Warren Buffett’s Berkshire Hathaway BRK.A BRK.B has released its third-quarter 13F. As it was during the last quarter, Berkshire was a net seller of stocks during the third quarter. That may surprise some investors, given that stocks had a tough time during the period: The Morningstar US Market Index was down about 3% during the quarter. However, Berkshire’s cash stake hit $157 billion, its highest ever.

Here’s a look at some of the stocks that Warren Buffett and his team bought and sold during the third quarter, as well as three undervalued Warren Buffett stocks in Berkshire Hathaway’s portfolio today.

3 new stocks

All three of the new stocks appearing in Berkshire Hathaway’s third-quarter 13F weren’t “buys,” per se. “While there were a handful of stocks that showed up as new stakes in the portfolio—Liberty Media Live Group LLYVA, Atlanta Braves Holdings BATRK, and Sirius XM SIRI—most of this was due to corporate actions by John Malone’s Liberty Media Corporation,” explains Morningstar strategist Greggory Warren. (Liberty Media has been a longtime holding of Berkshire Hathaway.)

Apple AAPL stock remains Berkshire’s largest holding—by a landslide.

13 stocks Warren Buffett’s Berkshire Hathaway sold

13 stocks that were sold

Berkshire Hathaway sold its stake in Activision Blizzard prior to the company’s deal officially closing with Microsoft MSFT in October. Berkshire also sold off its entire remaining positions in Celanese CE, General Motors GM, Johnson & Johnson JNJ, Mondelez International MDLZ, Procter & Gamble PG, and United Parcel Service UPS during the third quarter. Notably, some of these positions had been in the portfolio for two decades, says Warren. In addition, the size of the sale of Chevron CVX stock—totaling 12.9 million shares—is also notable, he adds.

3 Warren Buffett stock picks

Many of the publicly traded stocks held by Berkshire Hathaway are fairly valued or overvalued today, according to Morningstar’s metrics. These stocks were among Berkshire Hathaway’s holdings in the most recent quarter, and they looked undervalued as of Nov. 14, 2023.

  • Bank of America BAC
  • American Express AXP
  • Kraft Heinz KHC

Here’s a little bit about why we like each of these stocks at these prices, along with some key metrics for each. All data is as of Nov. 14, 2023.

Bank of America

Morningstar Rating: 4 stars
Morningstar Economic Moat Rating: Wide
Morningstar Capital Allocation Rating: Standard
Industry: Banks—Diversified

Berkshire Hathaway owns about 13% of Bank of America’s outstanding shares; in fact, Bank of America is one of the top holdings in Berkshire Hathaway’s portfolio. Bank of America is one of the premier banking franchises in the U.S., with a scale and scope that we expect it to maintain as mobile banking adoption continues to take hold. Bank of America stock currently trades 17% below our $35 fair value estimate.

Here’s what Morningstar Director Eric Compton has to say about the stock after the company’s third-quarter earnings release:

Wide-moat-rated Bank of America reported decent third-quarter results. Deposit costs are tracking as we expected, deposits grew slightly in the quarter, and net interest income, or NII, even outperformed slightly despite minimal balance sheet growth. After some slight changes to our projections, we are maintaining our fair value estimate of $35 for Bank of America. We think the market is continuing to penalize Bank of America for its longer duration securities, and while it will be slow going for this book to gradually mature and roll off, we think the core business remains solid. We still view shares as moderately undervalued, being slightly cheaper than peer JPMorgan but not quite as cheap as the peers in turnaround mode.

Management maintained its fourth-quarter NII outlook and believes that next quarter will roughly be the bottom for NII in the current cycle, assuming no more than one additional rate hike. We think the market is still getting comfortable with where funding costs, deposit levels, and NII might reach an equilibrium, and we are starting to get a more refined picture here. This should set up the bank for a slight decline in NII in 2024, although NII levels should still be roughly 30% above 2020 and 2021 levels. In other words, despite some of the self-induced pressure from the bank’s longer duration securities portfolio compared with peers, profitability is not an issue, and the bank’s current trajectory roughly fits our previous expectations.

Expenses met expectations, and management maintained its outlook for the fourth quarter. We think it will be difficult, but possible, for the bank to limit expense growth in 2024. We are currently expecting something closer to a mid-single-digit percentage increase, but there may be room for something better.

Fees were a bit weaker, as investment banking did not bounce back in the quarter. This remains a cyclical business, and we would not read too much into this. Other fee items were roughly as expected.

Eric Compton, Morningstar Director

American Express

Morningstar Rating: 4 stars
Morningstar Economic Moat Rating: Wide
Morningstar Capital Allocation Rating: Standard
Industry: Credit Services

Berkshire Hathaway owns about 20% of American Express’ outstanding stock. Because American Express’ largest source of revenue comes from the discount rate charged to merchants when they accept payments, the level of consumer spending has a direct impact on the company’s revenue. Despite the economic climate, the company has enjoyed strong new card acquisitions and spending growth this year. American Express stock is trading 12% below our fair value estimate.

Here’s Morningstar analyst Michael Miller’s take on American Express stock after earnings:

Wide-moat-rated American Express reported strong third-quarter earnings as strong consumer spending volume and a jump in net interest income more than offset meager commercial spending growth. Net revenue increased 13% from last year and 2.2% from last quarter to $15.4 billion. Earnings per share rose 33% to $3.30, though the company did benefit from its effective tax rate falling to 20.9% from 23.6%, which translates to a return on equity of 36.3%. As we incorporate these results, we do not plan to change our $178 fair value estimate, and we see the shares as modestly undervalued.

Discount revenue, the transaction fees American Express charges merchants when they accept its cards, increased 9% from last year to $11.9 billion. International and U.S. consumer spending volume rose 17% and 10%, respectively, as retail sales remain resilient despite economic concerns. On a less-positive note, spending on American Express' commercial cards, which are responsible for around 30% of total volume, only increased 1% from last year. We see the slow growth here as being primarily driven by macroeconomic factors, as average spending per card decreased 4.7% from last year while the number of commercial cards outstanding increased 5.4%.

Net interest income increased 34% year over year and 10.9% sequentially to $3.4 billion, driven by loan growth and wider net interest margins, with period-end cardmember loans increasing 19% year over year to $118 billion. Unlike other credit card issuers, American Express is a payment network first and lender second, as noninterest income typically makes up around 80% of its total revenue. That said, changes in the structure of many of its cards to offer more lending and a shift toward a younger cardholder base have allowed the firm to enjoy a period of accelerated loan growth. We continue to expect loan growth to moderate in the future, but the firm’s net interest income growth should lead its peers in the near term.

Michael Miller, Morningstar Analyst

Kraft Heinz

Morningstar Rating: 5 stars
Morningstar Economic Moat Rating: None
Morningstar Capital Allocation Rating: Standard
Industry: Packaged Foods

Berkshire Hathaway owns more than 25% of Kraft Heinz’s stock. The packaged foods manufacturer has revamped its road map and is now focused on consistently driving profitable growth. We think Kraft Heinz stock is worth $53, and shares are trading at a 37% discount to that fair value today.

Here’s what Morningstar Director Erin Lash thinks of Kraft Heinz after the company reported third-quarter earnings:

Even though the sun is setting on CEO Miguel Patricio’s time at the helm of no-moat Kraft Heinz, we surmise the imprint he is leaving on the business will persist. Before he came on board, Kraft Heinz was plagued by its outsize desire to root out costs blindly in favor of juicing near-term sales and cash flows, without any regard for investing to support the long-term health of the business. In stark contrast, Kraft Heinz’s third-quarter results (1.7% organic sales growth, nearly 400 basis points of expansion in the adjusted gross margin to 34%, and a 280-basis-point jolt in the adjusted operating margin to 17.7%) came in spite of a 25% increase in marketing expense, an 8% bump in research and development expense, and a 24% increase in technology spending. And we think management is keen to unearth further cost savings to boost spending behind its brands and capabilities, with incoming CEO Carlos Abrams-Rivera (one of the architects of this playbook) set to take the reins.

But beyond this, we also think Patricio and his team have judiciously prioritized debt paydown, with net leverage falling below its 3 times target a year ahead of plan. When combined with its robust cash generation (free cash flow averaged in the midteens as a percentage of sales the last three years—levels we think can hold over our forecast), we posit this should unlock opportunities for enhanced financial flexibility to beef up its return to shareholders (in addition to investing in its existing operations), with our forecast calling for mid-single-digit increases in its annual dividend in short order.

With just two months left in its fiscal year, our $53 fair value estimate shouldn’t see much change outside of time value nor should our long-term outlook for 2%-3% annual sales growth and low-20s operating margins. Despite a mid-single-digit bump on the results, we view shares as attractive, trading at a 40% discount to our intrinsic valuation while offering a 4%-plus dividend yield.

Erin Lash, Morningstar Director