Berkshire Hathaway’s massive stock sale last quarter came at a potentially opportune time as Warren Buffett’s conglomerate now has an even bigger hoard of cash on its hands while the market is tumbling.
In the second quarter, the company sold a net $75.5 billion worth of stock and nearly halved its Apple stake in the process. That helped boost its cash pile to a fresh record high of $276.9 billion from $189 billion in the prior quarter.
“The sale represents a classic rebalancing of the portfolio,” CFRA Research analyst Cathy Seifert told Fortune.
With Berkshire’s portfolio skewed so heavily toward a handful of stocks like Apple, there was the risk of too much concentration, she explained. Some profit-taking also could have been involved, as the sales occurred when the broader stock market was notching record high after record high.
It follows earlier moves to trim the portfolio. In May, Berkshire disclosed the sale of 100 million Apple shares, amounting to 13% of its stake at the time.
The big question is what Buffett will do next with all the cash it has amassed as Berkshire’s investment portfolio has traditionally been a subject of intense interest among investors.
Buffett is famous for being disciplined and buying only when he sees a good bargain. For years, he has bemoaned the lack of deals to be had as valuations remained high. But with stocks tanking, it could soon be time to buy.
“If the market correction continues to accelerate, this could be a pretty golden opportunity for them,” Seifert said.
Berkshire could also use its cash to buy a company outright, and acquisition targets have traditionally been in the consumer, industrial, and insurance sectors, she said.
But with the expansion of private equity, Buffett faces more competition on buyouts than he did 20 or 30 years ago, Seifert pointed out. And if borrowing rates continue to drop, valuations for private companies could rise, she added.
Berkshire could also use its cash to continue buying back more of its stock. And as the company’s war chest gets bigger and bigger, the question of paying a dividend for the first time could be raised more. As long as Buffett is in charge, however, Seifert thinks that’s doubtful, noting he’s mindful that he would be a big beneficiary of that decision.
For now, Berkshire’s cash is accruing interest income while it’s parked in U.S. bonds and other safe investments with steady yields. While that easy money rolls in, the company is unlikely to be in a hurry to invest.
“They don’t feel overly pressured to deploy this cash,” Seifert said.
