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Warren Buffett: A Stock Market Rally Is Coming

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It’s official: Warren Buffett is bearish no more. With his third quarter disclosures, The Oracle of Omaha left no doubt that he’d become a bull on stocks. Featuring major stock purchases and buybacks, Buffett’s third quarter signals a bull market in the making.

If you want to copy Buffett’s recent plays, I’m going to be sharing a few that stand out later in this article. First, though, let’s look at the undeniable evidence that Warren Buffett is now bullish on stocks.

A net buyer of stocks

By far the best evidence that Warren Buffett is now bullish on stocks is his third quarter purchases.

In Q3, Buffett became a net buyer of stocks for the first time this year, making $4.8 billion in net buys. In the previous quarter, he was a net seller to the tune of $12.8 billion. Buffett’s third quarter purchases weren’t enough to make him a net buyer for the full year 2020. However, we still have those fourth quarter earnings coming out soon. So Warren Buffett may yet become a full year net buyer.

The cash pile finally shrinks

As a result of all of Buffett’s third quarter purchases, Berkshire Hathaway’s (NYSE:BRK-A)(NYSE:BRK-B) cash pile finally shrunk in the third quarter. For years, market commentators had been observing Buffett’s growing pile of cash and wondering what it meant for stocks. If Buffett thought there was value in stocks, why wasn’t he buying? In the third quarter, he finally put those concerns to rest, by putting a $8 billion dent in his enormous cash pile.

Buybacks a huge part of the equation

Share buybacks were a huge part of Buffett’s third quarter investments. In Q3, Buffett bought back a record $9 billion worth of Berkshire Hathaway shares, indicating bullishness on his own company’s stock. This makes perfect sense when you think about it. Earlier in the year, Berkshire shares tanked on lower accounting earnings.

However, the lower earnings were mainly due to lower portfolio stock prices–cash earnings were actually up. So Berkshire went down in the markets, as if it had “lost money”–when it didn’t. Buffett took that opportunity to buy back shares and reward his own investors.

Canadian stocks in the mix

If you’re a Canadian investor, you might be curious as to whether Buffett bought any Canadian shares in Q3. Unfortunately the answer is no. In the third quarter, Buffett actually trimmed his stake in Barrick Gold and left his position in Suncor Energy (TSX:SU)(NYSE:SU) unchanged.

The Barrick play isn’t worth discussing in much detail. It looks like Buffett was simply cashing in on a large gain, as ABX shares rallied after he bought them.

The Suncor Energy play is worth exploring though. That stock is currently trading for less than its tangible book value, making it a classic value play. While the stock isn’t as cheap as it once was, it’s still cheaper than the value of its assets, net of debt. If there’s one Canadian Buffett play worth looking at now, it’s Suncor.

The stock stands to benefit enormously from the arrival of a COVID-19 vaccine, as that will get people back to work and therefore increase demand for gasoline. Buffett is holding the line on Suncor, and perhaps you’d be well served by buying it too. However, the ultimate Buffett play is to simply buy Berkshire itself, as that gives you exposure to Warren Buffett’s entire portfolio.

By the way, if you like Warren Buffett stocks, you'll LOVE these...

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short December 2020 $210 calls on Berkshire Hathaway (B shares).

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