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Commentary

Berkshire Likes Express Scripts--and So Do We

The wide-moat pharmacy benefit manager--which is currently rated 4 stars by Morningstar--was Berkshire's only new money purchase during the third quarter.

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While wide-moat  Berkshire Hathaway's (BRK.B) third-quarter 13-F filing was overshadowed this week by the firm's announcement that it would be exchanging its 52.8 million share stake in  Procter & Gamble (PG) (worth $4.7 billion) for the Duracell battery business, the company did report some changes to the stock portfolio (that look to be more the work of Todd Combs and Ted Weschler than Warren Buffett).

Berkshire's 13-F equity holdings, which do not include foreign investments held abroad like BYD and Tesco, were valued at $107.8 billion at the end of the third quarter, with the top five holdings-- Wells Fargo (WFC) (22%),  Coke (KO) (16%),  American Express (AXP) (12%),  IBM (IBM) (12%), and  Wal-Mart Stores (WMT) (4%)--accounting for more than two thirds of the portfolio.

The insurer's only new money purchase during the period was 450,000 shares of  Express Scripts (ESRX) for an estimated cost of around $32 million. Berkshire also more than doubled its stake in  Charter Communications (CHTR) (making it a $750 million holding), and made meaningful additions to its stakes in  DirecTV (DTV),  General Motors (GM),  Visa (V), and  MasterCard (MA). (The last two purchases look to be fairly prescient, as both stocks have risen more than 15% since the start of the fourth quarter.) The company also held 8 million shares of Liberty Media Class C (LMCK), which was paid out during the period as a stock dividend on Berkshire's holdings in Liberty Media Class A (LMCA) shares.

As for the sales reported for the third quarter, the firm eliminated its stake in  Deere (DE) (netting an estimated $340 million), and unloaded close to two thirds of its holdings in  ConocoPhillips (COP) (for $70 million), 920,000 shares of  National Oilwell Varco (NOV) ($70 million), 1.3 million shares of  Bank of New York Mellon (BK) ($50 million), and 290,000 shares of  Phillips 66 (PSX) ($25 million).

As always, the quarterly share changes in Berkshire's stock portfolio have no real impact on our fair value estimate for the firm, which continues to be driven to a large degree by the performance of its operating businesses.

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Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.