Buffet invests 2.6 billion dollars in purchasing six distinct stocks for Berkshire Hathaway's portfolio. This acquirement includes the finest stocks from the selection.
Buffet's Bet on Undervalued Stocks Amid Market Challenges
Warren Buffett, the celebrated mogul of Berkshire Hathaway, has been navigating a tough market landscape over the past year. In 2024, a whopping $143 billion worth of equities were sold by Berkshire's portfolio managers, with big names like Apple and Bank of America on the chopping block.
So, where did this cash rain go? Most of it went towards paying a record tax bill and beefing up a gigantic hoard of cash and Treasury bills. Buffett, however, made it crystal clear in his shareholder letter in February: Berkshire will never give its cash-equivalent assets the preference it gives to good businesses.
Despite selling a significant portion of its equities, Berkshire did invest about $2.6 billion into six publicly traded stocks in the fourth quarter. Here's the lowdown on them, with a focus on the pick that could be your golden ticket in these trying times.
The Stocks Buffett Grabbed
Even though Berkshire sold off equal portions, it didn't stop the company from scooping up more stocks. Nevertheless, not all equity purchases Berkshire makes involve public, U.S. companies. Buffett revealed an increase in Japanese investments in the quarter, and possible unlisted equity purchases as well.
Listed below are the six U.S. stocks Berkshire added to its portfolio in the fourth quarter and the amount spent on each:
- Occidental Petroleum, $409.1 million.
- VeriSign, $89.9 million.
- Sirius XM, $296.8 million.
- Pool Corp., estimated $70 million.
- Domino's Pizza, estimated $470 million.
- Constellation Brands (STZ -1.57%), estimated $1.3 billion.
Interestingly, all these stocks share one distinct trait - they don't have massive market capitalizations. Occidental, the largest of the group, has a market value of $43.7 billion as we speak. Sirius XM, on the other hand, boasts a market cap of a measly $7.7 billion.
Given that Berkshire already owns substantial portions of Occidental, Sirius XM, and VeriSign, and the small market caps of the other appealing investments, Buffett's been struggling to invest his cash hoard. With the limited room in the market for these stocks, considering Berkshire manages over $600 billion in total investable assets, it's clear that finding attractive investments isn't a walk in the park for the investing titan.
That underscores Buffett's unwavering focus on value and the roadblocks Berkshire's mammoth portfolio faces. "There remain only a handful of companies in this country capable of truly moving the needle at Berkshire," Buffett penned in his 2023 letter to shareholders. Finding these needle-movers, valuing them, and acquiring them when they're attractively priced isn't a piece of cake.
The Winning Ticket
Undeniably, all six stocks present compelling reasons for investment, and they all have solid competitive moats – typical Buffett fare. But, the pharmacy of the six, Constellation Brands, might just be the best bet for investors today.
Constellation Brands is the kingpin of Mexican beer, with Corona and Modelo dominating the U.S. market for Mexican lagers. While it also has a wine and spirits business, its success teeters on its beer business, which generates over 80% of its sales and operating income.
Although the alcohol industry is battling several headwinds, such as health warning labels from the U.S. surgeon general, Gen Z's declining alcohol consumption, and the rise of ready-to-drink cocktails, Constellation has been gradually growing its beer sales. Expecting 4% to 7% sales growth for fiscal 2025, which wraps up in February, Constellation foresees its operating margin expanding due to its premiumization strategy.
Buffett snapped up shares of Constellation before it released third quarter earnings, which left much to be desired, with a 14% drop in wine and spirits sales and a subsequent lowering of its full-year outlook. The stock has continued to slide since then, due to a 25% tariff against Mexico – a measure that could harm sales and profit margins.
Nonetheless, the long-term prospects of Constellation's beer business look robust, and it presents excellent value for investors. After the recent share price tumble, the stock trades for just 12.4 times forward earnings estimates, making it one of the most attractive Buffett stocks on the market right now.
- Warren Buffett, the CEO of Berkshire Hathaway, sold $143 billion worth of stocks in 2024, including Apple and Bank of America.
- Despite selling a significant portion of its equities, Berkshire invested $2.6 billion into six publicly traded stocks in the fourth quarter, with Constellation Brands being one of them.
- In the same quarter, Berkshire increased its investments in Japanese companies and may have also made unlisted equity purchases.
- Constellation Brands, the Kingpin of Mexican beer, is one of the most attractive investments for Berkshire Hathaway due to its robust long-term prospects and attractive valuation, trading at just 12.4 times forward earnings estimates.
