I told you in an earlier part of this report that last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.
ConocoPhillips is the third-largest U.S. integrated energy company based on market capitalization, oil and natural gas reserves, and production, and the fourth-largest refiner in the world. The company is headquartered in Houston and employs 29,900 employees worldwide.
In 2010, the company’s free cash flow jumped to $22.7 billion from $2.3 billion in 2009. The increase resulted from higher cash flow from operations driven by higher oil prices, and positive capital expenditures due to the sale of certain assets as well as its 20% stake in Russian Lukoil, from which it realized $8.3 billion in proceeds in 2010.
ConocoPhillips’ board recently reached the decision to separate its exploration & production and refining & marketing arms into two independently traded companies. They made the move in an effort to unlock shareholder value. In the second quarter, they also purchased $3.1 billion of outstanding shares toward that end.
SanofiAventis ADS (SNY)
Buffett began purchasing Sanofi Aventis in the second quarter 2006 and bought more over the years as the price dropped. He now owns 4,063,675. The average price he paid for his shares was $43.89 a share. The stock has since dropped 20% and investors can get the stock for $35.25.
Sanofi-aventis produces therapies that creates and distributes therapeutic solutions in cardiology, oncology, internal medicine, metabolic diseases, nervous system disorders, ophthalmology and vaccines.
Sanofiaventis Ads has a market cap of $92.43 billion; its shares were traded at around $35.25 with a P/E ratio of 8.6 and P/S ratio of 2.2. The dividend yield of Sanofiaventis Ads stocks is 3.8%. Sanofiaventis Ads had an annual average earnings growth of 8.8% over the past five years.
The company saw its price sink primarily due to weak earnings in the second quarter. The company reported net profit of $1.44 billion, down from $2.4 billion a year earlier. Like many of its peers, new generics are eking away at profits as many blockbuster drugs go off patent. Management has raised guidance for earnings per share, however, from a decline of 5% to 10% to a decline of 2% to 5%. Earnings will likely be helped by Genzyme Corp., a company they acquired
Buffett has held onto his one-time buy of 1,510,500 shares of GlaxoSmithKlein since the fourth quarter of 2007. He bought at an average price of $51.45, and investors can now purchase 18% lower at $42.2 per share.
GlaxoSmithKline is one of the world's research based pharmaceutical and healthcare companies and is committed to improving the quality of human life by enabling people to do more, feel better and live longer. Glaxosmithkline Plc Ads has a market cap of $108.92 billion; its shares were traded at around $42.2 with a P/E ratio of 11.7 and P/S ratio of 2.4. The dividend yield of Glaxosmithkline Plc Ads stocks is 4.9%. Glaxosmithkline Plc Ads had an annual average earnings growth of 3.2% over the past 10 years.
The company saw its free cash flow from to $9 billion in 2010 from $10.1 billion in 2009. Additionally, second-quarter 2011 free cash flow of $1.3 billion fell from $3 billion a year earlier. Revenues have decreased by small amounts each year since 2007.
Glaxosmithkline reported sales fell 2% in the second quarter due to a £472 million loss of sales of pandemic products Avandia and Valtrex. Avandia was pulled from the market by the European government for safety reasons and Valtrex has fallen victim to generic competition.
The company is undergoing a restructuring program that they predict will bring total annual savings of £2.5 billion a year by 2012.
Bank of New York Mellon (BK)
Buffett initiated a position in Bank of New York Mellon in the third quarter 2010, buying 1,992,759 shares at an average price of $25.45 per share. He subsequently sold 198,844 shares in the next quarter as the price climbed to an average of $27.49. The stock sells today 5% cheaper than his average cost per share of $25.
Bank of New York is a bank holding company and one of the world's larger financial institutions. Bank Of New York Mellon has a market cap of $29.45 billion; its shares were traded at around $23.72 with a P/E ratio of 10.4 and P/S ratio of 2.1. The dividend yield of Bank of New York Mellon stocks is 2.3%.
The bank had a relatively sunny second quarter: They raised revenue 15%, fee revenue 18% and assets under management 22% versus the second quarter 2010. Net long-term inflows to the bank totaled $32 billion in the first half of the year, raising its total assets under custody and administration to a record $26.3 trillion. Fee revenue went up accordingly. The cash on the bank’s balance sheet increased to just over $100 billion, and long-term liabilities and debt stayed relatively even at about $40 billion from the previous quarter.
After the market’s dive yesterday, Bank of New York Mellon said it would start charging institutional clients fees for “extraordinarily high” cash deposits as the bank was seeing an influx of deposits from those wanting to keep their money safe.
U.S. Bancorp (USB)
In the second quarter 2006, Buffett added 16,027,400 shares to his 22,134,400-share holding of USB at an average price of $31, and acquired more periodically the following years. When the stock fell to $27.66 in the fourth quarter 2008, he sold 5,385,700 shares. When it dropped to $15.2 the next quarter he bought another 1,488,000 shares. Overall, his average price per share was $31.82. The stock can now be had 24% cheaper at $24.15 per share.
U.S. Bancorp is a financial services holding company. U.S. Bancorp has a market cap of $46.53 billion; its shares were traded at around $24.15 with a P/E ratio of 11.8 and P/S ratio of 2.2. The dividend yield of U.s. Bancorp stocks is 2.1%. U.S. Bancorp had an annual average earnings growth of 1.6% over the past 10 years.
U.S. Bancorp announced net income of $1.2 billion in the second quarter 2011, improved from $766 million a year ago. Return on average common equity was also stronger, 15.9% compared to 13.4%, as was the return on average assets, 1.54% compared to 1.09%. Earnings for the second quarter of 2011 were driven by year-over-year growth in total net revenue and a reduction in the provision for credit losses.
Warren Buffett commented on U.S. Bank in his annual shareholder letter:
Wells Fargo (WFC) and U.S. Bank (USB) are among the best of the large banks, if not the best. Banking as a whole will be considerably smaller and less profitable than before. The leverage will be reduced. It is a good thing for the society, maybe bad for some banks.
Even of ROA is lower, ROE is lower, we think USB and WFC are still very good.
In terms of the troubles in banking, I think you saw far worse happen before. Banks are always on the asset side. It is a very good business because you get your money so cheap. I like our positions there.
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