It finally happened. This year, Warren Buffett and Berkshire Hathaway began selling significant portions of their massive Apple stake. According to its latest 13-F filing with the Securities and Exchange Commission (SEC), Berkshire Hathaway reduced its Apple investment by approximately half in the second quarter. That stock was worth around $80 billion based on Apple's current share price. Berkshire Hathaway now has an estimated $300 billion in cash and equivalents on its balance sheet, a figure that has been growing every quarter for quite some time now.
A lot of the proceeds from the Apple stock sale are now sitting in cash and U.S. Treasuries as Buffett waits for the next big opportunity. However, the conglomerate did make a few stock buys in the second quarter. Here are two interesting stocks Berkshire Hathaway bought this summer that you should consider for your portfolio.
One of Buffett's favorite companies, and a stock he seems to buy more of every quarter, is Occidental Petroleum. Occidental Petroleum is one of the largest U.S. oil and natural gas companies. Last quarter, it posted its highest production in four years, as measured in barrels of oil equivalent per day, from its various operations. This led to $1.3 billion in free-cash-flow generation in the quarter. To further reinvest for growth, the company just bought CrownRock for $12 billion, a deal that added new acreage for production in the Midland Basin. The new assets will help boost free-cash-flow generation and should help Occidental Petroleum consolidate its position in the United States. Buffett now owns an estimated 27% of Occidental Petroleum's stock, which is a significant bet on continued U.S. demand for natural gas.
This might prove a particularly timely move as additional electricity demand growth builds from the artificial intelligence (AI) and cloud computing markets. However, right now, natural gas prices are falling. While this will be a short-term issue for Occidental Petroleum, contributing to the stock being down 21% from its 52-week high, it could provide a buying opportunity for long-term investors. Occidental Petroleum currently trades at a P/E ratio of 13.4, even with natural gas prices low. If you are like Buffett and believe in the durability of natural gas demand, now could be a great time to add Occidental Petroleum shares to your portfolio.
Ulta Beauty is a new position for Buffett. Berkshire Hathaway added the stock to its portfolio in the second quarter after shares fell by more than 40% from their recent high. Ulta Beauty is struggling as it comes off a beauty-supplies boom related to the COVID-19 pandemic. Comparable sales declined by 1.2% in the second quarter compared to growth of 8% in the prior-year period. Customers are spending less on beauty products and visiting Ulta stores less frequently. And given that the chain has close to 1,500 stores in operation, investors are likely worried that it's reaching market saturation.
Taking a longer view, it is clear that Ulta Beauty has been adept at growing its earnings. Operating income is up 295% in the last 10 years, while shares outstanding are down 26.8%. The company consistently repurchases stock to reduce its outstanding shares, which is good news for the remaining shareholders. Buffett and his team at Berkshire Hathaway likely think that Ulta Beauty is a quality retailer facing short-term trouble. It currently trades at a low P/E ratio of 14.4 and is buying back a considerable amount of stock. For those confident in the Ulta Beauty brand, now could be a great time to follow Buffett and take a position in the company.
