The recent top buys of one of the most successful investors could offer perspectives as the outlook is uncertain. And, could the Warren Buffett ‘formula’ help us step into his shoes, to attempt to highlight which companies are on discount?
The world's fifth-wealthiest person, Warren Buffett, runs the giant conglomerate holding company Berkshire Hathaway, which he grew from a humble size in 1970, to a giant today, thanks to smart and durable investments.
Last year, Berkshire’s cash pile jumped to a record high, leaving the conglomerate in a position of strength to face an economic downturn.
Warren Buffett identifies “excellent” businesses judging on the industry prospects, and the ability of the management to deliver attractive shareholder returns. Here are some of the elements that fit his disciplined investment philosophy.
Buffett’s company has deployed more than USD50 billion into stocks this year. As a result, Berkshire’s total stock portfolio value as of Q1, 2022, increased 10% from USD331 billion to USD364 billion, with most of its buying activity occurring in early March.
Berkshire has added immensely to oil and gas bets and value plays with an investment in HP and in its own stock by repurchasing Berkshire shares.
Berkshire Hathaway (ticker: BRK-B): It’s also worth noting that Berkshire repurchased its own shares, spending more than USD3 billion, paying an average price of USD307 per share in the first quarter. The current price as of the 5th of July is ~USD275.7. Based on the public filing as of June 14, we may estimate Berkshire repurchased another USD1-2 billion of its stock. The amount is relatively small to the giant USD52 billion it spent on buybacks between 2020 and 2021. The conglomerate may be slowing down its own stock repurchase as it foresees more ‘deal’ opportunities down the road as economic conditions tighten.
The Berkshire investment portfolio of public companies is very concentrated with the top 5 holdings being Apple, Bank of America, American Express, Chevron, and Coca-Cola, making up over 75% of the total portfolio.
Making sense of the recent buys, adding to oil and gas companies could be strategic to boost bets of a prolonged supply-demand imbalance with tight oil supplies. Given the rising interest rate backdrop, HP Inc as a value play and Activision Blizzard as an arbitrage opportunity also fit Buffett’s approach.
Buffett’s tested investment philosophy focuses on identifying quality investment opportunities offering a significant discount. Berkshire’s buying is telling us he sees discounts in oil and gas companies!