With the market having a rough start to the year, and Buffett’s stock outperforming on a relative basis, he appears to have changed gears from repurchasing Berkshire Hathaway shares to purchasing public equities after a lengthy dry spell. Berkshire spent $51.1 billion on US equities in the first quarter, compared with $9.7 billion in revenue. We also know that Berkshire invested another $6 billion in April, when it bought an 11.5% stake in HP Inc., which had to be announced.

We know that Buffett was investing in a number of oil stocks throughout Q1 and into April, and there are some indications that another $10 billion has went to financial firms, as well as another $600 million to Apple. Warren Buffett is also playing a little merger arbitrage at the moment; he has a $5.6 billion bet that Microsoft will buy Activision Blizzard soon.

Given the consumer and technology discretionary stocks’ dive in the first quarter, these sectors might be next, with Warren Buffett’s buy list potentially including the following names.

Alphabet

After its first-quarter earnings release, Google’s (GOOG, GOOGL) stock fell (-2.88 percent), but the figures didn’t appear disastrous. Despite lower than expected YouTube income, search and cloud revenue both exceeded expectations. Search is Alphabet’s most crucial sector because it is the company’s main profit engine; however, cloud computing may be an underappreciated long-term opportunity. As a result, those two key businesses appear to be doing well.

With the most recent quarter showing signs of slowing growth, Google’s core business faces increased competition from YouTube and a difficult comparison to the previous major epidemic-affected period. The sell-off also hit Alphabet’s venture capital investments in its arm hard, worsening its bottom line more than corporate earnings.

Despite the fact that Buffett may be put off by the other wagers’ losses, Alphabet’s management has become more friendly to shareholders in recent years and steadily increasing its share buybacks, which Buffett supports. Google just gave a new $70 billion repurchase authorization on Tuesday, up from last year’s $50 billion program and $25 billion authorization from 2019. Meanwhile, Alphabet’s valuation has dropped to 21 times this year’s earnings expectations. That’s an even cheaper multiple than Alphabet had at the low point of the pandemic sell-off in 2020!

Alphabet is even more attractive if you consider its substantial cash holdings – about 10% of market value, as well as billions in total losses at cloud and other bets. Investors are receiving the core digital advertising business for a mid- to high-teens P/E ratio based on those units having positive value. That appears to be an incredibly cheap price for a firm like Alphabet, according to Buffett and partner Charlie Munger, who have previously said that they “missed” buying Google.

Dell Technologies

Berkshire has been relatively cautious when it comes to technology stocks in the past, but Buffett and his team of Ted Wechsler and Todd Combs have made several technology wagers in recent years. Apple is now Berkshire’s largest position, and we know for a fact that someone at Berkshire invested heavily in HP earlier this year.

What about a company that produces hardware at ten times the cost of an Apple computer? Isn’t it possible that Buffett likes HP because it is less expensive than Dell? Both businesses produce desktop and PC computers, as well as comparable goods. In addition to PCs, desktops, and peripherals, Dell makes corporate servers (DELL 2.01%) and HP makes printers. Dell trades at a price-to-earnings ratio of less than seven times, and it just instituted a quarterly dividend payout of over 2.8 percent.

Dell should benefit from its business exposure. It has a significant number of computers going to businesses rather than individuals. Even as consumers reduce their spending on low-end PCs, Dell’s financial performance should remain solid this year compared with other PC manufacturers.

Dell is also capitalizing on its large presence in corporate servers to collaborate with major cloud vendors, such as Snowflake (SNOW 5.43%). In the second half of this year, Dell and Snowflake, another Berkshire holding, will integrate products and promote them jointly.

To some, Dell may seem like a dinosaur and an uninteresting hardware maker, but it is benefiting from increased digitization across the company. With a bargain-basement valuation, I could see Buffett buying shares to complement his HP holding.

Author: Scott Dowdy

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