In this article, we discuss the 5 stocks that Warren Buffett was right about. If you want to read about some more stocks that Warren Buffett was right about, check out Warren Buffett Was Right About These 3 Stocks.
There are very few investors who buy when everyone is selling. Those that actively wait for an economic downturn to pick up the shares of value stocks at bargain prices and then hold onto them for the long term are even rarer. Warren Buffett of Berkshire Hathaway, the Omaha-based hedge fund, has made a name for himself at the market by being greedy when others are fearful. In the first quarter of 2022, Buffett spent nearly $51 billion of his cash holdings to freshen up his portfolio in light of the changing economic conditions.
Some of the top stocks in the investment portfolio of Berkshire Hathaway include Apple Inc. (NASDAQ:AAPL), Bank of America Corporation (NYSE:BAC), and American Express Company (NYSE:AXP). Filings from the end of 2021 show that Buffett was sitting atop a cash stockpile of more than $150 billion. Comparing the figure to his stock buying spree in early 2022, his hedge fund opened new positions in eight stocks, and the legendary investor has spent close to a third of his cash stockpile on updating his portfolio.
The Stock Market Resembles a “Gambling Parlor”
Buffett is betting big on the energy sector. Oil and gas prices have skyrocketed in the past few months due to several reasons. These include a surge in demand and failure to raise production, the Russian war in Ukraine that has disrupted oil supplies from one of the largest oil exporters in the world due to NATO sanctions, as well as the supply chain problems. Buffett is also upping his bets on the tech sector, opening up a new position in device manufacturer HP and gaming firm Activision, purchased by Microsoft recently.
Explaining his decisions at the annual shareholder meeting of Berkshire Hathaway, Buffett said that the stock market was starting to resemble a “gambling parlor” to an extraordinary degree in the past two years, a condition that had allowed his fund to build a large stake in energy giant Occidental in a span of just eleven days. The Oracle of Omaha, as Buffett is famously known, also added that there was crazy speculation at the market and people were trading companies like they were poker chips.
Buffett also affirmed his previous stance on assets like Bitcoin, stressing that the coin was worthless since it was not a productive asset like an apartment or farmland. Buffett went as far as to say that if someone owned all the Bitcoin in the world and offered him $25 for the lot, he would not buy it. To put these comments into perspective, one Bitcoin is worth over $30,000 as of June 1. The coin has a market cap of over $650 billion. Buffett has also been buying stakes in German and Japanese firms, per his revelations at the annual meeting.
Our Methodology
The companies listed below were picked from the investment portfolio of Berkshire Hathaway at the end of the first quarter of 2022. The stocks that are a new addition to the portfolio, compared to filings for the fourth quarter of 2021, and are up year-to-date, as of June 1, were selected. Data from around 900 elite hedge funds tracked by Insider Monkey in Q1 2022 was used to identify the number of hedge funds that hold stakes in each firm.
Warren Buffett Was Right About These 5 Stocks
5. McKesson Corporation (NYSE:MCK)
Number of Hedge Fund Holders: 59
Percentage Increase in Share Price (YTD): 29.41%
McKesson Corporation (NYSE:MCK) provides healthcare services. Berkshire owns more than 2.9 million shares in the firm worth $894 million, representing 0.24% of the portfolio. The company has an impressive dividend history stretching back more than two decades. For the past 23 years, the firm has consistently paid a dividend to shareholders. These payouts have been consecutively growing in the past five years. On April 28, the firm declared a quarterly dividend of $0.47 per share, in line with previous.
On May 11, Credit Suisse analyst AJ Rice maintained an Outperform rating on McKesson Corporation (NYSE:MCK) stock and raised the price target to $377 from $333, noting that the firm had maintained 2023 guidance despite quarterly results that were below expectations.
Among the hedge funds being tracked by Insider Monkey, New York-based firm Pzena Investment Management is a leading shareholder in McKesson Corporation (NYSE:MCK), with 2.7 million shares worth more than $827 million.
At the end of the first quarter of 2022, 59 hedge funds in the database of Insider Monkey held stakes worth $3.7 billion in McKesson Corporation (NYSE:MCK), up from 57 in the previous quarter worth $2.5 billion.
Just like Apple Inc. (NASDAQ:AAPL), Bank of America Corporation (NYSE:BAC), and American Express Company (NYSE:AXP), McKesson Corporation (NYSE:MCK) is one of the stocks that elite investors are buying.
In its Q4 2021 investor letter, Broyhill Asset Management, an asset management firm, highlighted a few stocks and McKesson Corporation (NYSE:MCK) was one of them. Here is what the fund said:
“Shares of McKesson Corporation (NYSE:MCK) tacked on another 23% during the second half. Even after gaining 44% for the full year, the stock still trades at a 50% discount to the market. Like our Dollar Tree investment, investor sentiment around McKesson languished for years as deflating generic drug prices compressed operating margins and the uncertainty of opioid litigation capped valuation multiples. But pricing has stabilized, a global opioid settlement appears imminent, and prescription trends are rapidly recovering at the same time vaccine-related revenues are accelerating.
Since FY19, revenues have grown at 7% annually, driving earnings per share growth, which should shake out at 11% – 14% through FY22. Over this three-year period, McKesson Corporation (NYSE:MCK) has generated $15 billion in cumulative free cash flow (roughly two-thirds of its market capitalization at the beginning of the period), returning roughly half of that to shareholders through repurchases (shares outstanding have declined by 24% on $6B of buybacks) and dividends (which have increased 22% over this period), while reducing leverage from 2.8x to 1.6x.
Does that sound like a business that should change hands at half the market’s valuation? We don’t think so. Even assuming shares traded back to three-quarters of the market’s multiple (in line with the average of the past decade), shares could return 15% – 20% annually over the next few years.”
4. Markel Corporation (NYSE:MKL)
Number of Hedge Fund Holders: 29
Percentage Increase in Share Price (YTD): 12.20%
Markel Corporation (NYSE:MKL) is a financial holding company. Latest data reveals that Berkshire Hathaway owned 420,293 shares in the company at the end of the first quarter of 2022 worth $620 million, representing 0.17% of the portfolio. The firm is a solid hedge against inflation as its insurance business can benefit from pricing power and higher interest rates. The company has also quadrupled revenues in the past decade, with the net income growing at a rate of over 20% during the period.
On April 28, Truist analyst Mark Hughes kept a Hold rating on Markel Corporation (NYSE:MKL) stock and raised the price target to $1,500 from $1,400, noting that the shares looked “fairly valued” at their present levels.
At the end of the first quarter of 2022, 29 hedge funds in the database of Insider Monkey held stakes worth $1.2 billion in Markel Corporation (NYSE:MKL), compared to 37 in the preceding quarter worth $733 million. Among the hedge funds being tracked by Insider Monkey, London-based firm Polar Capital is a leading shareholder in Markel Corporation (NYSE:MKL), with 98,750 shares worth more than $145 million.
In addition to Apple Inc. (NASDAQ:AAPL), Bank of America Corporation (NYSE:BAC), and American Express Company (NYSE:AXP), Markel Corporation (NYSE:MKL) is one of the stocks that elite hedge funds are flocking to.
In its Q3 2021 investor letter, Vltava Fund, an asset management firm, highlighted a few stocks and Markel Corporation (NYSE:MKL) was one of them. Here is what the fund said:
“It is interesting that although Berkshire Hathaway’s business model is fundamentally very simple, produces excellent results, and has been in the public eye for decades, almost no one has managed to replicate it. The implementation of this idea is seemingly very difficult. In fact, the sole company that has been largely successful in following Berkshire’s footsteps is Markel Corporation (NYSE:MKL). Its foundation is likewise a successful and highly profitable insurance business that produces free capital for further investments into both public and non-public shares in combination with exemplary asset allocation.
Much of the credit for this goes to its co-CEO, Tom Gayner. Markel Corporation (NYSE:MKL) was originally a family business founded in 1930 by the Markel family. Tom Gayner came onto the scene in 1990, when he took over the investment part of Markel, and since 2016 he has held the position of co-CEO alongside Richard White. Tom Gayner is first and foremost an excellent investor and asset allocator. At Markel, he is currently in charge of a USD 28 billion investment portfolio, as well as the part that invests in private companies and goes by the name Markel Ventures. He has been instrumental in driving the stock price from USD 10 to USD 1,200 during his tenure. That is about the same percentage increase that Berkshire’s shares had over the same period.” (Click here to read full text)
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Disclosure. None. Warren Buffett Was Right About These 5 Stocks is originally published on Insider Monkey.
