Warren Buffett filed the latest update to his holdings recently, and it’s always interesting to follow his new additions, the positions he’s increasing and the positions he’s reducing. Most people consider Buffett a deep value investor in the style of his mentor Benjamin Graham, but this couldn’t be further from the truth.

Instead, Buffett is a broad demographic investor. He looks for what he feels are going to be decade-long or even century-long trends and places his bets accordingly. Right at the beginning of the housing boom in the early part of this decade, he was buying more furniture companies, building parts companies and other companies related to the housing boom that was about to occur. Before oil soared past $40 (and on its way to a high of $77), he was buying pipeline companies and other energy companies, particularly when they were all hit as a group by the Enron scandal.

So what is he buying now, and what can we learn from it?

First, he’s once again making the bet that housing and construction might be in a medium correction but not a long-term slump.

He added to his USG (nyse: USG), Wells Fargo (nyse: WFC) and US Bancorp (nyse: USB) positions and bought building parts manufacturer Ingersoll-Rand (nyse: IR) as a new position.

Buffett’s stake in US Bancorp went from 6.11 million shares as of March 31, 2006, to 23.31 million shares by year-end.

US Bancorp is an interesting case. Many commercial banks have had trouble because of the two-fold problem of a flattening yield curve as well as the slump in housing. The flattening yield curve means the interest paid on bank deposits goes higher and the interest the bank gets from making loans goes lower, reducing the net interest margin. In fact, USB’s interest margin declined 32 basis points last quarter compared with the prior quarter. And the decline in housing means in general there are more write-offs of bad loans. Each write-off affects the balance sheet and is added to the losses for the year.

However, Buffett’s been buying quality banks since the mid-1960s and it’s worth looking at what he’s looking at. For one thing, despite the housing slump, USB’s write-offs of bad loans actually declined last quarter–even though most banks’ write-offs have gone significantly higher. This shows that USB has kept a very high discipline on the credit quality of its loans. USB executives also said that credit quality would not go down over the next year and that write-offs would continue to slide. For one thing, USB has not participated at all in the craze in subprime lending, which is now burning many banks and mortgage real estate investment trusts.

Additionally, USB’s return on equity is a massive 23%, compared with the usual 10% for banks. This shows that the integration of smaller bank chains it has acquired is going smoothly and is contributing to reduced costs. Additionally, it shows that the company is not spending too much money on additional services it offers customers to attract deposits.

With the decline in the subprime market and with many subprime lenders going out of business, it makes perfect sense for Buffett to be buying quality lenders like USB and adding to his Wells Fargo purchase.

His new position in Ingersoll-Rand also expresses a belief that he thinks the slowdown in construction is going to reverse itself. Additionally, while the stock might have slumped during the year due to the slowdown in residential construction, it is worth noting that IR is a diversified machinery company, selling its products and services to industrial builders as well as residential ones.

And even with reduced guidance on its last call, the company is trading at just 11 times forward earnings and has a clean balance sheet with $1.6 billion in cash flows–more than sufficient to pay down $2.8 billion in debt.

Buffett is not the only investor who thinks IR is cheap. The company itself is buying back $2 billion of its own shares, a factor that will ultimately drive up its earnings per share. Buffett’s new position in IR is small, a tad less than $25 million, and I’m assuming he’s legging in while building a much larger position, particularly on any dips.

Buffett’s filing also revealed a new position in UnitedHealth Group (nyse: UNH). Buffett takes a long-term view and is not fooled by any minor slump in the company’s stock due to the options backdating scandals.

Everything is going in UNH’s direction. Revenues and profits are both up by double-digits. The company, meanwhile, trades at a forward price-to-earnings ratio of just 13. The company has over $2.3 billion in net cash, which is more than enough to deal with any troubles from the options scandal. And the company itself is using its cash flow to buy back stock (just like IR); it recently authorized up to $6 billion to use in a share buyback program.

Considering that cash flows will top a record $6 billion this year, UnitedHealth should have no problem quickly maxing out this buyback program. In addition to Buffett, Forbes columnist David Dreman has been a buyer of UNH shares. Dreman has a fund that’s up an annualized 19% over the past three years.

Although Buffett likes to say he is a buy-and-hold "forever" type of investor, he does regularly reduce and even sell entire positions outright. Most notably in this filing, he sold off all of his holdings in Target (nyse: TGT)–while maintaining his holding in Wal-Mart Stores (nyse: WMT)–and also reduced his stake in H&R Block (nyse: HRB). The Target sale probably reflects his belief that the U.S. economy could go through a slowdown and that Wal-Mart does better in such periods. The HRB sale also probably reflects a belief that broader demographics (consumers doing their taxes online, for instance) will ultimately hurt HRB’s competitive edge.

James Altucher is the author of Trade Like Warren Buffett (Wiley, 2005), a partner at Formula Capital, and founder of Stockpickr.com.

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