I Still Like the Stock, but This Definitely Isn't Warren Buffett's Berkshire Hathaway Anymore

Greg Abel's first quarter as Berkshire Hathaway's (NYSE: BRKA) (NYSE: BRKB) CEO is officially in the books. And things certainly seem at least a little bit different than how they were when Warren Buffett was at the helm.

With the exception of its expanded stake in Alphabet, which is now the conglomerate's fifth-largest holding, and a cut to its investment in Chevron, there wasn't much change in the company's top 10 equity positions -- which make up roughly 80% of the portfolio's value at recent prices.

There are still some big takeaways to glean from the seemingly small changes Abel made in Q1, however, that could make a meaningful impact on this ticker's long-term performance. Here are the three most important ones I see.

1. Not bothering with pointlessly small positions

While Berkshire Hathaway's biggest holdings didn't change much last quarter, many of the smaller ones did. In addition to Charter Communications and Aon, Abel also shed longtime holdings Visa and Mastercard, along with a relatively recently acquired position in Amazon.

The common thread among the 16 stocks sold entirely in Q1? Not a single one of them accounted for more than 1% of the value of Berkshire Hathaway's entire stock portfolio. Even if any of these names were destined for big gains, it would have made little net impact.

Image source: The Motley Fool.

Honestly, I never understood why Buffett bothered with such small positions. They seemed like more of a distraction that Abel doesn't want.

2. Letting go of losers

There's much to be said for being willing to hold onto a stock for Buffett's favorite holding period of "forever." There's also something to be said for being willing to bail out of an underperforming position -- even at a loss -- when it's clear that something's not panning out.

That's what Abel seems to think, anyway. Despite owning some of them for only a few quarters, Berkshire got out of positions in Pool Corp., UnitedHealth, and Domino's Pizza and sold most of its stake in Constellation Brands (NYSE: STZ), just to name a few. In most cases, these exits would have locked in a loss.

It's difficult to disagree with the decisions, though. For instance, while Constellation was a promising turnaround prospect when Berkshire first began accumulating it back in late 2024, it's since become clear that the booze business's headwind may be more secular than cyclical. Gallup reports the number of Americans who regularly consume alcohol reached a multidecade low last quarter. This weakness could last for a full generation.

Ditto for health insurer UnitedHealth. The healthcare system's skyrocketing operating costs and subsequent price increases have reached untenable levels. The business will require a massive overhaul to repair, and it's not clear what it will look like afterward. Berkshire's managers know enough to know they can't afford to wait around for the unknown distant future while weighing the stock down in the present.

3. Willingness to invest in special situations

The line dividing undervalued stocks and long-shot turnaround stories can sometimes be blurry. Buffett usually remained on the "undervalued" side of the fence and was rewarded for recognizing the right buying opportunities. His willingness to scoop up beaten-down Goldman Sachs shares in the midst of 2008's subprime mortgage meltdown, for example, ended up paying off handsomely. In retrospect, it was a no-brainer move.

Abel seems willing to strategically bet on companies with seemingly less resiliency than Goldman. In Q1, for example, he steered Berkshire into new stakes in Delta Air Lines and department store chain Macy's. While these companies aren't doomed, they're both facing serious systemic challenges. For instance, although Delta's revenue has continued to reliably grow, its bottom line has been mostly stagnant since 2016 largely because the highly competitive air travel business continues evolving in ways that pinch its profitability. As for Macy's, why would Abel want to own a piece of a brick-and-mortar retailer that's been reporting declining revenue since 2016? It may have something to do with the fact that Macy's owned real estate alone may be worth more than the company's current market cap.Now it's just a matter of figuring out how to unlock that value.

More to the point, these don't seem like businesses Warren Buffett would have bought into, recognizing something big would need to change to make them worth owning. Indeed, back in his 2007 letter to Berkshire shareholders, Buffett bluntly wrote, "The airline industry's demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it."

Bonus: Fewer stocks, more wholly owned businesses... maybe

Finally, while Berkshire Hathaway added or expanded stock positions during the first quarter, the cash hoard continues to grow, reaching a record $397 billion as of the end of March.

It's broadly understandable. Stocks as a whole are unusually expensive right now, with the S&P 500 (SNPINDEX: ^GSPC) priced at roughly 22 times its projected earnings.

Not every stock is wildly overvalued here, however. Indeed, data from Yardeni Research indicates that without the artificial intelligence (AI)-centric "Magnificent Seven" stocks' valuations factored in, the S&P 500's forward-looking price-to-earnings ratio is a much more palatable 19. Point being, there are reasonably priced equities out there, if Abel wants Berkshire Hathaway to buy them. He doesn't -- at least not yet.

So what does he want to do with all that cash? While he may be waiting for a more compelling economic backdrop to start making bigger equity investments, it's also possible this is the beginning of a more philosophical shift away from a somewhat broken stock market and toward more outright ownership of cash-generating businesses that Berkshire can wholly control. As a reminder, Berkshire Hathaway completed its acquisition of Occidental Petroleum's chemical business, OxyChem, at the beginning of this year. Although it already operates in the chemical space via Lubrizol and LiquidPower, Berkshire didn't really need to outright buy OxyChem. It just wanted to.

One deal doesn't make a trend. All trends, however, start with that first step. And honestly, less reliance on increasingly volatile stocks and more exposure to privately held businesses may be the best thing for Berkshire Hathaway shareholders for the foreseeable future.

James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Berkshire Hathaway, Domino's Pizza, Goldman Sachs Group, Mastercard, and Visa. The Motley Fool recommends Constellation Brands, Delta Air Lines, Occidental Petroleum, Pool, and UnitedHealth Group. The Motley Fool has a disclosure policy.