Personal Finance

Is This Why Warren Buffett Is Selling Wal-Mart Stores?

AMZN Gross Profit Margin (TTM) Chart

Wal-Mart Stores (NYSE: WMT) has been a staple holding in Warren Buffett's Berkshire Hathaway (NYSE: BRK-B) (NYSE: BRK-A) portfolio for years, but the Oracle of Omaha has soured on Wal-Mart's stock this year, and a new report from the U.S. Census Bureau showing that consumers continue to embrace e-commerce may mean that there's a good chance that Wal-Mart's completely out of Berkshire's portfolio by the end of this year.

AMZN Gross Profit Margin (TTM) Chart

AMZN gross profit margin (TTM) data by YCharts .

Given that it's most likely that more consumer spending will migrate away from traditional stores to the internet, it's little wonder that investors like Buffett might be worrying more about Wal-Mart's future sales and profit headwinds.

A tough competitor

Earlier this year, Buffett praised Amazon founder Jeff Bezos, calling him a "genius." And at Berkshire Hathaway's annual investor event in Omaha, Buffett remarked, "We're not going to out-Bezos Bezos."

In the past, Buffett was slow to embrace the use of the internet to boost sales at Berkshire Hathaway's wholly owned companies. However, that's recently been changing, and as he sees the sales tailwinds at his companies from his online initiatives, it may be factoring into his increasing admiration of Bezos, and his declining interest in owning bricks-and-mortar companies like Wal-Mart.

It's probably not lost on Buffett that Amazon has been a much better investment than Wal-Mart over the years, either. Under Bezos' leadership, Amazon's trailing-12-month revenue has surged to $128 billion since 1994, and that's resulted in astonishing returns for long-term investors. Over the past 15 years, Amazon's 34%-per-year average return crushes the average 12.9% return for the specialty retail industry, and it absolutely demolishes Wal-Mart's 3.2% annual return over the period.

Since Bezos doesn't appear ready to quit anytime soon, and e-commerce still represents less than 10% of total retail spending, it seems Wal-Mart's going to have its hands full for a long time if its going to attempt to keep Amazon at bay.

Looking forward

Buffett's sold tens of millions of shares in Wal-Mart this year, but he still has 12.9 million shares left in Berkshire Hathaway's portfolio. With Wal-Mart shares up 19% this year, he appears to see this as a great opportunity to "sell high" a business that could face increasingly more downside profit pressure in the coming years.

Whether Buffett does sell his remaining Wal-Mart shares this year won't be known until early next year, when Berkshire Hathaway files its fourth-quarter 13F report with the Securities and Exchange Commission. But given his admiration for Bezos and his selling of 27.2 million Wal-Mart shares last quarter, I will not be surprised if Wal-Mart disappears from Berkshire's list of holdings.

Forget the 2016 Election: 10 stocks we like better than

Donald Trump was just elected president, and volatility is up. But here's why you should ignore the election:

Investing geniuses Tom and David Gardner have spent a long time beating the market no matter who's in the White House. In fact, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as ofNovember 7, 2016

Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him on Twitter where he goes by the handle @ebcapitalto see more articles like this.

The Motley Fool owns shares of and recommends and Berkshire Hathaway (B shares). Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More