Berkshire Hathaway (BRK.A 0.28%) (BRK.B 0.25%) Chief Executive Officer Warren Buffett has built his fame by not only beating the returns of the S&P 500 significantly, but also by driving returns in challenging market environments.
The trend seems to have continued as Berkshire Hathaway has outperformed the S&P over the last year. That long-term, buy-and-hold strategy should help boost some stocks Warren Buffett owns, such as Ally Financial (ALLY +0.31%), Amazon (AMZN +1.67%), and Paramount Global (PARA +0.00%) (PARA.A +0.00%).
Ally Financial
Buffett and his managers continue to add financial technology, or fintech, stocks. However, the one more likely selected by Buffett himself is Ally Financial. General Motors, another company owned by Buffett, founded Ally in 1919 as an auto finance company, but Ally has since left the GM fold and rebranded.
It has also stood out by becoming an online bank that does not operate physical locations. As such, it has embraced fintech more than most traditional banks to manage accounts, investments, and loans.
Buffett's team likely turned to the stock due to its fundamentals. Its annual dividend of $1.20 per share returns about 3.6%. It has also increased every year since the introduction of payouts in 2016. Moreover, its price-to-book value ratio of less than 0.9 and price-to-earnings ratio of 4 speak to Buffett's desire to own value stocks.
NYSE: ALLY
Key Data Points
In Q1, Ally reported $2.1 billion in total net revenue, a 10% increase year over year. Still, rising compensation costs and operating expenses weighed on the bottom line. That took Q1 net income to $627 million, a 21% drop over the same period.
Nonetheless, the report included bright spots, such as a 73% increase in the number of credit card holders and a 30% rise in the number of merchants lending from Ally. Such growth shoots may motivate investors to buy hand over fist as it seeks to expand its online lending presence.
Amazon
As Buffett increases his tech-related investments, Amazon stock has become too compelling to ignore. He has long invested in retail, which likely made Amazon's historic e-commerce growth appealing to him.
Amazon's e-commerce sales have slowed to single-digit percentage growth levels amid the end of lockdowns. Nonetheless, analysts expect retail growth to rise by 12% for the year.
Additionally, growth in its cloud segment, Amazon Web Services (AWS), which accounts for most of the company's profit, has held up. AWS leads the cloud infrastructure industry, according to Synergy Research Group. Grand View Research forecasts 16% compound annual growth rate for the cloud infrastructure market through 2030.
That segment has bolstered Amazon through a slowdown. Overall, Q1 net sales rose 7% year over year to $116 billion. AWS's share of total sales was $18.4 billion, and that segment grew net sales by 36%. Although AWS reported positive operating income, e-commerce struggles led to a first-quarter net loss of $3.8 billion for the company.
NASDAQ: AMZN
Key Data Points
The disappointing retail sales led to the stock falling by more than 35% over the last year. Still, this has brought the P/E ratio down to 52, near multiyear lows for a stock that often sold for more than 100 times earnings.
Amid talk of a recession and rising inflation, retail sales growth may take time to recover. Nonetheless, with its leadership in the cloud industry and its massive retail footprint, pullbacks like those witnessed recently probably mean it is an excellent time to add Amazon shares at a considerable discount.
Paramount Global
Paramount has gained attention for its meteoric rise in streaming subscriptions. Its subscriber base grew to 62 million in Q1 2022, up from around 13.5 million two years before.
A recent rebranding helped highlight its content library, which includes the Star Trek franchise, Top Gun, and Yellowstone. Consequently, it has emerged as a streaming giant. Its content library, streaming growth, and P/E ratio of 4 likely led to Buffett and his lieutenants opening a position.
NASDAQ: PARA
Key Data Points
However, the low multiple is also a product of its struggles. The news that Buffett bought Paramount only boosted it temporarily, and the stock has dropped by 15% since the beginning of the year. Despite the streaming success, its legacy TV media business accounts for over 75% of company revenue. This part shrank revenue in Q1, and this has become a drag on the enterprise.
Overall, Q1 revenue of $7.3 billion shrank 1% year over year. Also, a 12% surge in costs and expenses weighed on earnings. Its net income came in at $433 million, down 53% over the same period. Moreover, analysts expect only single-digit percentage revenue growth and falling profits due to the size of its legacy TV business.
Nonetheless, at a P/E ratio pf 4, such concerns seem more than priced into the stock, and conditions could improve as streaming becomes a more important part of the company. With its valuable content library and heavily discounted stock price, Paramount looks like an emerging value play.
