Warren Buffett Just Bought 8 New Stocks: Here’s the Best of the Bunch

Four times a year, investors are treated to recent investment decisions from Warren Buffett, CEO of Berkshire Hathaway. Berkshire’s last quarterly filing was on May 16 and showed it had purchased eight new shares: western oil, resume (HPQ 4.01%), Citigroup, World Paramount (PARA 5.06%), Celanese, McKessen, marcel (MKL 1.75%)and Allied Financial (ALLY 4.96%).

I’m sure most, if not all of them, will make money for Berkshire in the long run. Buffett has an enviable track record when it comes to investing. And his #1 rule is “Don’t lose money.” Therefore, we can be sure that he expects the value of these stocks to rise. However, after looking at these eight stocks, I think the best of the bunch for the potential market-beat returns are HP. Here’s why.

But first some honorable mentions

Let’s start with a caveat: I don’t follow all industries. I mainly focus on consumer goods and technology. So maybe I don’t fully appreciate some ideas, like Occidental Petroleum and Celanese. But as Buffett’s investment partner Charlie Munger says, “Our job is to find a few smart things to do, not to follow everything that’s going on in the world.”

On this point, Paramount Global, Markel and Ally Financial also make my list of interesting ideas from Berkshire.

Across all of its streaming services, Paramount Global now has 62 million subscribers. And robust subscriber growth led to an 82% increase in direct-to-consumer (DTC) revenue year-over-year in the first quarter of 2022. Unfortunately, DTC costs are rising more faster than revenue, hurting Paramount’s overall profits. And analysts expect profitability to continue to fall this year, which could make Paramount stock a value trap – one that looks cheap but is eroding shareholder value. However, its growing popularity in streaming is worth watching.

As for Markel, it’s similar to Berkshire Hathaway. She has many stocks in her investment portfolio, including several held by Berkshire Hathaway – she even owns Berkshire Hathaway stocks herself! For a company like this, you want to monitor its book value per share. Over the past decade, Markel has grown its book value significantly — about 160%, according to YCharts. However, this actually tracks the performance of the S&P 500 over this period, implying that some of Markel’s investments have performed below average. But, like Paramount, it’s still worth watching.

Finally, Ally Financial also deserves an honorable mention and for some of the same reasons as HP. As the chart shows, Ally Financial has increased shareholder value by regularly buying back shares and increasing its dividend payouts – a trend that is expected to continue as long as the company is healthy.

ALLY Average Diluted Shares Outstanding (Quarterly) given by YCharts

The bulk of Ally’s business is in auto loans, which could become difficult in the short term with the possibility of a recession. However, the company also has a growing digital banking business, which could make it an interesting fintech stock.

Why I like HP the most here

HP manufactures computers, printers, etc. And of the eight shares purchased by Berkshire Hathaway in the first quarter, HP has reduced its number of outstanding shares the most in the past five years. And during this period, it has increased its dividend to the second highest, behind Ally Financial.

HPQ Average Diluted Shares Outstanding Chart (Quarterly)

Exceptional Data on HPQ Average Diluted Shares (Quarterly) by YCharts

To be clear, HP is a mature company without much growth – revenues have only grown about 30% in the past five years. However, as the company continues to repurchase shares, returns per share — your yields – are much better. And that’s a big reason why HP has been beating the market over the past five years, even if its growth has been lackluster.

I think it’s reasonable to assume that HP can at least maintain its market share in computers and printers. To be sure, the company sold fewer personal computers and printers in 2021 — and in the first two quarters of its 2022 fiscal year — than in the respective periods a year earlier. However, this comes after strong unit growth in 2020. As a result, HP just appears to be falling back to historical sales levels.

Personal computing isn’t going away, and neither are printers. Therefore, I believe HP has a business that will be viable for years to come. And if so, HP’s business will continue to benefit. As it generates profits over the next five to ten years, it will buy back shares and increase dividend payouts as it has done in recent years. And that’s why I think it can be an investment that beats the market.

Oh, and HP is also trading within 10% of its lowest price/earnings valuation in five years. Now is a good time to buy stocks.

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