Warren Buffett continues to sell billions of stocks in this sparkling market, but here are 3 new places he’s been able to find value
The inflated valuations in today’s stock market are not exactly appealing to value investors. It is therefore not surprising that the most famous value investor of them all continues to reduce his exposure to the stock markets.
In the third quarter, Warren Buffett’s holding company Berkshire Hathaway sold net inventory of $ 2 billion, including a full exit from pharmaceutical giant Merck as well as reduced stakes in Mastercard and Visa.
That said, Berkshire continues to have a huge portfolio, holding multi-billion dollar positions in companies like Apple, Bank of America, and American Express.
And while the bargains are hard to come by, the legendary investor made some purchases in the third quarter.
Here’s a look at three of them – one might be worth buying with a few extra pennies.
Energy stocks have proven to be big winners amid soaring oil prices in recent months, and Buffett expects the fun to continue.
Berkshire already had a significant stake in Chevron before the third quarter, but Buffett increased his stake in the oil supermajor by 24% during the quarter, adding 5.6 million shares.
As of September 30, Berkshire held 28.7 million Chevron shares, worth approximately $ 3.3 billion at today’s prices.
Like its peers, Chevron is firing on all cylinders. Revenue jumped more than 80% year-over-year to $ 44.7 billion in the third quarter. Adjusted earnings were $ 2.96 per share for the quarter, a significant improvement over the previous year.
“Third quarter profits were the highest since the first quarter of 2013, largely due to improving market conditions, strong operating performance and a weaker cost structure,” said Mike Wirth, Chief Executive Officer of Chevron.
Chevron shares are already up more than 30% in 2021 and are now trading above $ 110 apiece.
But you don’t have to start big. Nowadays, you can build your own energy wallet just by using a few digital coins.
Royalty Pharma (RPRX)
Berkshire left Merck completely in the third quarter, but that doesn’t mean it’s completely bearish on healthcare.
During the quarter, Buffett’s company backed the truck on a pharmaceutical royalty company called Royalty Pharma, buying 13.1 million shares.
Berkshire’s stake in the company is worth around $ 552 million at current prices.
Royalty Pharma is not a pharmaceutical company in the traditional sense. He does not develop drugs on his own. Instead, the company buys biopharmaceutical royalties and funds clinical trials and new product launches in return for future royalties.
In the last quarter, Royalty Pharma’s adjusted cash flow totaled $ 587 million, a 24% year-over-year increase. Meanwhile, adjusted cash flow rose 12% to $ 441 million, marking its sixth consecutive quarter of double-digit growth.
Management has also raised its guidance for 2021, now expecting adjusted cash inflows of between $ 2.11 billion and $ 2.13 billion.
Shares, however, are down around 10% year-to-date, which could give contrarian investors food for thought.
Floor & Decor Holdings (FND)
Selling tile, wood and laminate flooring may not sound so exciting, but business at Floor & Decor Holdings is booming and Berkshire is jumping into the action.
In the third quarter, Berkshire started a long position in the flooring company, buying 816,863 shares. The current market value of the position is approximately $ 108.7 million.
Atlanta-based Floor & Decor operates 153 warehouse-style stores and two design studios in 33 states. It sells hard flooring as well as decoration and installation accessories.
From 2016 to 2020, sales grew from $ 1.05 billion to $ 2.43 billion, resulting in a compound annual growth rate of 23.3%.
And most recently, total third-quarter revenue increased 28% to $ 876.6 million, with comparable store sales increasing 10.9%.
In the past 12 months, Floor & Decor shares have jumped almost 70%.
An inherently valuable asset
Of course, you don’t have to limit yourself to the stock market. There are many real assets in the world that are worth considering.
Take the farmland of the United States.
Buffett purchased a 400-acre farm in Nebraska in 1986. “I did not need any unusual knowledge or intelligence to conclude that the investment was harmless and potentially had a substantial benefit,” later wrote Buffett.
Over the years, farming has been shown to offer higher risk-adjusted returns than stocks and real estate.
The best part? You don’t have to be a billionaire – or know how to run a farm – to get in on the action.
New platforms allow you to invest in US farmland by taking a stake in the farm of your choice.
You will earn cash income from rental fees and crop sales, plus any additional long-term appreciation.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.