Warren Buffett is sometimes referred to as "the Oracle of Omaha," a nickname earned by delivering decades of stellar investing performance. If you owned a $1,000 position in Berkshire Hathaway back in 1965 when Buffett acquired the company that would become the foundation for his market-crushing investment conglomerate, that stake would now be worth more than $22.7 million.
With a multitude of risk factors on the table, it might seem like a perilous time to be buying stocks, but market turbulence could also be creating worthwhile opportunities for investors. Read on to see why Snowflake (SNOW -1.99%) and Activision Blizzard (ATVI) stand out as top companies in the Berkshire Hathaway portfolio to invest in right now.
Image source: The Motley Fool.
1. Snowflake
As Buffett has famously said, it can pay to be greedy when others are fearful. With that guiding wisdom in mind, I think it's a good time for long-term investors to be building a position in Snowflake.
Snowflake stock has gotten crushed as growth stocks have fallen out of favor this year. The company's share price is now down roughly 58% in 2022 and 66% from the lifetime high it hit last year. Its stock also trades down roughly 45% from the market close on the day of its initial public offering in September 2020.
Snowflake provides data-warehousing services that allow customers to combine data from different cloud infrastructure providers. Why is the ability to access, combine, and analyze information so important?
Data-analytics technology is changing the way businesses and institutions function. By gathering and analyzing huge swaths of information, it's possible to find ways to serve customers more efficiently and shift operations in accordance with unfolding trends. Snowflake's services make it easier to combine information from applications on walled-off cloud infrastructures and purchase information from third-party vendors.
Cloud-native applications built on the company's platform can more easily access a wider range of information and generate superior insights. Strong demand for the data specialist's services reflect the important role Snowflake is playing in the evolution of the Information Age.
SNOW Revenue (TTM) data by YCharts
The company's product revenue increased 106% annually last year, and management is guiding for product sales to increase roughly 66% in the current fiscal year. Investors have balked at the company's growth deceleration and forward-looking valuation amid high inflation and rising interest rates, but there's a good chance that Snowflake is still just scratching the surface of its long-term potential. I think patient investors have an opportunity to score multibagger returns with the stock at current prices.
2. Activision Blizzard
Berkshire's 13F filing for last year's fourth quarter revealed the investment conglomerate had initiated a position in Activision Blizzard, the video game publisher famous for Call of Duty, World of Warcraft, Candy Crush Saga, and other hit franchises. Buffett's company didn't have to wait long for the value of its investment to increase.
Microsoft announced in January that it would acquire Activision Blizzard in a $68.7 billion deal, working out to a price of $95 per share. The acquisition is expected to close less than a year from now, and the publisher's stock still offers 22% upside compared to the agreed-upon buyout price. However, there's a catch.
Right now, the big risk with Activision stock is that the acquisition will be blocked by regulators in the U.S. or other nations. In order for the deal to proceed, Microsoft will need approval from the U.S. Federal Trade Commission (FTC) and overseas governing regulatory bodies. The market seems to think there's a significant chance that it will be blocked on antitrust grounds.
Microsoft undeniably has strong positions in the gaming industry and the tech sector at large, and it's possible that the FTC will take a tougher stance on large acquisitions under the Biden administration. On the other hand, even larger acquisitions in the media and communications industry have received approval in recent years, and the tech giant would still have strong competition in relevant categories even if the deal goes through.
In the console market, Microsoft has trailed behind Sony Group and Nintendo in terms of market share for years, and the company also faces tough competition from Chinese tech conglomerate Tencent Holdings. Beyond just gaming, I think Microsoft can make a strong case that the acquisition is important for competing against other tech giants that have large product, platform, and service ecosystems -- such as Alphabet, Apple, and Amazon.
Berkshire recently increased its holdings in Activision Blizzard stock and now owns 9.5% of the company. Buffett and his team are betting that there's a high likelihood that the deal goes through, and I think they're right. With upside looking hard to find in the current market, Activision stock has an appealing risk-reward profile ahead of its pending acquisition.
