Berkshire Hathaway(NYSE: BRK-A)(NYSE: BRK-B) isn't quick to sell its stocks. In fact, CEO Warren Buffett's favorite holding period, he likes to remind shareholders, is "forever."
Yet the company just closed its Procter & Gamble(NYSE: PG) position -- over $4 billion worth -- according to its latest 13-F filing. That holding had been large enough to qualify as one of Berkshire's "big four" investments, and has been on its books for over a decade.
P&G shareholders can relax, though. The sale wasn't spurred by the billionaire investor having lost faith in the company. Instead, it was simply a tool by which Buffett could efficiently raise cash to focus Berkshire's position on one piece of P&G's portfolio: Duracell batteries.
From razor blades to batteries
Berkshire's P&G holding came into being in 2005, but not through direct stock purchases. That was the year that Procter & Gamble purchased razor blade titan Gillette, a company that Berkshire owned a significant stake in. Buffett received P&G shares in exchange for his massive Gillette holdings (and booked a nice $5 billion paper gain in the process) as a result of that deal. Procter & Gamble has been one of Berkshire's largest holdings ever since.
That run effectively ended in late 2014 when Buffett struck another deal with P&G to buy its Duracell business in exchange for Berkshire's shares in the greater company. Structuring the transfer this way was classic Buffett: It helped his company save on taxes while establishing ownership of a stand-alone company. Buffett is a fan of equity investments, but prefers to own companies outright. "Our main focus is to build operating earnings," rather than simply achieve growth in the investment portfolio, he has told investors.
See Warren Buffett through the years:
Warren Buffett through the years
Why Warren Buffett just sold his entire stake in Procter & Gamble Co.
Warren Buffett speaks to the media during a press conference Monday, June 26, 2006 in New York. Buffet, the chairman of Berkshire Hathaway, recently announced his intention of giving 10 million shares of his company to charitable organizations, the majority going to the Bill and Melinda Gates Foundation. (AP Photo/Seth Wenig)
NEW YORK, UNITED STATES: California Governor Arnold Schwarzenegger (L) cofers with billionaire investor Warren Buffet (R) during a meeting with Wall Street investors at the Ritz Carlton hotel February 25, 2004 in New York City. AFP PHOTO/POOL/Kathy WILLENS (Photo credit should read KATHY WILLENS/AFP/Getty Images)
Investor Warren Buffet participates in the Treasury Conference on U.S. Capital Markets Competitiveness, Tuesday, March 13, 2007, at Georgetown University in Washington. (AP Photo/Gerald Herbert)
CLEVELAND - MARCH 25: Philanthropist Warren Buffet (C) wears a LeBron James Witness tee-shirt as he cheers for the Cleveland Cavaliers during a game against the Denver Nuggets March 25, 2007 at The Quicken Loans Arena in Cleveland, Ohio. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and/or using this Photograph, user is consenting to the terms and conditions of the Getty Images License Agreement. Mandatory Copyright Notice: Copyright 2007 NBAE (Photo by David Liam Kyle/NBAE via Getty Images)
** FILE ** In this May 21, 2008 file photo, U.S. Billionaire investor Warren Buffet speaks during a news conference in Madrid. Buffett's Berkshire Hathaway Inc. is investing at least $5 billion in Goldman Sachs Group Inc., Goldman announced Tuesday, Sept. 23, 2008. (AP Photo/Paul White, file)
Warren Buffet, chairman of Bershire Hathaway, arrives for the annual Allen & Co.'s media conference Wednesday, July 9, 2008, in Sun Valley, Idaho. (AP Photo/Douglas C. Pizac)
FILE - In this May 2, 2009 file photo, Warren Buffett, CEO of Berkshire Hathaway, right, waves to shareholders prior to the annual Berkshire Hathaway shareholders meeting in Omaha, Neb. Warren Buffet's Berkshire Hathaway said Tuesday, Nov. 3, 2009, it has agreed to buy Burlington Northern Santa Fe in a deal valuing the railroad at $34 billion.(AP Photo/Nati Harnik, file)
Warren Buffet heads to lunch after a morning session at the Sun Valley Inn for the 2011 Allen and Co. Sun Valley Conference, Thursday, July 7, 2011, in Sun Valley, Idaho. (AP Photo/Julie Jacobson)
Warren Buffett is interviewed in the White House Briefing Room in Washington, Monday, July 18, 2011, following his meeting with President Barack Obama. Obama met with members of the Giving Pledge including, Buffett and Bill and Melinda Gates, and others to receive and update on the program. (AP Photo/Pablo Martinez Monsivais)
Billionaire investor Warren Buffet at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Friday, July 13, 2012. (AP Photo/Paul Sakuma)
Warren Buffett, chairman of Berkshire Hathaway Inc., right, speaks to David Rubenstein, co-founder and managing director of the Carlyle Group, during the Economic Club of Washington dinner event in Washington, D.C., U.S., on Tuesday, June 5, 2012. Buffett said he doesn't expect another U.S. recession unless Europe's crisis spreads. Photographer: Andrew Harrer/Bloomberg via Getty Images
DETROIT, MI - SEPTEMBER 18: Billionaire investor Warren Buffett speaks at an event called, 'Detroit Homecoming' September 18, 2014 in Detroit, Michigan. The purpose of the invitation-only event of Detroit expatriats is to give the group a chance to reconnect, reinvest and reinvent with their hometown. The topic of Buffet's conversation was, 'Why I'm Bullish on Detroit.' (Photo by Bill Pugliano/Getty Images)
Warren E. Buffett, Chairman of the Board and Chief Executive Officer, Berkshire Hathaway Inc., participates in a NADA Automotive forum happening in conjunction with the New York International Auto Show, Tuesday, March 31, 2015, in New York. (AP Photo/Mary Altaffer)
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Should investors sell too?
Though Buffett's sale wasn't connected to P&G's operating trends or valuation, it's worth considering whether investors should follow his lead and sell the stock. After all, the consumer goods giant hasn't managed significant growth in over two years. Sales are down due to a combination of weak organic growth, foreign currency headwinds, and a portfolio divestment initiative that has trimmed its down to 65 brands from 166 three years ago. Profits are on course to decline for their second straight fiscal year, and income investors just received their smallest dividend raise yet.
On the other hand, Wall Street is getting more optimistic about the business, judging from the stock's rising price. P&G's huge cost-cutting initiative is pulling profitability higher. As a result, returns to shareholders (in dividends and stock buybacks) are increasing as it posts a near-record level of cash flow generation. Meanwhile, there are a few bright spots in its portfolio such as Tide detergent and Pampers diapers that management believes illustrate the path toward healthier growth over the coming years.
The brand shedding process is almost complete, too. If all goes to plan, the resulting company will be smaller, at about 85% of the prior revenue mark, but more profitable, with roughly 95% of past earnings.
P&G should also be able to grow more quickly from that point forward -- assuming executives were right in selecting which brands to keep and which product lines, like Duracell, to walk away from.
If you lack faith in P&G's transformation plan, then you might want to sell your shares now. Just don't exit the stock simply because Warren Buffett did. He was able to roll his P&G holdings into another consumer product bet under extremely favorable terms -- which isn't an option that's available to non-billionaire investors.
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