With the Nasdaq Composite and S&P 500 indexes having one of their worst starts to the year in decades, several fund managers that practice value investing were busy scooping up discounted stocks.
Every three months, within 45 days after the last day of each quarter, investment managers that oversee at least $100 million in assets are required to disclose their holdings on Form 13F with the Securities and Exchange Commission. The latest 13F filings for the second quarter reveal buying activity in top video game producer Activision Blizzard (ATVI -0.94%), Walt Disney (DIS -2.35%), and Warren Buffett's Berkshire Hathaway (BRK.A -0.82%) (BRK.B -1.17%). Here's what these companies can offer patient investors.
1. Activision Blizzard
Activision is one of the largest video game producers in the world. It makes games for console, PC, and mobile devices and has 361 million monthly active users.
The stock tumbled during the third quarter of 2021 following allegations that the company violated California state law with respect to fair employment and equal pay. The investment managers at Berkshire Hathaway saw an opportunity to invest at a bargain valuation and started buying shares toward the end of last year. Berkshire has continued adding to its Activision stake in recent quarters.
It wasn't Buffett that initially bought the stock but one of Berkshire's investing deputies -- Ted Weschler or Todd Combs. By November, Berkshire had built a position in the stock at an average price of $77. Earlier in 2021, the stock had traded at over $100.
Berkshire's assessment of Activision's intrinsic value appeared to be spot on. In January, Microsoft made an all-cash offer to buy out Activision for $68.7 billion, or $95 per share. However, analysts have been skeptical that the deal will get approved by regulators, especially given the Biden administration's efforts to thwart anti-competitive behavior by big tech. The skepticism left the stock trading at a big discount to Microsoft's offer price.
Buffett has been taking advantage of these arbitrage opportunities throughout his career. After the deal was announced and Activision continued to trade below Microsoft's offer, Buffett significantly added to Berkshire's position in Activision. Berkshire now owns 9.5% of the company. If the deal goes through, Berkshire will earn a 19% return from Activision's current stock price of $80.
The deal is expected to close during Microsoft's fiscal year 2023, ending in June. If the deal is rejected, Activision's share price will likely fall in the near term, but shareholders will still own a top gaming brand operating in a growing $200 billion industry.
2. Walt Disney
The market sell-off was brutal on Walt Disney stock, and several fund managers jumped on the opportunity to invest at lower prices. During the second quarter, Thomas Gayner, who manages investments at Markel, Daniel Loeb at Third Point Capital, and Viking Global Investors were a few of the noteworthy fund managers buying Disney stock.
This contrarian investing style has already paid off. Over the last month, the market rally pushed Disney stock up 28%. The latest earnings report confirmed the value in Disney's entertainment properties.
Disney reported solid revenue growth across theme parks and streaming services. Disney+ added 14.4 million subscribers in the last quarter, bringing its total to 152 million. Theatrical releases are also doing well, with Doctor Strange in the Multiverse of Madness already earning nearly $1 billion at the box office.
Even after the rally in the stock, Disney is still trading well below its 52-week high of $187.58. In fact, the stock price is still within the trading range of the last five years. With Disney's direct-to-consumer business now contributing more revenue thanks to the growth in streaming, it's apparent the stock is not keeping up with the added value from Disney+, Hulu, and ESPN+, which comprise Disney's direct-to-consumer business.
Disney has a deep library of thousands of characters across the Star Wars and Marvel universes, not to mention the deep catalog of classic films that can drive growth across the business for many years.
3. Berkshire Hathaway
Berkshire Hathaway's class B shares hit a high of $362 earlier this year before falling to a low of $263. Two investment funds that have been buying shares in recent quarters are the Bill & Melinda Gates Foundation Trust and Christopher Bloomstran of Semper Augustus.
But the most relentless buyer has been Warren Buffett. Buffett has long been a fan of companies that repurchase their own shares. The Oracle of Omaha is also a fan of repurchasing Berkshire stock when he believes it's trading below its worth.
Buffett clearly likes the value underpinning Berkshire right now. In the first quarter of 2021, Berkshire repurchased $3.2 billion worth of shares and bought another $1 billion in the second quarter.
Investing in Berkshire is not going to make you rich overnight, but it's a relatively safe stock to anchor anyone's portfolio. Buffett has spent 50 years carefully assembling dozens of companies across many industries with outstanding management teams. These businesses, including See's Candies and Burlington Northern Santa Fe railway, generate billions in cash flow that Buffett gets to reinvest in more profitable businesses that deliver returns to shareholders.
Berkshire is currently sitting on over $100 billion in cash and short-term investments. It's when the markets are down that Buffett can add the greatest value for shareholders by buying great companies on the cheap.