- Warren Buffett needs to spend all or a large part of the $ billion to beat a decade-long underperformance.
- The Berkshire Hathaway CEO blames expensive stock prices for not investing more.
Buffett doesn’t need to go outside his comfort zone to get attractive equities or companies on the cheap though.
Warren Buffett’s Berkshire Hathaway is currently (hoarding $) ***************************************************************** billion in cash. The investing conglomerate has accumulated this amount over the years on the grounds that there are no attractive acquisitions to make as stocks have become too expensive.
This
This has come at a cost, as Berkshire Hathaway has nowunderperformed the S&P
for a decade. While its holdings have gone up 500% in the past decade, the large-cap index has posted a gain of %. In 221211, the S&P (appreciated by) ************************************************************************ % while Berkshire Hathaway’s shares ticked up by 7.1%.
This underperformance, amidst ballooning cash reserves, means Buffett must go shopping. Earlier this year while delivering theinvesting conglomerate’s annual letter, Buffett promised to make an ‘elephant- sized acquisition ‘. As this has so far failed to materialize, 2020 is the year Buffett will come under enormous pressure to open his wallet.
Below are three stocks that could receive the ‘Warren Buffett seal of approval’ in
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Earlier this year, Berkshire Hathaway made an offer to acquire technology distributor Tech Data for $ 5 billion. The Warren Buffett outfit was outbid by Apollo Global Management. Buffett’s rationale for his interest in Tech Data was its size, scale and fair value.
Additionally, with Tech Data being a middleman possessing hundreds of relationships With tech companies, it’s a ‘steady’ business cushioned from the negative forces that may plague one brand.
If Buffett is still interested in this kind of business, Ingram Micro fits the bill perfectly. For one, itsparent company HNA Group tried to sell it in August. Regarding size and scale, Ingram Micro actually surpasses Tech Data.
The most recent publicly available report shows Ingram Micro’s global revenue were $ (*********************************************************************. 6 billion versusTech Data’s $ billion. And per its website,Ingram Micro boasts of 37, 06 employees, over (************************************************************, 03 customers in 259 Countries and represents over 1, (vendors.)
PG&E
In the wake of the California wildfires, Pacific Gas and Electric Company (NYSE: PCG) is in bankruptcy due to liabilities resulting from the disaster. There is a chance that after the bankruptcy reorganization, some shareholder value will be retained. Traditionally, Buffett has shown a fondness for utilities. And while it’s hard to determine the stock’s current fair value, its price is dirt cheap right now, havingfallen over (********************************************************************% from its all-time high.
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Interestingly, no less than California’s governor Gavin Newsom recently triedpitching the utility to Buffett
.
One problem for PG&E though is that Buffett picks well-run companies, something that cannot be said of the energy utility.
With Buffett having a particular affinity for the logistics and transportation sector, FedEx (NYSE: FDX) has been suggested as a likely Berkshire Hathaway target. The president of Seabreze Partners Capital Management Doug Kass recently predicted thatBuffett will acquire FedEx next year. Stated Kass in a Yahoo Finance interview:
I believe Warren Buffett will acquire Federal Express [in 2020]
A stake in FedEx would give Berkshire Hathaway an enhanced scale in the transportation and logistics sector. With the stock down over (********************************************************************% from itsall-time high, Buffett would be buying it at a bargain price.
**************************** FedEx stock price chart | Source: TradingView
On a price-to-earnings multiple basis, FedEx is heavily discounted relative to the wider transport sector.
What else might pique Warren Buffett’s interest?
Another possible target for Buffett includes Southwest Airlines. After Buffet made the ‘elephant-sized acquisition’ remarks, there was
that he was planning to take over the airline.
It’s also possible for Buffett to increase his Berkshire Hathaway stake in Amazon. After expressing regrets over missing out on investing in Amazon when the stock was cheaper, Berkshire Hathaway finally
(This article was edited by************************** (Sam Bourgi) ********************************************
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