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Should You Buy When Warren Buffett Buys?

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·3 min read
In this article:
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  • (0:45) - Should You Be Following Warren Buffett’s Trades?

  • (3:30) - Breaking Down Berkshire Hathaway's Portfolio

  • (9:50) - Well Established Cheap Companies

  • (16:30) - VZ, CVX, RH, MGY, MLHR, ABBV, STNE

  •                 Podcast@Zacks.com


Welcome to Episode #234 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

The Berkshire Annual Meeting for 2021 will take place on May 1 in Los Angeles.

It will feature two 90 something men: Warren Buffett and Charlie Munger.

Thousands will watch “live” as the event will be streamed on YahooFinance.

There are many value investors who live and breathe every Warren Buffett interview and stock maneuver he makes in the Berkshire Hathaway portfolio.

But should you buy what Buffett buys?

The “Problem” Berkshire Faces in 2021

Berkshire Hathaway is a mega-cap company with a market cap over $600 billion and billions of dollars in cash on hand.

Given its size, Buffett really has no choice when he deploys his cash: he must buy big.

That includes in acquisitions and in the stocks he buys.

For example, two of Berkshire Hathaway’s recent stock acquisitions, in the fourth quarter of 2020, were Verizon VZ and Chevron CVX.

Verizon has a market cap of $233 billion and Chevron’s is $203 billion.

Buying shares in a small or mid-cap oil company such as Magnolia Oil & Gas MGY, which has a market cap of $2.8 billion, is just not going to be feasible for a company as large as Berkshire.

Limits on What Buffett Can Do

The sheer size of Berkshire has really put a limit on what Buffett could invest in over the last past 10 to 15 years.

He did manage to buy into some “smaller” companies like RH RH, which now has a market cap of $15 billion. It was smaller when he first bought in in 2019.

But RH remains a tiny position in Berkshire, at just 0.29% of the entire portfolio, even as Berkshire is now a 8.49% shareholder of RH.

In prior decades, Buffett might have been a buyer of shares of office and residential furniture maker Herman Miller MLHR which currently trades with a forward P/E of 13 and pays a dividend yielding 1.9%.

But with a market cap of “just” $2.4 billion, it’s too small to bother with.

Yet Buffett owns many quality, cheap large cap stocks that investors might want to consider.

Should investors be buying when Buffett buys?

Find out the answer on this week’s podcast.

[In full disclosure, Tracey owns shares of RH in her personal portfolio and shares of MLHR and MGY in Zacks Value Investor portfolio.]

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Verizon Communications Inc. (VZ) : Free Stock Analysis Report
Chevron Corporation (CVX) : Free Stock Analysis Report
RH (RH) : Free Stock Analysis Report
Herman Miller, Inc. (MLHR) : Free Stock Analysis Report
Magnolia Oil & Gas Corp (MGY) : Free Stock Analysis Report
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