When Warren Buffett tells you about the stocks he's buying, it pays to listen. Berkshire Hathaway (BRK.A 0.56%) (BRK.B 0.81%) has increased in value at a compound annual growth rate of 19.65% since Buffett acquired the holding company in 1965.
During the first three months of 2022, Berkshire Hathaway disclosed the purchase of eight new stocks. Some of them have since fallen to prices that are more attractive than what Berkshire Hathaway was willing to pay earlier this year.
Let's take a closer look at three of Berkshire's recent additions and their underlying businesses. Adding them to your portfolio at lower prices than Buffett was willing to pay could lead to even bigger gains than Buffett himself can hope for.
Paramount Global
You may know Paramount Global (PARA 7.93%) by its previous name, ViacomCBS. When it comes to broadcast television, CBS has had the best ratings for 14 years. Fueled by MTV, Nickelodeon, and Comedy Central, the company's cable portfolio is also second to none. With both of these industries in steep decline, though, you're probably wondering why anyone would want to buy this stock now.
Paramount Global looks like a good stock to buy now because it's one of the players most responsible for the shift toward video on demand. Paramount+ added 6.8 million new subscribers in the first quarter, which raised its total past 40 million. Pluto TV, the company's ad-supported streaming service grew to 68 million monthly active users and revenue from those ads is soaring. First-quarter revenue from Pluto TV jumped 51% year over year to $253 million.
Targeted advertisements delivered by services like Pluto TV are getting more expensive for advertisers who are clamoring for more inventory. First-quarter ad revenue from Pluto TV grew by 51% year over year while the amount of viewing time rose by a double-digit percentage that was close enough to 10% that the company didn't share the exact figure.
A recession could cause advertising budgets to contract in the second half of 2022 and 2023. That said, we're still in the middle of a secular shift from traditional advertising toward digital ads. This strong tailwind at its back will help Paramount Global continue climbing over the long run.
Citigroup
Buffett's an investor who hates to lose money and buying great businesses at good prices is his favorite way to mitigate risk. At recent prices, Citigroup (C 1.37%) is trading for just three-fifths of its tangible book value, and it's hard to imagine this valuation getting any lower.
Berkshire Hathaway invested heavily into this stock during the first quarter, but it's lost around 15% since the end of March. At recent prices, shares of Citigroup offer a juicy 4.3% dividend yield that could rise significantly over the next couple of years.
About a year ago, the company brought in a new CEO, Jane Fraser, who's selling off most of the company's international consumer banking businesses. Over the past year, the company used just 26% of free cash flow generated by operations to meet its dividend obligations. Flush with cash from international asset sales, the company will have plenty of opportunities to pump up quarterly payouts.
With a large investment banking segment, heaps of U.S. deposits, and a continued global presence in at least a handful of key markets, Citigroup is in a lucrative position that only a handful of its competitors can come close to replicating.
Ally Financial
Ally Financial (ALLY 0.65%) is another bank that Buffett bought in the first quarter. Unlike Citigroup, this is an online bank that doesn't have physical branches. This means Ally Financial also lacks the fixed expenses that come with running bricks and mortar banks.
Ally was once the auto-financing arm of General Motors and it still has more auto loans on its books than any other institution in the U.S. market. This year's lack of stimulus checks led the company to set aside more funds to cover credit losses than investors have gotten used to. As a result, first-quarter earnings contracted slightly compared to the previous year.
Investors responding to the earnings contraction in the first quarter have pushed the stock about 23% lower since the end of March. Now it's trading at just 90% of its tangible book value, which looks like a bargain. At this level, the shares offer a 3.6% dividend yield that Buffett expects to climb in the years to come. With a strong presence in the lucrative market for auto loans, it certainly has a strong chance.
