Many consider Warren Buffett the greatest individual stock picker of all time. With his skill set, he was able to transform Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) from a declining textile company into a nearly $700 billion holding company.
Today, Berkshire Hathaway holds stock in over 40 publicly traded companies across the energy, consumer goods, and fintech sectors. With Buffett’s stellar track record, any investor would be wise to monitor which stocks the Oracle of Omaha believes will be winners.
Here are two particular stocks Berkshire holds that are worth your attention.
1. Activision Blizzard
In January, Microsoft (NASDAQ: MSFT) announced its intent to acquire Activision Blizzard (NASDAQ: ATVI) for $95 per share in an all-cash deal. Coincidentally, an investment manager at Berkshire bought $1.1 billion worth of Activision stock in the fourth quarter of 2021 for an average of $77 per share. Activision stock is still hovering around $77 per share, but Warren Buffett has since poured money into the scandal-ridden video game company.
Berkshire owns at least 9.5% of Activision Blizzard, and that may be because Buffett loves a merger arbitrage play, or buying stocks of companies trading below their acquisition prices. Activision Blizzard currently trades for about 22% below its acquisition price due to some skepticism that the Department of Justice and Federal Trade Commission will approve the deal.
That skepticism has merit considering Microsoft is the second-largest gaming company in the world by revenue, and Activision Blizzard is fifth. Therefore, Microsoft is tasked with convincing regulators that the $68.7 billion acquisition won’t result in antitrust concerns within the gaming industry.
To ease regulators’ concerns, Microsoft announced in February that it had developed a new set of rules for its app store. President Brad Smith commented, “Our goal is to build what’s called a universal store for games. In other words, a store that anyone can access on any device on any platform to purchase or download any game that a developer chooses.”
It’s also important to note that scandals have plagued Activision Blizzard over the past year, including allegations of sexual harassment and discrimination against its female employees and misconduct. The Activision scandals could further muddy the acquisition although Microsoft was aware of the issues before the acquisition announcement.
The terms of the Activision Blizzard acquisition indicated Microsoft would finalize the deal during its fiscal 2023 year (July 2022 to June 2023), meaning the potential gains could take up to a year to actualize. Still, considering the S&P 500 index fund’s historical annualized return has been 10.5% since 1965, it’s easy to see why Buffett finds the arbitrage attractive. And if regulators do nix the deal, Berkshire’s investing managers liked the stock at $77 per share anyway.
For years, Warren Buffett resisted investing in technology stocks; however, in 2016, under the influence of his two investing managers, Todd Combs and Ted Weschler, Berkshire opened a position in Apple (NASDAQ: AAPL). Today, Berkshire’s Apple stake is worth over $130 billion, owning about 5.5% of the world’s largest tech company.
In his latest annual letter, Warren Buffett penned his delight at how Berkshire’s stake in Apple had increased from 5.39% in 2020 to 5.5% in 2021 without buying a single share due to Apple’s stock buyback program. Specifically, Apple deployed almost $86 billion to repurchase its shares in its fiscal 2021 and has repurchased $43 billion in the first half of fiscal 2022.
Despite Apple’s aggressive share repurchases and record revenue, Apple stock hasn’t performed up to its historical standards in 2022, falling 18% year to date and underperforming the S&P 500 by almost 5%. As a result, the company’s price-to-earnings (P/E) ratio — a standard metric to value the price of a stock — is at its lowest point since early 2020, when the COVID lockdowns began.
Additionally, Apple recently announced an increase of $90 billion to its existing share repurchase program, meaning Berkshire’s ownership stake will continue to increase without buying additional shares. So, even if Buffett doesn’t buy more Apple stock, the fact that the company accounts for over 40% of Berkshire’s $360 billion stock portfolio demonstrates his confidence in the tech giant.
Final thoughts from Warren Buffett
Like the rest of us, Warren Buffett isn’t immune to a good sale. He once wrote, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
For Activision Blizzard, look to late 2022 as to whether or not federal regulators approve the acquisition by Microsoft. Expect the gaming company’s stock to trade well below its acquisition price of $95 per share until then. As for Apple, look for the tech giant to continue repurchasing its shares at a discounted price — an act that Buffett, no doubt, would applaud.
Collin Brantmeyer has positions in Activision Blizzard, Berkshire Hathaway (B shares), and Microsoft. The Motley Fool has positions in and recommends Activision Blizzard, Apple, Berkshire Hathaway (B shares), and Microsoft. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.