Bloomberg News

Berkshire Buys Deere Stake for Buffett Aides’ Portfolios

November 15, 2012

Berkshire Takes Deere Stake as Buffett Deputies Build Portfolios

Deere, which reports fourth-quarter results next week, advanced 0.7 percent to $85.35 in extended trading yesterday in New York after Berkshire’s filing was released. Photographer: Andrey Rudakov/Bloomberg

Warren Buffett’s Berkshire Hathaway Inc. (A:US) disclosed a stake in Deere & Co. (DE:US), the world’s largest maker of agricultural equipment, as the billionaire investor’s deputies build their portfolios.

Berkshire held 3.98 million shares of the Moline, Illinois- based company at the end of the third quarter, Buffett’s firm said yesterday in a regulatory filing (2FA:US) disclosing U.S. equity holdings. The Omaha, Nebraska-based company cut consumer- products stocks including Johnson & Johnson and Procter & Gamble Co. (PG:US) in the period ended Sept. 30.

Buffett, who built Berkshire with long-term equity bets on companies including Coca-Cola Co. (KO:US) and American Express Co. (AXP:US), has given investment managers Todd Combs and Ted Weschler more responsibility for an $88 billion stock portfolio (2FA:US). Deere may benefit in coming decades as farmers seek to boost yields to feed a surging population, according to Eli Lustgarten, an analyst for Longbow Research in Independence, Ohio.

“We have a massive need to increase productivity in the farm belts of the world,” Lustgarten said in a phone interview. “Deere is the global leader” in making products to accomplish that, he said. “Best technology, best-managed company.”

Buffett’s stock picks are watched by mutual funds and individuals looking for clues about his strategy. Deere, which reports fourth-quarter results next week, advanced 0.8 percent to $85.39 at 4:01 p.m. in New York.

The maker of products including tractors, mowers and dozers missed quarterly earnings estimates and cut its full-year profit forecast in August amid slowing sales in Asia and Latin America, leading to the stock’s biggest one-day fall in more than a year. U.S. farmers’ purchasing power may be hurt this year amid the country’s worst drought in five decades.

Stock Volatility

Deere traded (DE:US) as low as $72.85 in the three months ended Sept. 30 and closed the quarter at $82.47. The volatility may have given Berkshire a buying opportunity, Lustgarten said. Buffett, the world’s fourth-richest person, has said he built his fortune by investing in companies the market mispriced.

“The stock got hit a bit,” Lustgarten said. “The long- term outlook for Deere is what attracts people.”

The holding adds to Berkshire investments tied to agriculture. Buffett praised employees at CTB Inc., a unit that makes products for the hog and poultry industries, saying in 2010 that it would expand for decades and was on a farming “superhighway.” Buffett’s son Howard, a farmer and Berkshire director since 1993, endorsed the deal to buy CTB in 2002.

“They’ve already got a toe in the farm pond,” Stephen Volkmann, a New York-based analyst at Jefferies Group Inc., said in a phone interview. “Maybe they’ve decided that global ag is a long-term cycle.”

Consumer Stocks

Buffett, 82, has been reducing Berkshire’s holdings of consumer-products stocks this year as he weighs acquisitions and gives more money to Combs and Weschler. Buffett has said he manages the company’s larger investments while his deputies oversee smaller stakes. In July, he said each would probably manage about $4 billion, compared with $2.75 billion at the beginning of the year.

Berkshire’s holding in J&J plunged 95 percent to 492,000 shares in the third quarter, while the P&G stake declined 11 percent to 52.8 million shares. An investment in Kraft Foods Inc., which split after the third quarter’s end into Mondelez International Inc. (MDLZ:US) and Kraft Foods Group Inc. (KRFT:US), also dropped.

J&J shares fell 0.3 percent in New York today, Kraft Foods Group sank 1 percent and Cincinnati-based P&G declined 0.3 percent. Deerfield, Illinois-based Mondelez was little changed.

Bill Price, a spokesman for New Brunswick, New Jersey-based J&J, P&G’s Paul Fox, Mondelez’s Valerie Moens and Northfield, Illinois-based Kraft Foods Group’s Leslie Sutton declined to comment on the share reductions.

Elephant Hunting

Buffett may be selling the consumer stocks to provide more funds to his deputies while reserving money for a large acquisition, said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. Berkshire’s cash pile climbed to $47.8 billion (2FA:US) in the third quarter, buoyed by the stock sales and earnings at operating units.

“He may be really wanting to keep that aside for his big elephant,” said Kass, who has accompanied students to meet the Berkshire chairman and chief executive officer in Omaha.

Buffett has used hunting references to describe his eagerness for acquisitions, telling shareholders in a letter last year that “Our elephant gun has been reloaded, and my trigger finger is itchy.”

Among Berkshire’s other new holdings were about 1.2 million shares in Portland, Oregon-based Precision Castparts Corp. (PCP:US), valued at about $216 million at yesterday’s closing price, assuming no shares were bought or sold since Sept. 30.

Precision, Wabco

Precision, whose products include metal forgings for jet engines, has made more than 20 acquisitions (PCP:US) in the past decade under CEO Mark Donegan, according to data compiled by Bloomberg. Donegan announced on Nov. 9 an agreement to pay $2.9 billion for billionaire Harold Simmons’s Titanium Metals Corp. (TIE:US)

Buffett’s firm also disclosed a 1.6 million-share stake in in Piscataway, New Jersey-based Wabco Holdings Inc. (WBC:US), a maker of braking and suspension systems for commercial vehicles. The holding would have been worth $92.2 million at yesterday’s close.

Wabco rose 0.4 percent, while Precision gained 0.6 percent.

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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Companies Mentioned

  • A
    (Agilent Technologies Inc)
    • $57.15 USD
    • -0.97
    • -1.7%
  • DE
    (Deere & Co)
    • $90.12 USD
    • -0.67
    • -0.74%
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