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Berkshire’s cash pile could top $200 billion as Buffett sells stock

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Warren Buffett walks the floor and meets with Berkshire Hathaway shareholders ahead of their annual meeting in Omaha, Nebraska on May 3rd, 2024. 

David A. Grogan

Berkshire Hathaway‘s highly scrutinized cash pile could top $200 billion — more than the entire annual gross domestic product of Hungary — amid CEO Warren Buffett’s rare sale of some of his favorite stocks.

The Omaha-based conglomerate is likely to say its cash hoard topped the previous record of $189 billion, set in the first quarter, when it reports second-quarter earnings Saturday morning. Berkshire’s results come at a time when Buffett has been offloading winning investments in Apple, Bank of America and BYD, leading some to believe the Oracle of Omaha has grown concerned that the bull market is overheated.

“It does look like he wants to de-risk the portfolio a little bit,” Bill Stone, chief investment officer at Glenview Trust Company and a Berkshire shareholder, said early in the week. “He’s trimming two top holdings and you don’t get anything more economically sensitive than the banks. The market seems so sure right now of a soft landing, and maybe he’s taking more of a contrarian view.”

Berkshire has been a net seller of stocks for six straight quarters. Notably, Buffett trimmed his massive Apple bet by 13% in the first quarter for tax reasons after reaping enormous gains. The selling could have resumed in the second quarter as shares of the iPhone maker jumped 23% in the period.

Meanwhile, in a surprising move, the conglomerate recently started dumping Bank of America shares — its second-biggest holding after Apple. Over the past 12 trading sessions, Berkshire has sold $3.8 billion of the Charlotte-based bank’s shares. (The BofA sales began in July and won’t be reflected in the second-quarter report.)

Buffett’s gigantic war chest has been earning sizeable returns thanks to the jump in Treasury yields over the past two years, but with interest rates set to decline from multiyear highs, his mounting cash pile could once again draw questions. If invested in three-month Treasury bills at about 5%, $200 billion in cash would generate about $10 billion a year, or $2.5 billion a quarter, but those returns are set to decline once the Federal Resewrve starts lowering interest rates.

“It’s just a question of how long they are going to sit on it,” Andrew Kligerman, TD Cowen’s Berkshire analyst, said in an interview, referring to Berkshire’s enormous cash pile.

‘Things aren’t attractive’

Buffett, who turns 94 at the end of the month, confessed at Berkshire’s annual meeting in May that he’s open to putting more capital to work, but high prices give him pause.

“I think it’s a fair assumption that [cash holdings] will probably be about $200 billion at the end of this quarter,” the investment icon said at the time. “We’d love to spend it, but we won’t spend it unless we think [a business is] doing something that has very little risk and can make us a lot of money… it isn’t like I’ve got a hunger strike or something like that going on. It’s just that…things aren’t attractive.”

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Berkshire Hathaway

Weakness in non-insurance

Investors will also closely study the quarterly results for Berkshire’s BNSF Railway and Berkshire Hathway Energy utility business, which recently showed signs of weakness. BNSF is grappling with wage increases and revenue declines, while BHE faces pressure from being held liable for damage caused by wildfires.

“The non-insurance side will weigh on the results, whether it’s the sluggish volumes in railroad coupled with higher labor costs, or utilities, which could put up a good quarter, but nobody’s going to be excited about that just given the liability exposure,” said TD Cowen’s Kligerman, who recently initiated research coverage of Berkshire with a hold rating.

Conversely, Berkshire’s insurance business has been a bright spot, with a 185% year-over-year increase in insurance underwriting earnings in the first quarter.

Shares of Berkshire have rallied more than 21% this year, outperforming the S&P 500’s 14% return, through Thursday. The conglomerate’s market capitalization has ballooned to $956 billion, close to joining the tiny number of U.S. stocks valued at $1 trillion or more.

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These are 3 big things we’re watching in the stock market this week

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A security guard works outside the New York Stock Exchange (NYSE) before the Federal Reserve announcement in New York City, U.S., September 18, 2024. 

Andrew Kelly | Reuters

The stock market bounce last week showed once again just how dependent Wall Street has become on the whims of the White House.

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These U.S. consumer stocks face higher China risks

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Apple iPhone assembly in India won’t cushion China tariffs: Moffett

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Street's biggest Apple bear says a production move to India is unrealistic

Leading analyst Craig Moffett suggests any plans to move U.S. iPhone assembly to India is unrealistic.

Moffett, ranked as a top analyst multiple times by Institutional Investor, sent a memo to clients on Friday after the Financial Times reported Apple was aiming to shift production toward India from China by the end of next year.

He’s questioning how a move could bring down costs tied to tariffs because the iPhone components would still be made in China.

“You have a tremendous menu of problems created by tariffs, and moving to India doesn’t solve all the problems. Now granted, it helps to some degree,” the MoffettNathanson partner and senior managing director told CNBC’s “Fast Money” on Friday. “I would question how that’s going to work.”

Moffett contends it’s not so easy to diversify to India — telling clients Apple’s supply chain would still be anchored in China and would likely face resistance.

“The bottom line is a global trade war is a two-front battle, impacting costs and sales. Moving assembly to India might (and we emphasize might) help with the former. The latter may ultimately be the bigger issue,” he wrote to clients.

Moffett cut his Apple price target on Monday to $141 from $184 a share. It implies a 33% drop from Friday’s close. The price target is also the Street low, according to FactSet.

“I don’t think of myself as the biggest Apple bear,” he said. “I think quite highly of Apple. My concern about Apple has been the valuation more than the company.”

Moffett has had a “sell” rating on Apple since Jan. 7. Since then, the company’s shares are down about 14%.

“None of this is because Apple is a bad company. They still have a great balance sheet [and] a great consumer franchise,” he said. “It’s just the reality of there are no good answers when you are a product company, and your products are going to be significantly tariffed, and you’re heading into a market that is likely to have at least some deceleration in consumer demand because of the macro economy.”

Moffett notes Apple also isn’t getting help from its carriers to cushion the blow of tariffs.

“You also have the demand destruction that’s created by potentially higher prices. Remember, you had AT&T, Verizon and T. Mobile all this week come out and say we’re not going to underwrite the additional cost of tariff [on] handsets,” he added. “The consumer is going to have to pay for that. So, you’re going to have some demand destruction that’s going to show up in even longer holding periods and slower upgrade rates — all of which probably trims estimates next year’s consensus.”

According to Moffett, the backlash against Apple in China over U.S. tariffs will also hurt iPhone sales.

“It’s a very real problem,” Moffett said. “Volumes are really going to the Huaweis and the Vivos and the local competitors in China rather than to Apple.”

Apple stock is coming off a winning week — up more than 6%. It comes ahead of the iPhone maker’s quarterly earnings report due next Thursday after the market close.

To get more personalized investment strategies, join us for our next “Fast Money” Live event on Thursday, June 5, at the Nasdaq in Times Square.

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