Investing Warren Buffett Watch

  Friday, 16 Feb 2018 | 3:03 PM ET

Billionaire Warren Buffett won $2.2 million on a bet and gave it to this charity

Posted ByRuth Umoh

Warren Buffett has shown us once again why he consistently tops the list of the most philanthropic billionaires. On Friday, the Berkshire Hathaway CEO gave $2.2 million to the charity Girls Inc. of Omaha, Nebraska, after winning a 10-year bet that hedge fund managers couldn't beat the stock market average, reports the Omaha World-Herald.

Roberta Wilhelm, the charity's executive director, says the proceeds will go toward a transitional housing program for young women who are too old to remain in foster care.

As described in a 2016 letter to Berkshire Hathaway shareholders, the multi-million dollar wager, which officially ended in December 2017, began in 2007 when Buffett predicted that the S&P 500 stock index would outperform hedge funds. He argued that, over time, active investment management by professionals would under-perform the returns of amateurs who were passively investing.

Buffett publicly wagered $500,000 and suggested a 10-year bet. "I then sat back and waited expectantly for a parade of fund managers ... to come forth and defend their occupation," Buffett writes in the letter. "After all, these managers urged others to bet billions on their abilities. Why should they fear putting a little of their own money on the line?"

Only one person took the bet, according to the 2016 letter: Ted Seides, a former co-manager of Protégé Partners, a specialized asset management and advisory firm. In a Bloomberg post, Seides says that the two agreed to the wager, which pitted low-cost S&P 500 index fund returns against a group of Protégé's handpicked hedge funds.

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  Friday, 16 Feb 2018 | 12:45 PM ET

Banks are the sweet spot of this market that's about to get a lot tougher

Posted ByFred Imbert
Brian Moynihan, Bank of America Chairman & CEO
Drew Angerer | Getty Images
Brian Moynihan, Bank of America Chairman & CEO

Investors are gravitating toward a new favorite part of the stock market, which seems to have just about everything going for it right now: banks.

The sector is nipping on the heels of the technology sector, which has been the best performer since the 2016 presidential election, as investors bet that higher rates, lower taxes, deregulation— not to mention a return to market volatility favorable for investment banks — will keep lifting the industry's profits.

"We've been increasing our weight in financials and banks for several reasons: The banks have repaired their balance sheets; financials are trading at attractive valuations; we still think banks are underowned since the financial crisis, they'll benefit from deregulation; and interest rates are going up," said Ernie Cecilia, CIO at Bryn Mawr Trust.

From the 2016 presidential election through Thursday, the S&P 500 technology industry is up 46 percent, but financials are just behind with a 45 percent gain.

Interest rates have surged to multiyear highs recently as inflation shows signs of life. The consumer price index — a widely followed metric of inflation — rose 0.5 percent last month, topping a Reuters estimate of 0.3 percent. On Thursday, the benchmark 10-year note yield hit its highest level in four years.

The move higher in rates sent jitters through Wall Street recently. In the 10 previous sessions, the S&P 500 has posted eight moves greater than 1 percent. For context, the broad index posted only eight 1 percent moves all of last year.

But financials, particularly the big banks, benefit both from higher interest rates and volatility. Higher rates let banks increase lending rates and make it more attractive for people to deposit cash in bank accounts. They also increase the profitability of insurance companies, which sell interest-rate sensitive products.

"You're probably going to see financials improve," said Maris Ogg, president at Tower Bridge Advisors. "There's no question that as rates rise their margins will continue to widen."

The sector has bounced back 6.9 percent since the S&P 500 closed in correction territory on Feb. 8, or down 10 percent from an all-time high set last month. The broad index, meanwhile, is up about 5.8 percent since then.

"Financials have drawn the attention of everyone," said Robert Pavlik, chief investment strategist at SlateStone Wealth. "Interest rates are on the rise."

Pavlik said he was a buyer in the group during the market's downturn, noting Bank of America is one of the stocks he bought in that time.

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  Friday, 16 Feb 2018 | 7:17 AM ET

Supply constraints to weigh on Kraft Heinz first-quarter results

Kraft and Heinz products
Scott Olson | Getty Images
Kraft and Heinz products

Kraft Heinz's said stiff competition and a supply shortfall of one of its key frozen products will continue to hurt sales in the first quarter, following lower-than-expected sales and profit in the latest reported quarter.

The company's shares fell 7 percent to their lowest since August 2015.

More competition in developed markets and a supply shortfall of its Ore-Ida branded potato-based frozen foods are among reasons why the company is cautious about short-term revenue growth, Chief Exectuive Officer Bernardo Hees said on a call with analysts.

A surge in the number of Americans buying fresher and healthier products have put packaged food makers including Kraft Heinz in a spot. While these companies have tried to promote their healthier products, they have often failed to gain the sort of popularity their traditional products enjoyed.

"We are seeing in the short-term (specifically in the first quarter) some headwinds that will cause near-term sales to be below run rate consumption," Chief Financial Officer Paulo Basilio said.

Sales in the company's U.S. business fell 1.1 percent to $4.79 billion, declining for the seventh straight quarter. They missed analysts' average estimate of $4.81 billion, according to Thomson Reuters I/B/E/S.

Net sales inched up 0.3 percent to $6.88 billion, but missed estimates of $6.92 billion.

The company, owner of brands such as Velveeta cheese and Heinz ketchup, said a dispute with a key retailer over promotions and shipments for its soups hurt sales in the quarter.

Kraft-Heinz, the fifth-largest food and beverage company in the world, achieved its target of cutting $1.7 billion in costs by the end of 2017, it said on Thursday.

"After looking at the company's slide presentation yesterday, one might have come away with the impression that KHC is firing on all cylinders; today's print was a reminder that the company still has a long way to go before this is the case," JP Morgan analyst Ken Goldman said.

Shares of Kraft, backed by billionaire-investor Warren Buffett, fell as much as 7 percent to $67.65. They were down 4.8 percent in late-morning trading.

Net income rose to $8 billion, or $6.52 per share, in the fourth quarter ended Dec. 30, from $944 million, or 77 cents per share, a year earlier.

The quarter recorded a $7 billion benefit related to changes in the U.S. tax code.

Excluding items, the company earned 90 cents per share, missing estimates of 95 cents.

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  Thursday, 15 Feb 2018 | 11:36 AM ET

Why Warren Buffett's Berkshire Hathaway loves loathed Israeli drug stock Teva

Posted ByTim Mullaney

After news hit Wednesday that Warren Buffett's Berkshire Hathaway had made a $358 million investment in Israel-based drug company Teva Pharmaceutical Industries, a skepticism lingered even as shares of the heavily shorted stock soared.

What does Berkshire Hathaway see in an out-of-favor drug stock that has languished — Teva shares have declined by roughly half in the past year — that the rest of Wall Street doesn't?

Maybe nothing special. And the size of the bet — at $358 million — is within the discretionary stock selling mandates of Buffett's hedge fund lieutenants, Ted Weschler and Todd Combs. But the bet is consistent with Buffett's long history of value investing, albeit with a twist.

Buffett has been associated with a few drug stocks. He is a longtime holder of Johnson & Johnson, though he has cut that stake significantly in recent years. He once held GlaxoSmithKline, and that was first purchased before he brought on the hedge fund managers, but was eliminated as a stock holding in 2014. And interestingly, the only ADR that Berkshire currently holds in its stock portfolio is an overseas drug stock, France-based Sanofi. It isn't a big stake — about half the size of the Teva buy, and it also has been reduced over time — but has been in the Berkshire stock portfolio for years.

Since the drug industry has not traditionally been a big focus for Berkshire, it suggests the investment is led by Combs, 47, and 55-year-old Weschler, the younger generation of stock pickers to which the 87-year-old Buffett has been giving more power over Berkshire's giant portfolio of stock bets, said Lawrence Cunningham, author of Berkshire Beyond Buffett: The Enduring Value of Values.

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  Thursday, 15 Feb 2018 | 11:23 AM ET

Cramer: I'm shocked by Buffett's Berkshire making a bet on worst-of-the-worst Teva

CNBC's Jim Cramer said Thursday that he was shocked by Berkshire Hathaway's disclosure of holdings in generic drugmaker Teva Pharmaceutical.

"I regard Teva as a very second-rate generic company that's trying to be better run," Cramer said on "Squawk on the Street."

Cramer said he was trying to develop a thesis as to how Berkshire's Warren Buffett, Amazon's Jeff Bezos and J.P. Morgan's Jamie Dimon could use the generic drugmaker in their endeavor to lower drug prices.

The three announced a venture to cut health-care costs and improve services for their U.S. employees late last month.

"That is a coalition that could rely on generics to bring down pricing," said Cramer, host of CNBC's "Mad Money." "I don't think the tie-in necessarily fits, but it is amazing that Warren Buffett goes for what I largely regard as the worst of the worst."

The billionaire investor Buffett "does not approach any large buy lightly," Cramer added.

Teva Pharmaceutical declined to comment on Cramer's remarks.

On Wednesday, a quarterly filing showed Berkshire took a $358 million stake in Teva as of the end of the fourth quarter, sending the drugmaker's stock soaring Wednesday and more than 8 percent Thursday.

Teva is working on a comeback amid price erosion and fierce competition.

In a note to clients, Raymond James analyst Elliot Wilbur suggested that the disclosure by the Oracle of Omaha's conglomerate of a stake in the drugmaker was rare for "esteemed investors," but added the billionaire could have done so as part of his mission to lower drug prices.

"Drug costs continue to escalate, Trump is all over prices, and Teva, along with the rest of the generics industry, is part of the solution and not the problem," Wilbur said Wednesday.

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  Thursday, 15 Feb 2018 | 10:57 AM ET

US Bank to pay more than $600 million over federal charges it had lax anti-money laundering controls

Posted ByLiz Moyer
Francis Dean | Getty Images

U.S. Bancorp failed to monitor suspicious transactions and other activities that should have raised money laundering alerts, and then its employees tried to hide the deficiencies from regulators, federal prosecutors in New York said Thursday.

In one particularly extreme example, federal prosecutors say the bank's anti-money laundering watchdogs looked the other way as a customer named Scott Tucker used several accounts to launder ill-gotten proceeds of a fraudulent payday lending scheme.

The government says U.S. Bank "willfully" failed to report the suspicious activity in a timely manner. Tucker was convicted in New York federal court last year of operating the illegal payday loan scheme, and in January he was sentenced to more than 16 years in prison.

The Minneapolis-based bank, the nation's fifth largest, will pay a total of $613 million, including $528 million in a deferred prosecution agreement with the U.S. attorney in Manhattan, who announced the company had made two felony violations of the Bank Secrecy Act.

The agreement also includes the Office of the Comptroller of the Currency, the Federal Reserve Board and the Treasury Department's Financial Crimes Enforcement Network.

U.S. Bank will reform its compliance and monitoring program and has accepted responsibility for its conduct, the U.S. attorney said in a statement Thursday. The bank skimped on staffing and resources that banks are supposed to have to thwart suspicious activities, the prosecutors said. The government said it would seek dismissal of the charges in two years assuming the bank carries out the reforms.

For about five years starting in 2009, U.S. Bank didn't set up or maintain adequate anti-money laundering systems, the government said. The staff devoted to this area was stretched thin and the bank's practices missed "substantial" numbers of suspicious transactions. And bank staff tried to hide these resource limitations from its regulator, the OCC, out of fear it would disapprove.

U.S. Bank also didn't monitor transactions by noncustomers offered in its branches through an outside money transmitting company, Western Union. U.S. Bank stopped allowing these transactions by noncustomers in 2014.

Tucker, operator of the payday lending scheme, was convicted of various charges of fraud, money laundering and truth-in-lending after a five-week jury trial.

From 2008 to 2012, he used sham accounts at U.S. Bank opened under the names of various Native American tribes. Most of the more than $2 billion in revenue and hundreds of millions of dollars in profit generated by the payday lending scheme flowed through those U.S. Bank accounts.

But bank employees disregarded warning signs, including his heavy spending with money out of the tribal bank accounts on personal items like a luxury vacation home in Aspen, Colorado, and a professional Ferrari racing team.

The bank closed the tribal accounts after press reports in 2011 raised questions about Tucker's businesses but didn't file a suspicious activity report, prosecutors said Thursday. Still other accounts Tucker had were left open, allowing another $176 million from the payday lending scheme to flow through the bank.

U.S. Bank didn't file a suspicious activity report regarding Tucker until it received a subpoena from the U.S. attorney in Manhattan in 2013, despite knowing the Federal Trade Commission had filed suit against Tucker.

Shares of U.S. Bank, a longtime holding of Warren Buffett's Berkshire Hathaway, were down 0.2 percent in trading Thursday. It is the second of Berkshire's big bank holdings, Wells Fargo being the other, to face regulatory heat in recent years.

U.S. Bank said in 2015 that it had entered a consent order with the comptroller over anti-money laundering lapses. On Thursday it said it had already set the money aside to pay for resolving the matter.

"We regret and have accepted responsibility for the past deficiencies" in the anti-money laundering program, U.S. Bank's president and CEO, Andy Cecere, said in a statement. "Our culture of ethics and integrity demands that we do better."

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  Thursday, 15 Feb 2018 | 10:42 AM ET

Cramer: Warren Buffett must not be worried about slowing iPhone X sales

Billionaire investor Warren Buffett obviously isn't concerned about Apple's slow iPhone X sales, CNBC's Jim Cramer said Thursday.

Berkshire Hathaway, which Buffett is the chairman of, has increased its Apple stake, "[So], he obviously does not care about the so-called supercycle of the [iPhone] X not working well," said Cramer, whose charitable trust owns shares of the tech giant.

Earlier this month, Apple reported the number of iPhone units sold in the first quarter fell from a year earlier, despite expectations for modest growth.

"Warren Buffett does not flee with the wind or fly with the wind. He makes judgments," Cramer said on "Squawk on the Street."

A quarterly filing released Wednesday showed Berkshire increased its holdings of Apple by 23.3 percent to 165.3 million shares, sending shares of the iPhone maker climbing more than 2 percent on Thursday.

Berkshire first made an investment in Apple in 2016 after a person at the firm bought about 10 million shares. Buffett then looked at the stock and purchased considerably more, the billionaire recalled in August to CNBC. He added he's never sold an Apple share.

Cramer also spoke about a note by Morgan Stanley's Katy Huberty, which showed the iPhone X winning market share in China during the fourth quarter of 2017.

"She's been right," the host of CNBC's "Mad Money" said about Huberty.

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  Thursday, 15 Feb 2018 | 9:02 AM ET

Apple, Teva rip higher on Buffett's Berkshire investments

Posted ByEvelyn Cheng

The Oracle of Omaha still has a touch for stocks.

Teva Pharmaceutical climbed more than 10.5 percent Thursday morning after news late Wednesday that Warren Buffett's Berkshire Hathaway disclosed a $358 million stake in the drugmaker as of the end of the fourth quarter.

The quarterly filing also showed Berkshire increased its holdings of Apple by 23.3 percent. Shares of the iPhone maker rose more than 2 percent in morning trading.

The purchase shows the influence of Buffett's investment deputies, Berkshire portfolio managers Todd Combs and Ted Weschler. One of them — the billionaire investor has declined to identify which — was responsible for the conglomerate's initial stake in Apple in 2016, and Buffett has added to it since then.

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  Thursday, 15 Feb 2018 | 4:48 AM ET

Market correction? Just do what Warren Buffett does, says one investor

Posted BySilvia Amaro
Warren Buffett
Getty Images
Warren Buffett

Worried money managers who are fretting about the recent market correction and the future of their portfolios just need to follow the advice of legendary investor Warren Buffett, according to one investment manager.

"What do you do if the market drops from here? Warren Buffett famously says 'If I see a sale in my favorite store, I go and buy some more of the stuff I like'," Saker Nusseibeh, CEO of Hermes Investment Management, told CNBC Thursday.

Markets in the U.S. had dropped 10 percent at one point last week — pushing into correction territory — following a data release in the U.S. that sparked fears over a stronger-than-expected uptick in inflation. Market corrections are often seen as a buying opportunity for many investors as they quickly reduce the value of equities. Nusseibeh's comments highlight Buffett's famous line from 2008 when he said: "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."

According to Nusseibeh, now that markets have slightly come off their recent highs, and given that economic growth is strong and there are good prospects for solid earnings, it's the moment to seize the opportunities in the stock market.

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  Wednesday, 14 Feb 2018 | 4:54 PM ET

Berkshire Hathaway doubles down on Apple stock and dumps IBM

Warren Buffett's conglomerate has increased its stake in Apple — and gotten rid of almost its entire IBM stake — a big move for a legendary investor who rarely bets on tech.

Berkshire Hathaway revealed Wednesday that it increased its Apple holdings by 23.3 percent to 165.3 million shares, according to SEC filings, and dumped about 94.5 percent of its IBM holdings, leaving just 2.05 million shares.

Last year, Buffett told CNBC that he was more sure about Apple's future than IBM's, and that he has continued to put his money where his mouth is (even if he still carries a flip phone).

In November, Berkshire reported that it cut its IBM stake by 32 percent, and upped its Apple stake. Before Wednesday's revelation, Berkshire was already the fourth-largest Apple shareholder, according to FactSet.

"IBM is a big strong company, but they've got big strong competitors too," Buffett told CNBC last year.

Still, Berkshire's latest announcement comes at an interesting time for both Apple and IBM.

Rivals in the 1980s, IBM and Apple have taken very different paths over the years: IBM has struggled with trends in enterprise technology, while Apple has become a dominant force in consumer electronics.

But Big Blue revenue grew in January for the first time in 23 quarters, perhaps a sign that the company's pivot to analytics, cloud, mobile and security has taken hold. Wall Street-darling Apple, meanwhile, has faced an unusual level of criticism, amid product issues like production delays, security patches and battery replacements.

IBM told CNBC that it doesn't comment on specific shareholders, but the company is "very focused on delivering shareholder value."

"That's why we have shifted our investment strategy to drive leadership in the key, high-value segments valued by our clients, including Cloud, AI, security, blockchain and quantum technologies," IBM said.

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About Buffett Watch

  • Warren Buffett is arguably America’s most-admired and most-followed investor. Buffett is the largest shareholder and CEO of Berkshire Hathaway and one of the world’s most famous and most generous philanthropists. Legions of investors - from all walks of life - follow Buffett's homespun investment philosophy: invest in what you know, invest in value. Here on CNBC.com's Warren Buffett Watch, we’ll keep you up to date on what the “Oracle of Omaha” is doing by following Buffett's trades, words and deeds.