-taking.
One possible angle is that Berkshire's chief is attempting to front-run shifts in the Federal Reserve's monetary policy. When the nation's central bank was combatting the highest prevailing inflation rate in four decades and rapidly increased interest rates in 2022, bank stocks benefited in the form of higher net interest income. Bank of America is the most interest-sensitive among domestic money-center banks, while Capital One Financial is one of the largest credit card issuers in the country.
However, the Fed has shifted to a rate-easing cycle. While recent inflation data suggests the nation's central bank will slow-step rate cuts in 2025, the prospect of further rate reductions can weigh on the bottom lines of Bank of America, Citigroup, and Capital One Financial.
Perhaps the bigger issue for the Oracle of Omaha is that bank stocks aren't the jaw-dropping value they once were. Around this time last year, investors could purchase shares of BofA for right around its book value, while Capital One and Citigroup changed hands wellbelow their respective book value.
Today, Bank of America and Capital One are respectively valued at a 29% and 32% premium to their book value. Though Citigroup still trades at a 17% discount to its book value, it continues to deal with cost-cutting setbacks and poor sentiment tied to the Great Recession. The value proposition that bank stocks once offered is becoming tougher to validate.
Image source: Getty Images.
This historically inexpensive beverage stock is the new apple of Buffett's eye
Though Warren Buffett has been a net seller of stocks for nine consecutive quarters, he's found a select few values to wet his whistle along the way. The purchase that truly raised eyebrows during the fourth quarter is that of beer, wine, and spirits giant Constellation Brands(NYSE: STZ). Berkshire's 13F shows that 5,624,324 shares were purchased, totaling more than $1.2 billion in market value.
Whereas the bull market has continued to gain traction, shares of Constellation Brands have gone flat. Over the trailing-two-year period, the S&P 500(SNPINDEX: ^GSPC) has outperformed Constellation Brands' stock by a staggering 75 percentage points -- 51% vs. (24%).
Constellation Brands' significant underperformance may be partially due to concerns about President Donald Trump instituting tariffs. Shortly after Trump took office, he implemented (and quickly stayed) a 25% tariff on goods imported from Mexico. If these tariffs were to go into effect, it would make Constellation's core beer brands pricier, such as Corona and Modelo, which might reduce their popularity with U.S. consumers.
To add, the president is also pushing his "Make America Healthy Again" initiative, which is focused on improving the health of America's children and reversing chronic diseases. It's unclear how alcohol producers like Constellation Brands fit into this narrative.
The final piece of the puzzle has been the company's unfavorable price and value-oriented mix, seen with its wine and spirits segment.
Despite these headwinds, Constellation Brands offers three traits Buffett looks for in an investment. For starters, it's an easy-to-understand operating model, with relatively predictable consumer buying habits. Buffett tends to be a big fan of businesses whose products incent loyalty among customers.
Secondly, Berkshire Hathaway's boss often gravitates to companies that have hearty capital-return programs. Businesses that regularly return capital to investors via dividends or share buybacks are almost always recurringly profitable, time-tested, and capable of providing transparent long-term growth outlooks. Constellation is paying more than $1 per share in quarterly dividends, and is also steadily buying back its stock.
The third characteristic that likely attracted Buffett to Constellation Brands amid a historically pricey stock market is its valuation. Shares of Constellation can be scooped up right now for less than 12 times forecast earnings in fiscal 2026 (the company's fiscal year ends in late February), which represents a 38% discount to its average forward-year earnings multiple over the last half-decade.
Warren Buffett is an unwavering value investor, and it appears he's found the new apple of his eye in beverage giant Constellation Brands.
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Citigroup is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America and Berkshire Hathaway. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.
