Buffett's Berkshire lifts Chevron bet, profits from rate hikes, dollar - Markets Insider

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Warren Buffett's Berkshire Hathaway reported third-quarter earnings on Saturday. The investor's company appears to have boosted its Chevron stake, and ramped up stock buybacks. Berkshire benefited from higher interest rates and a stronger US dollar.

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Warren Buffett's Berkshire Hathaway published third-quarter earnings on Saturday that teased fresh purchases of Chevron stock, and signaled a faster pace of share buybacks this quarter.

Berkshire confirmed it will treat a chunk of Occidental Petroleum's profits as its own from now on. It also revealed the billion-dollar hit to its insurance business from Hurricane Ian, and the positive impact of higher interest rates and a stronger US dollar on its operations.

Here are 6 key insights from Berkshire's Q3 earnings:

1. Stocking up

Berkshire appears to have bolstered its Chevron stake last quarter.

It disclosed the value of its position in the oil-and-gas major was $24.4 billion at the end of September. It held 161 million shares at the end of June, which would have been worth $23.2 billion at Chevron's stock price of about $144 on September 30.

The discrepancy suggests it raised its stake to about 170 million shares last quarter.

Moreover, Berkshire may have boosted its number-one holding, Apple. It owned about 908 million shares of the iPhone maker at the end of December, and purchased nearly 4 million more shares in the second quarter of this year.

That stake would have been worth $126 billion on September 30, based on Apple's stock price at the time. Yet Berkshire valued the position at $126.5 billion, suggesting it bought a few more shares.

Meanwhile, Berkshire reported an estimated $4.7 billion drop in the cost base of its financial stocks, a $2 billion drop for its commercial and industrial stocks, and a $700 million drop for its consumer-products stocks. Those declines point to which parts of its portfolio it pruned last quarter.

2. Bigger buybacks

Berkshire spent $1.05 billion repurchasing shares last quarter. It appears to have spent another $500 million or so on buybacks between October 1 and October 26, based on the decline in Berkshire's outstanding shares and the average trading price of Berkshire stock in that period.

Buffett and his team are now on track to spend upwards of $1.5 billion on buybacks this quarter, which would trump their outlays in each of the past two quarters.

3. Sharing in Oxy's success

Berkshire, which built a 20.9% stake in Occidental from scratch this year, said it would account for that holding using the equity method.

That means it will report a proportionate share of the oil-and-gas company's revenues and earnings as its own, with a one-quarter lag as Occidental reports its quarterly earnings later than Berkshire.

The position could contribute $2 billion in quarterly revenues and $750 million in net income to Berkshire every three months, based on Occidental's second-quarter financials.

4. Higher rates are helping

The Federal Reserve has hiked interest rates from nearly zero in March to a range of 3.75% to 4% today, in an effort to curb historically high inflation.

The US central bank's rate increases boosted the amount of interest that Berkshire earned on its cash and Treasury bills. As a result, the company's income from interest and other investments soared by 182% year-on-year to nearly $400 million last quarter.

5. Disaster strikes

Hurricane Ian buffeted Florida, South Carolina, and other US States last quarter. Berkshire, which owns a raft of insurance and reinsurance companies, suffered an after-tax blow of $2.7 billion to its profits from the catastrophe.

Geico, the Berkshire-owned auto insurer, incurred about $600 million of losses and related expenses from the tropical storm. Meanwhile, the reinsurance arm of Berkshire's property-casualty business swallowed a $1.9 billion loss.

6. Greenback gains

Buffett famously favors American stocks such as Coca-Cola and Kraft Heinz, and has built a vast collection of US businesses including the BNSF Railway and See's Candies.

Berkshire's domestic focus meant it enjoyed a $1.2 billion pretax gain from the dollar's surge against other world currencies in the past quarter. It only saw a $264 million foreign-exchange gain in the same period of 2021.

Moreover, Buffett's company notched a $858 million gain from non-dollar-denominated debt. That's partly because the yen debt it issued to hedge its investments in five Japanese companies became less onerous, thanks to a stronger dollar.

Read more: David Rubenstein sees Warren Buffett as the ultimate investor. The private equity billionaire lays out the 12 traits and habits that are key to Buffett's success.

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