Is Warren Buffett Making A Mistake By Selling These Stocks?

Warren Buffett is a personal hero of mine.

I’ve read his biography – The Snowball – twice. This is a book that’s nearly 1,000 pages long. As a fellow frugal Midwestern investor, I’ve fashioned some parts of my life after Buffett.

However, Buffett is human like the rest of us. And he sometimes does make mistakes. Well, he might be making a mistake right now.

His conglomerate, Berkshire Hathaway (BRK), runs a $300 billion common stock portfolio within the company. While Buffett oversees this portfolio, his two lieutenants – Todd Combs and Ted Weschler – also manage money.

So we’re never 100% sure which stocks Buffett is buying and selling. But his firm has been selling a group of stocks that, in my opinion, look more buyable than sellable.

Today, I want to tell you about a group of stocks Berkshire Hathaway sold over the second quarter of this year.

Ready? Let’s dig in.

While Berkshire Hathaway sold a number of stocks during the second quarter of this year, Buffett & Co were mostly busy selling a particular group of stocks that I think is noteworthy in terms of its concentration within one area of the market.

I’m talking about Big Pharma.

Yep. Berkshire Hathaway has been furiously unloading many of their pharmaceutical holdings. They sold large chunks of four Big Pharma stocks, even completely selling out of one of their positions.

Berkshire Hathaway sold approximately:

• 2.3 million shares of AbbVie (ABBV)
• 643,000 shares of Biogen (BIIB)
• 4.7 million shares of Bristol-Myers Squibb (BMY)
• 8.7 million shares of Merck (MRK).

The Biogen position was completely sold out of. Buffett’s got no love for Big Pharma?

Hard to say. We don’t know if it was Buffett, Combs, or Weschler doing the selling. But it doesn’t really matter. Combs and Weschler have both been hand picked by Buffett to help him manage the sizable common stock portfolio within Berkshire Hathaway. They act as his… proxy, more or less. So if they’re making a move, it’s not hard to draw a line straight back to Buffett. And when they buy or sell stocks, that impacts Buffett, as he’s still a major shareholder of Berkshire Hathaway and will see his exposure within the portfolio change after a move is made.

The stock sales are kind of strange and unusual for Berkshire Hathaway.

Berkshire Hathaway initiated positions in AbbVie, Bristol-Myers Squibb, and Merck in the third quarter of 2020. And then someone at the company decided to reverse course, which saw Berkshire Hathaway start to sell off these positions in the first quarter of this year, which they obviously followed up on with more sales in the second quarter. Buffett’s long-term mentality, patience, and adherence to a buy-and-hold strategy are almost legendary at this point, so seeing Berkshire Hathaway start to unload recently initiated positions is unusual for the firm.

So what gives? Why is Berkshire Hathaway unloading these stocks?

Honestly. I don’t know. I think many stocks within Big Pharma are more buyable than sellable. Indeed, I highlighted Bristol-Myers Squibb in June as a high-quality dividend growth stock that looked undervalued. And I highlighted Merck in a similar way back in March. I did the same with AbbVie late last year.

Of those three stocks specifically, I personally see Merck as the most buyable right now.

However, I think Big Pharma in general is appealing for long-term dividend growth investors. You’re getting low valuations, market-beating yields, and solid growth prospects. These are great businesses all around with durable competitive advantages. In my view, they fit Berkshire Hathaway to a T, yet they’re buying and selling with no discernable pattern. But if Buffett and his team are unloading, is it a good idea to be a contrarian here and go against the Oracle of Omaha?

Sometimes it pays off to do the opposite of Buffett.

Check this out. I put together a video back in February on Buffett’s recent sales, which covered how Berkshire Hathaway was busy unloading a different group of stocks during the fourth quarter of 2020. The group of stocks they were selling back then? Bank stocks. Berkshire Hathaway was unloading high-quality bank stocks like JPMorgan Chase (JPM) – and U.S. Bancorp (USB).

I said then that investors would be wise to consider buying what Buffett was selling.

Both JPM and USB are up by over 20% YTD. They’re up even more when you date things back to the fourth quarter of 2020. Now, we can be pretty sure that Buffett was squarely behind the bank sales, just based on the size, age, and type of holdings. I noted then that Buffett had gotten overzealous with the bank stocks, which is probably what led to the selling. He pretty much confirmed my viewpoint in the 2021 Berkshire Hathaway shareholders’ meeting.

Well, I’m saying again that investors would be wise to consider buying what Buffett is selling.

That’s right. Berkshire Hathaway is selling Big Pharma, but I think long-term dividend growth investors would be wise to consider buying, not selling, some of these stocks. Merck looks especially appealing to me within this grouping, and my video on Merck discusses why that is. I don’t have any clue as to which way these stocks are going to go over the next few weeks or months – nobody does – but I have a great deal of confidence that they’ll do extremely well for their investors over the next decade or so, all while continuing to pay out safe, growing, market-beating dividends along the way.

— Jason Fieber

P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.