An unexpected shopping spree
Berkshire’s cash pile grew to a near-record $146.7 billion at the end of 2021, largely because Buffett found little that excited him. He is a value investor, after all, and U.S. stock market valuations were bloated up until a few months ago.
But based on his company’s recent moves, it's clear that Buffett now sees opportunity in the market.
In March, Berkshire snapped up over 136 million shares of Occidental Petroleum (OXY), representing nearly 15% of the integrated oil and gas giant’s total shares outstanding.
Later in the month, Berkshire reached an agreement to buy insurance company Alleghany for $11.6 billion.
And now, by loading up 121 million shares of HP, Berkshire has become its largest shareholder with an 11.4% stake.
A fast-growing company
With a market cap of around $41 billion, HP isn’t nearly as big as Buffett’s other major tech holding, Apple. But it’s one of the leading players in the PC industry.
And business is not standing still.
In HP’s fiscal Q1, revenue grew 8.8% year over year to $17 billion. Adjusted earnings per share came in at $1.10, up 19.6% from the year-ago period and well above management’s prior outlook.
In March, HP announced that it would acquire video and voice solutions company Poly in an all-cash transaction valued at $3.3 billion. The move should accelerate HP’s growth strategy, helping it build a leading portfolio of hybrid work solutions.
The company is returning cash to investors, too. HP pays quarterly dividends of 25 cents per share, translating to a decent annual yield of 2.6%.
It’s also buying back its shares: In fiscal Q1, HP spent $1.5 billion of cash to repurchase approximately 42.6 million shares of common stock.
Buffett loves cheap stocks
Due to growing investor interest, many tech stocks have rallied significantly in recent years, pushing their valuations to uncomfortably high levels.
However, HP remains relatively cheap, a characteristic that Buffett loves to see in his investment purchases.
Despite the multi-year rally in tech, HP has a price-to-earnings ratio of 7. That’s not only substantially lower than the S&P 500’s average P/E of 26, but also below the company’s own five-year average P/E of 10.
Given Wall Street’s positive reaction to the investment — both HP and Berkshire shares are up nicely since the announcement — following Buffett’s coattails might not be a bad idea.
“We view Berkshire buying HPQ shares as a positive that validates HPQ’s strategy/deep value,” writes Evercore ISI analyst Amit Daryanani in a note to investors.
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Fine art as an investment
Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.
That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.
Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.
And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.
On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.
Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.
Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.