Warren Buffett Has $130 Billion in Cash — What’s He Doing With It?
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Yaël Bizouati-Kennedy
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Jairo Rodriguez
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Warren Buffett hosted Berkshire Hathaway’s annual meeting — “the Woodstock of capitalists” — on May 6, simultaneously reporting the company’s first quarter earnings and disclosing an incredible cash stockpile.
Warren Buffett’s company reported that it now sits on $130.6 billion in cash from $128 billion in the fourth quarter of 2022, according to Edward Jones, citing Berkshire Hathaway company data. This announcement left investors wondering where Buffett might deploy his stockpile.
“An investor in Berkshire Hathaway common stock should probably assume that as long as Warren Buffett is allocating the firm’s capital, common stock dividends are a low probability,” said Cathy Seifert, director at CFRA Research. “Buffett’s comments at this weekend’s annual meeting reinforced his preference to use some of Berkshire’s cash pile for acquisitions and possibly repurchase more shares.”
According to Barron’s, Buffett said that he’d prefer a deal for a large company rather than sit on the cash, “but that it depends on prices.” He also added that while he would favor a private company, there are few private businesses of that scale available, Barron’s added.
“If Berkshire were able to identify and acquire a large company, I wouldn’t expect it to operate in the healthcare or technology sector. Berkshire has not historically made acquisitions in these sectors. Given large insurance operations as well as large financial stock holdings I would rule out the financial services sector, too,” said James P. Shanahan, CFA and senior analyst for Edward Jones. “Perhaps a company in the consumer or industrial sectors? There are several companies operating in these sectors with current market capitalizations in the $30-70 billion range that also meet Mr. Buffett’s criteria (large companies, consistent earnings power, good returns on equity with little or no debt, management in place, simple businesses). The company would have to be for sale and provide an offering price, though.”
Berkshire Hathaway Repurchases Stock
Berkshire also repurchased $4.4 billion worth of stock in the quarter, according to the earnings filing. Per Seeking Alpha, when it comes to use of Berkshire’s cash, Buffett said — during the May 6 meeting — that the company is still interested in buying a company for a good value. He evaded a question about cash distributions, saying that buying back stock is one way to provide cash distributions.
This sentiment was echoed by professor Robert Johnson of the Heider College of Business, Creighton University. Johnson agreed that a much better way to distribute capital to shareholders is through share repurchases, which the firm routinely does when management sees the shares to be undervalued.
“As a decades-long shareholder of Berkshire Hathaway, I am very happy the cash hoard that Berkshire has accumulated isn’t going to be paid out to me and my fellow shareholders,” said Johnson. “We are Berkshire Hathaway shareholders because we believe in the asset allocation ability of Warren Buffett, Charlie Munger and the other Berkshire executives.” Johnson added that he would much rather have the Berkshire team allocate that capital than himself.
“I certainly don’t mind that the large cash position is being invested in T-bills until an opportunity to more aggressively deploy that capital comes along,” he said, adding that, “To sum it up, I’d rather have Buffett make capital allocation decisions than me. He’s markedly better at them.”
Buffett Turns Down Occidental Petroleum Acquisition
Buffett also added that he would not acquire Occidental Petroleum, despite owning more than 20% of the company, Barron’s reported. As of March 31, 2023, the company’s investment in Occidental preferred stock had an aggregate liquidation value of approximately $9.5 billion, according to the earnings filing.
The company’s operating earnings totaled ~$8 billion in the first quarter, up from $7.16 billion a year prior, according to a press release. Meanwhile, the company’s net earnings stood at $35.5 billion in the quarter, up from $5.6 billion in the same period a year ago.
The jump reflects Buffett’s equity investments, such as Apple, CNBC detailed.
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