There aren't too many stock market-related events that investors genuinely look forward to each year, but Berkshire Hathaway's (NYSE: BRK-A)(NYSE: BRK-B) annual shareholder meeting, which was held this past Saturday, May 4, is one such event. That's because it gives Berkshire Hathaway shareholders, and investing enthusiasts, the opportunity to hear CEO Warren Buffett, arguably the greatest buy-and-hold investor alive today, expound to an audience about investing, the U.S. economy, and his company.
Just how good has Buffett been throughout his life? After beginning with nearly $10,000 in the 1950s, Buffett has grown his personal net worth to more than $89 billion, as of late last week. Had Buffett not been one of the top philanthropists on the planet over the past 10-plus years, it's very likely his net worth would have exceeded $120 billion with ease by now.
Berkshire Hathaway CEO Warren Buffett fielding questions at the company's annual shareholder meeting. Image source: The Motley Fool via Flickr.
A Buffett bombshell: Amazon is now part of Berkshire's stock holdings
But this big draw of Berkshire's annual meeting, and the lead-up to this event, is what stocks the Oracle of Omaha may have on his radar. It's almost become tradition for CNBC correspondent Becky Quick to interview Buffett before the company's annual gathering, and as you can imagine, quite a few valuable nuggets of wisdom have been unearthed in those conversations.
This past Thursday night, May 2, Quick uncovered one of those nuggets when Buffett told CNBC that Berkshire Hathaway has been buying shares of Amazon.com (NASDAQ: AMZN) stock, and that it would "show up in the 13F" later this month. Money managers with more than $100 million in assets under management are required to file Form 13F with the Securities and Exchange Commission roughly 45 days after the previous quarter ends, disclosing their holdings. This is Buffett's way of saying that in roughly a week's time, when Berkshire unveils its holdings as of the end of March 2019, investors are going to see an ownership stake in e-commerce and cloud giant Amazon.
But there is a catch to the Oracle of Omaha's admission that Berkshire has been a buyer of Amazon -- namely, that Buffett hasn't been the brainchild behind the buying. Rather, it was either Todd Combs or Ted Weschler, each of which manage portfolios that total more than $13 billion in equities for Berkshire, who did the buying during the first quarter.
Buffett was clear with Quick about Amazon in saying, "Yeah, I've been a fan, and I've been an idiot for not buying." In essence, Buffett admits that not personally buying Amazon a long time ago was a mistake, but is quick to note that this purchase was not of his doing or influence, even though he appreciates Amazon's competitive edge and what Jeff Bezos brings to the table as a leader.
Image source: Getty Images.
Take note: Buffett may not be behind all of Berkshire Hathaway's buys and sells
Keep in mind that it's not unprecedented for Berkshire Hathaway's other money managers to buy into a stock, or even sell, without the Oracle of Omaha's influence. In February 2018, Berkshire's 13F showed that the company had taken a sizable position in branded- and generic-drug maker Teva Pharmaceutical Industries (NYSE: TEVA).
On the surface, Teva Pharmaceutical is not a traditional Buffett company. It no longer pays a dividend -- the company suspended its payout to conserve more than $1 billion in cash a year -- and requires investors to somewhat stay on top of clinical trial data, at least from its brand-name drug operations. Buffett has typically avoided the drug industry because he simply doesn't have the time to devote to analyzing complex drug trials.
But it turns out that Teva wasn't a Buffett selection at all. Rather, it was one of Berkshire's other money managers that chose to add the deep-discount drugmaker, which now trades at less than six times forward earnings.
This also helps describe the almost head-scratching trade completed during the fourth quarter of 2018 (as described in the 13F filed in February) that saw Berkshire Hathaway sell almost 2.9 million shares of Apple (NASDAQ: AAPL), thereby trimming its aggregate stake to about 249.6 million shares.
For more than two years now, Buffett has been aggressively adding to Berkshire's position in Apple, citing everything from the company's innovation to cash flow and valuation as reasons to be bullish on the tech giant over the long run. But it turns out that Buffett wasn't even behind the nearly 2.9-million-share Apple sale during the fourth quarter. In an email to Reuters, Buffett's assistant, Debbie Bosanek, noted that "One of the managers other than Warren had a position in Apple and sold part of it in order to make an unrelated purchase."
Image source: Amazon.com.
Amazon is a solid addition to the traditionally tech-averse Berkshire portfolio
Even though Buffett wasn't behind Berkshire dipping its toes further into the tech pond, buying into the Amazon growth story should work out nicely for Berkshire Hathaway over the long run.
On the retail side of things, Amazon boasted roughly a third of all e-commerce sales in the United States in 2018 and is the dominant e-commerce player in seven retail categories, according to DigitalCommerce360.com. This includes almost 90% share of all online book sales, about a 70% share of all online toy and game sales, and 63% of direct-to-consumer sales of office products. With deep pockets and the ability to keep consumers exceptionally loyal with its Prime membership, it'll be a real struggle for any retailer to disrupt Amazon's retail business model at this point.
Although what most investors overlook is the importance of Amazon Web Services, or AWS. The company's cloud services, which predominantly caters to small- and medium-sized businesses, are responsible for the bulk of the company's margins and profitability. Despite racking up $52 billion in global retail sales in the first quarter, Amazon's operating income totaled just $2.2 billion from this segment. Meanwhile, AWS net sales grew 41% year-over-year to $7.7 billion, with $2.22 billion in operating income. AWS is becoming a larger percentage of Amazon's total sales, which is a good thing because it's a much higher margin business model.
The big question now is: How big of a position in Amazon did Buffett's other money manager(s) buy? We'll know that answer in about a week's time.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams owns shares of Teva Pharmaceutical Industries. The Motley Fool owns shares of and recommends Amazon, Apple, and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.
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