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Stock market legend Warren Buffett has made some big moves recently. Here, Edward Sheldon looks at where he’s investing.
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After building up a massive (near $150bn) cash pile in recent years, master investor Warren Buffett now appears to be on a buying spree. In recent weeks, the stock market guru has spent billions of dollars on the shares of some listed companies.
Here, I’m going to reveal what Buffett has been buying. I’ll also discuss whether I’d buy the stocks he’s bought.
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The first big purchase was Occidental Petroleum (NYSE: OXY). It’s an American energy company that has operations in the US, the Middle East, Africa, and Latin America. Buffett first invested here in 2019, however he has upped his stake significantly and now owns around 15% of the business.
I can see why Buffett is interested in this stock at present. For starters, he likes value and OXY is dirt-cheap. Right now, its forward-looking P/E ratio is just eight. Secondly, with oil prices at high levels, the company is generating a ton of cash flow ($3.2bn in the last quarter). As a result, it has been able to pay down debt, strengthen its balance sheet, and increase its dividend.
This isn’t a stock I’d buy though. Energy stocks are highly cyclical, meaning they tend to experience boom and bust cycles. Meanwhile, there’s uncertainty over the long-term outlook now the world is moving towards renewable energy. So I won’t be following the stock market legend here.
Buffett has also splashed his cash on Alleghany. It’s a diversified American company predominantly focused on insurance (one of his favourite sectors) and reinsurance, but also owns some industrial businesses. Here, he spent $11.6bn to buy the entire business. It’s his largest deal since 2016.
Given that Buffett is set to acquire all outstanding Alleghany shares, I’m not planning to buy the stock. However, there are a few UK insurance companies I’d be happy to invest in.
One is Prudential. It has recently streamlined its business and, as a result, is now purely focused on Asia and Africa – two markets with substantial growth potential.
I also like the look of Legal & General Group. It appears to be doing well at the moment and recently raised its dividend. Yet its valuation remains low.
I’ll point out, however, that these stocks can be quite volatile. So I’d be investing for the long term.
Finally, Buffett has also bought a large number of shares in HP. It’s the second largest manufacturer of personal computers in the world, behind Lenovo. He picked up 121m shares here, spending about $4.2bn on stock.
HP shares look quite interesting at the moment, in my view. For the quarter ended 31 January, the group generated revenue growth of 9% and earnings came in well above guidance. As a result, the company returned $1.8bn to shareholders in buybacks and dividends. Yet the stock remains dirt-cheap. At present, it has a P/E ratio of just 8.2, which is extremely low.
If I was to buy a technology hardware stock today though, I’d probably go for Apple (which is actually Buffett’s largest holding). It’s more expensive than HP, which adds a bit of risk. However, it has a more powerful brand and a better ecosystem. Additionally, it’s moving into high growth markets such as payments and healthcare.
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Edward Sheldon owns shares in Apple, Legal & General Group, and Prudential. The Motley Fool UK has recommended Apple and Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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