One of Warren Buffett's famous sayings is, "Be greedy when others are fearful." With the vast amount of selling in the past few weeks, Buffett is likely scooping up shares of his favorite companies at lower valuations. After all, Berkshire Hathaway has more than $106 billion in cash sitting on its balance sheet, just waiting to be put to good use.
Of the stocks Berkshire currently owns, I think Buffett is likely adding to his position in many of them, but three, in particular, are Activision Blizzard (ATVI), Visa (V -1.70%), and Snowflake (SNOW -4.15%). These stocks are attractive for different reasons, but they are all great purchases now. Let's find out a bit more about each.
Image source: The Motley Fool.
1. Activision Blizzard
On Jan. 18, Microsoft announced its intentions to buy Activision Blizzard for $95 per share. This buyout was approved by shareholders in April, with 98% of voters casting their ballot in favor of the takeover. Despite the Microsoft offer price, the stock currently trades for around $75 a share.
That's an implied upside of 27% if the deal goes through. Buffett saw this arbitrage opportunity (buying something for less than it is worth) and established a 9.5% stake in Activision Blizzard. Why the discrepancy? The deal still has to receive thumbs up from regulators.
Because Microsoft is so big, there are concerns about monopolistic practices. However, Buffett thinks this deal will go through; otherwise, he wouldn't have established such a large position. If it doesn't, investors will be left with a company that trades for a fair 23 times earnings and owns the rights to several massive gaming titles.
Investors can jump in with Buffett and make a quick gain if the deal is approved or hold on to a great company that is cheaply priced if the deal falls through.
2. Visa
Visa is a classic Warren Buffett business. It provides vital payment infrastructure and takes a bit off the top of each transaction it processes. As a result, Visa consistently reports around a 50% profit margin, making it one of the most profitable companies in the world.
Visa only makes up 0.5% of Berkshire's portfolio, but Buffett could be adding to his position with Visa trading for 30 times earnings -- tied for its lowest valuation over the last five years. Moreover, the company is still recovering from the pandemic, as it makes the most revenue from currency exchange generated by cross-border transactions.
During its fiscal year 2022 second quarter (ending March 31), Visa's net revenue grew 25% year over year, and earnings per share rose 23%. Additionally, cross-border payment volume rose 47%, excluding intra-Europe transactions. Visa sees some headwinds due to ceasing operations in Russia, but it only made up about 4% of total revenue in 2021 and 2022, so the impact will be minor.
One wild card for Visa is the economy. If consumers spend less, Visa's payment volume will also take a toll, causing profits to fall. However, Visa would eventually recover alongside the economy. This rebound potential makes Visa an excellent buy if you can hold the stock for at least three to five years, regardless of the economy falling into a recession.
3. Snowflake
Snowflake isn't your typical Buffett stock; it's unprofitable, tech-based, and richly valued. However, this didn't stop Buffett from taking a $250 million stake before Snowflake hit the markets when it IPOed in late 2020. Buffett purchased the stock for $120 a share in 2020, and investors (and Buffett) can pick up the stock for around $140 today.
Snowflake provides the software infrastructure for the data cloud. Its tools allow companies to store massive amounts of data, then utilize that data to develop models that can be used to drive business decisions.
Customers are seeing the value in Snowflake's product and have significantly expanded their usage of it, as the average customer spent $1.74 in FY 2023 Q1 (ending April 30) for every $1 they spent last year. Overall, sales grew at an 84% rate, and customers spending over $1 million with Snowflake nearly doubled year over year in Q1. Snowflake's outlook also looked solid, with its FY 2023 product revenue expected to grow 66%.
At one point, Snowflake stock traded for more than 150 times sales. Now it trades for a much cheaper (but still expensive) 25 times sales. This valuation may still be too rich for Buffett's liking, but the long-term industry trend is in Snowflake's favor.
Even if Buffett isn't scooping up this beaten-down tech company, I think investors with a long-term mindset should check out Snowflake.
As I mentioned earlier, Buffett is likely methodically purchasing his favorite companies for increasingly lower valuations. However, he likely isn't deploying all of his cash this quarter, as the market may move lower and provide even better values. We won't know what Buffett has been buying until the next 13F gets filed (likely in early August), but I'm willing to bet he's been deploying cash strategically in this market full of outstanding values.
