Warren Buffett once famously said, “Be fearful when others are greedy and be greedy when others are fearful.” He’s practicing what he preaches these days. While many investors are afraid with the stock market plunging, Buffett has been greedily scooping up shares of companies that he likes.
Based on the latest Berkshire Hathaway (BRK.A -0.20%) (BRK.B -0.33%) regulatory filing disclosing its equity positions, Buffett and the company’s investment managers bought eight new stocks in the first quarter of 2022. Here’s the best of the bunch.
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All the new stocks Buffett bought
Actually, Buffett bought shares of 15 companies in Q1. Seven of them, though, were stocks that were already in Berkshire’s portfolio. The eight new positions were:
| Company | Shares Bought | Market Value |
|---|---|---|
| Occidental Petroleum (OXY -0.54%) | 226,119,467 | $13.2 billion |
| HP (HPQ -0.83%) |
120,952,818 |
$4.22 billion |
| Citigroup (C -0.17%) |
55,155,797 |
$2.95 billion |
| Paramount Global (PARA -3.90%) |
68,947,760 |
$2.61 billion |
| Celanese (CE -1.53%) |
7,880,998 |
$1.13 billion |
| McKesson (MCK 0.36%) |
2,921,975 |
$895 million |
| Markel (MKL -0.72%) |
420,293 |
$620 million |
| Ally Financial (ALLY -2.80%) |
8,969,420 |
$390 million |
Data source: Berkshire Hathaway 13F-HR SEC filing.
Most of these picks seemed to be right in Buffett’s wheelhouse. He has become a big fan of energy stocks lately. The large new stake in Occidental Petroleum isn’t surprising. Buffett likes the financial services industry. Ally Financial and Citigroup certainly represent the kinds of financial stocks that he’s favored in the past.
Buffett’s purchase of HP is somewhat reminiscent of his investment in IBM several years ago. While that decision didn’t turn out so well, it’s possible that buying HP will pay off.
Some might be surprised by Berkshire’s new position in Paramount Global. However, Buffett has previously bought other stocks in the entertainment industry. He’s no stranger to healthcare stocks, so McKesson isn’t a shocking pick. Celanese is the kind of industrial company that could have easily fit into Berkshire’s portfolio at any time.
Then there’s Markel. The company is sometimes referred to as a “baby Berkshire.” Markel is in the insurance business like Berkshire is. It also invests in other companies as Berkshire does. Berkshire is even one of Markel’s top holdings.
Best of the bunch
So which of these eight new stocks is the best of the bunch? If we decided based strictly on year-to-date performance, Oxy would be the clear winner. Shares of the oil and gas company have skyrocketed close to 120% so far in 2022.
However, Buffett and his investment managers didn’t make their decisions based on short-term stock performance. Indeed, half of the new additions to Berkshire’s portfolio are down year to date.
Buffett would instead recommend looking at the long-term business prospects for each company and its valuation. With these criteria in mind, I think that two of Berkshire’s new stocks especially stand out.
McKesson has a business model that’s built to last. The company distributes prescription drugs and medical-surgical solutions. It also provides prescription technology services. Aging demographic trends should provide a significant tailwind for McKesson for years to come.
The stock is attractively valued with shares trading at less than 14 times expected earnings. That’s especially impressive considering that McKesson stock has jumped more than 30% this year, making it one of Buffett’s best-performing stocks of 2022 so far.
Markel truly deserves to be called a “baby Berkshire.” The company has its own niche, though. It provides specialty insurance to customers with risks that typically can’t be handled by standard insurers.
Like Berkshire, Markel is also in the reinsurance business. These operations generate significant cash flow that the company puts to work by investing in other publicly traded entities. Markel’s portfolio, however, tends to be more growth-oriented than Berkshire’s portfolio.
The stock is a little more expensive than the S&P 500 based on forward earnings multiples. But Markel looks like a bargain factoring its growth prospects into the equation with a price-to-earnings-to-growth (PEG) ratio of only 0.91.
Think like Buffett
While McKesson and Markel are my favorites among Buffett’s latest purchases, you might prefer one or more of his other new stocks. Or you could turn up your nose at all of his picks. And that’s fine.
However, every investor should have the same mindset that Buffett does. Don’t let the fear and panic of others keep you from finding opportunities. Whether or not you buy the same stocks that he does, you’ll probably do well over the long term by thinking like Buffett.
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