Market observers find it queer that the GOAT of investing made relatively few moves in 2020. Instead, Warren Buffett’s Berkshire Hathaway ramped up its stock repurchasing program. As of September 30, 2020, the conglomerate spent US$15.7 billion to buy back its own shares.
Some of his loyal followers were disappointed too. In Q3 2020, Berkshire’s operating earnings fell 30% to US$5.47 billion versus the Q3 2019. Even David Merkel, a long-time fan and investor, questions Buffett’s inaction during the coronavirus-induced market crash. Other critics say his views are outdated.
In July 2020, the Bloomberg Billionaire Index showed that Buffett is the biggest loser in 2020 among the world’s top billionaires. Virtualcapitalist.com reports that in January 2021, Buffett is the seventh richest man in the world. However, he’s the only one whose wealth dropped (-2%) compared to 2019. As such, should we still believe in him?
Not a sluggish performance
While Berkshire Hathaway lagged the S&P 500 in terms of return (2.4% versus 18.4%), it wasn’t exactly a sluggish performance for Buffett’s firm. The value of the investments in equity securities rose by 13.3% to US$259.6 billion. Analysts predict Berkshire will report a book value of US$443.9 billion for Q4 2020 from US$415.2 billion in Q3 2020.
Among Buffett’s stock winners are Apple and tech startup Snowflake. Berkshire gained US$1.5 billion on General Motors in four months. The company also took new positions in four pharma firms and Barrick Gold. Buffett was mostly criticized for not capitalizing on the market decline despite a massive cash stockpile.
It appears that Buffett is holding on to his cash for peace of mind. Perhaps he anticipates unforeseen financial challenges, if not a major market crash. Nonetheless, expect him to scout for high-quality companies ahead of the downturn. Remember that Buffett is a value investor. He will buy these companies at low prices to generate market-beating returns in the future.
Beaten energy stock is gearing up
Suncor Energy (TSX:SU)(NYSE:SU) is one of Buffett’s losing investments in 2020, yet Berkshire Hathaway keeps the energy stock in its portfolio. The company is Suncor’s largest investor on record. Besides the 55% dividend cut, shares of the oil sands king lost 48% in 2020.
The $34.8 billion Canadian oil and producer is gearing up. Management forecast higher production and spending targets for the fiscal year 2021 as it expects a faster rebound in demand and prices from COVID lows. Suncor hopes to achieve an average production of 740,000 to 780,000 barrels of oil equivalent per day this year.
Suncor’s capital program target will also increase. It’s now between $3.8 billion and $4.5 billion compared with $3.6 billion to $4 billion in 2020. The company’s primary focus is sustaining capital, given the significant planned maintenance programs in oil sands upgrading operations and downstream refineries.
For would-be investors, Suncor trades at $22.87 per share and pays a decent 3.42% dividend. Analysts forecast Buffett’s energy to soar 132% to $53 in the next 12 months.
Wide economic moat
Berkshire Hathaway did not lose its wide economic moat despite the criticisms. If the real economy starts recovering, windows of opportunities will open. Buffett has the financial resources to scoop up value stocks. Also, he is ever-prepared for any eventually. Thus, I expect his legions of investors to have complete trust as he navigates in 2021.
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Fool contributor Christopher Liew has no position in any of the stocks mentioned. David Gardner owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares) and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).