Insights

3 stocks Warren Buffett bought hand over fist as the market plummeted

Do they belong in your portfolio?
The post 3 stocks Warren Buffett bought hand over fist as the market plummeted appeared first on The Motley Fool Australia. –

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Warren Buffett has famously advised to be fearful when others are greedy and greedy when others are fearful, and he has put his money where his mouth is as the market plunged this year. He bought 16 stocks in 2022’s first quarter as other investors were fleeing for the hills.

About half of the stocks he purchased through his holding company, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), were additions to positions already owned, and the other half were new positions. Some were already disclosed, and others were surprises. Some of the more unexpected picks were Activision Blizzard (NASDAQ: ATVI), Paramount Global (NASDAQ: PARA), and Ally Financial (NYSE: ALLY). Should you consider them for your portfolio? Let’s take a look.

An easy merger arbitrage deal

Buffett already had a small stake in video game maker Activision Blizzard prior to 2022, so he obviously sees it as a worthwhile stock to own. However, his new interest in the company is in preparation for the company’s acquisition by tech titan Microsoft. The acquisition is set to go through in mid-2023, with Microsoft paying $95 per share, or about a 26% premium to the current price. This could be a risky strategy, since many things can happen between now and then. But the price is highly unlikely to go above $95, and it’s a simple way to see quick gains.

So why isn’t everyone doing this? First of all, although the merger was approved by both parties, there’s still a chance it won’t go through. It’s a riskier play for parties that aren’t backed by Buffett’s billions. The business itself is having a rough time, so individual investors shouldn’t count on a surprise beat to raise the price. In the first quarter, revenue and earnings per share (EPS) both declined. As we get closer to the acquisition date and it seems it will really happen, the price is likely to increase.  

What’s in it for Microsoft, or investors who are sticking around right now? It’s an easy way for Microsoft to enter the gaming space, for one thing. More than that, the company is still developing new games to launch. Gaming companies go through phases as they launch new products and see how well they do. For example, Activision has several launches in the second quarter that it expects to do well. In a positive sign, monthly active users (MAU) increased slightly from the 2021 fourth quarter to the 2022 first quarter.

Activision Blizzard stock has been a market beater, but for now, investors might not want to follow Buffett.

A new name in streaming

Paramount Global is the new name for what was formerly ViacomCBS. The company has jumped on the bandwagon and is investing in its streaming service, Paramount+, but it operates a number of media networks including traditional television (CBS) and cable channels such as Showtime and MTV. It’s not as big as competitors such as Disney and Netflix, but what it does have in its favor is a Buffett favorite — it looks undervalued. 

Revenue decreased 1% from 2021 in the first quarter as customers continued to cord-cut, but streaming, or the direct-to-consumer division, increased 82%. That included a 95% increase in subscription revenue as well as a 59% increase in ad revenue for its ad-supported platform, PlutoTV. Pluto also added 6.3 million new members for a total of more than 67 million MAUs.

Paramount+ added 6.8 million subscribers for a total of close to 40 million. Many of those are crossovers who view content on both platforms. The media company owns such franchises as Star Trek and Sonic the Hedgehog and has new content coming out in both of those series as well as much more. There are many growth levers here.

However, it’s competing with bigger guns, and as the field gets more crowded, Paramount Global may not have what it takes to keep adding viewers and subscribers. That’s the big question mark.

Meanwhile, the shares are down almost 20% this year despite Buffett’s big bet, and at this price they’re trading at only four times trailing 12-month earnings. That’s pitifully low for a company that grew revenue 13% year over year in 2021 and increased earnings per share (EPS) (from continuing operations) by 79%.

More bank stocks to love

Bank stocks make a strong showing in Berkshire Hathaway’s portfolio, and Buffett added a new one, Ally Financial, to the group last quarter. Ally fits right in with Buffett’s model, with cheap shares and a strong culture of giving back to shareholders.

Ally has a large auto-lending unit, which has been its core product for decades. But it also operates a consumer bank, which has been demonstrating sequential growth. It increased to 2.5 million retail banking customers in the first quarter, with $136 billion in deposits, a 6% increase year over year. One of its newer bank ventures, the Ally credit card, had 844,000 active users, up 73% year over year. Net income slightly decreased over last year as it moved money into provisions for credit losses, but revenue increased 10%. Return on common equity was a high 18%.

The company said it would issue $2 billion in share buybacks in 2022, which is a fifth of its entire market cap. It also pays a growing dividend that yields a high 3.7%. That’s partially because the share price has declined more than 30% so far this year. At the current price, the shares also trade at the dirt-cheap multiple of four times trailing 12-month earnings, and less than one times tangible book value, which means they’re trading for less than the value of its assets.

Out of these stocks, Ally looks the most like a no-brainer that individual investors should consider.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 stocks Warren Buffett bought hand over fist as the market plummeted appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks
*Returns as of January 12th 2022

More reading

Representing 40% of Warren Buffett’s portfolio, here is why Apple is a great stock to own today My top Warren Buffett stock to buy right now Do you dare take on this bold challenge from Warren Buffett? 10 reasons Warren Buffett is such a successful investor

Ally is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil has positions in Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Activision Blizzard, Berkshire Hathaway (B shares), Microsoft, Netflix, and Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long January 2024 $145 calls on Walt Disney, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short January 2024 $155 calls on Walt Disney. The Motley Fool Australia has recommended Activision Blizzard, Berkshire Hathaway (B shares), Netflix, and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Free Share Allocation Reward Levels

STARTER

Class
$ 2,500 Deposit & Trade
  • REWARD^
  • 1 x Marathon Oil Corporation (NYSE:MRO)

ECONOMY

Basic
$ 5,000 Deposit & Trade
  • REWARD^
  • 1 x Pfizer Inc (NASDAQ:PFE)

ECONOMY

Standard
$ 10,000 Deposit & Trade
  • REWARD^
  • 1 x Amazon.com Inc (NASDAQ:AMZN)

ECONOMY

Plus
$ 25,000 Deposit & Trade
  • REWARD^
  • 2 x Apple Inc (NASDAQ:AAPL)
POPULAR

BUSINESS

Class
$ 50,000 Deposit & Trade
  • REWARD^
  • 4 x Apple Inc (NASDAQ:AAPL)

FIRST

Class
$ 150,000 Deposit & Trade
  • REWARD CHOICES^
  • 12 x Apple Inc (NASDAQ:AAPL)
  • 2 x Tesla (NASDAQ:TSLA)
^Please refer to the Free Share Promotion Terms and Conditions for details.

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here To Get Started
FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here For More Info