CEO Warren Buffett has attributed much of Berkshire Hathaway's (BRK.A 0.36%) (BRK.B 0.21%) incredible success through the years to an investment approach that revolves around being fearful when others are greedy -- and greedy when others are fearful. With better-than-expected inflation data for October recently published, stocks are enjoying an uptick in bullish momentum. But it's fears spurred by macroeconomic and geopolitical risk factors that have played the biggest role in shaping the market this year.
Berkshire's recent third-quarter results show that the investment conglomerate was a net purchaser of stocks in the period, suggesting that the Oracle of Omaha sees opportunity in the market despite current risk factors and volatility. With that in mind, read on for a look at three Buffett-backed stocks that are worth investing in this month.
Image source: The Motley Fool.
1. Amazon
Macroeconomic pressures, rising costs, and slowing e-commerce growth had already been pressuring Amazon (AMZN -1.11%) stock this year, and the company's third-quarter results highlighted additional risk factors that dampened investor confidence. The stock trades down roughly 17% since the publication of the Q3 results, and its share price is now down 48% year to date and 53% from the high that it reached last year.
The roughly 27.5% year-over-year sales increase for the Amazon Web Services (AWS) segment in the third quarter was hardly a terrible performance, but it did come in below the market's expectations, and midpoint guidance calling for overall company sales to grow just 8% this quarter suggests that the cloud infrastructure unit's growth deceleration will continue in the current quarter. With pandemic-driven tailwinds for the e-commerce business having largely evaporated and expenses remaining relatively high even after cost-cutting initiatives, it's not shocking that investors flinched at Amazon's Q3 performance.
On the other hand, Amazon remains one of the best companies in the world, and it also stands out as a great stock at current prices. Guidance for the current quarter suggests that AWS isn't immune to market pressures, but the cloud business still looks poised for strong growth over the long term, and its dominant e-commerce unit still has plenty of room for sales and margin expansion. Overall, Amazon's growth engine remains in good shape, and long-term investors who take advantage of recent sell-offs stand a good chance of recording strong returns from the stock at current prices.
2. Activision Blizzard
Just weeks before Microsoft announced it aimed to make Activision Blizzard (ATVI) its largest-ever acquisition, Berkshire Hathaway purchased roughly $1 billion worth of the gaming publisher's stock. The investment conglomerate has continued to make big purchases following the announcement of the deal, and Berkshire owned roughly 9.5% of Activision Blizzard's outstanding shares as of its last update.
Activision Blizzard is set to be acquired by Microsoft in a $68.7 billion, all-cash deal valuing the video game publisher at $95 per share. With management expecting the buyout to close before the second half of next year and Activision's current stock price of roughly $73 per share, the stock has approximately 30% upside if the deal is closed. The big gulf between today's valuation and the expected buyout price comes down to concerns that the acquisition will be blocked on antitrust grounds, but the stock presents a worthwhile risk-reward dynamic in today's volatile market.
With a market capitalization of roughly $1.8 trillion, there's no doubt Microsoft is one of the largest and most influential companies in the world, and the acquisition of Activision Blizzard would certainly give the tech giant an even stronger position in the gaming industry. But its rival Sony actually leads the market in their shared corner of the console-gaming space, and Microsoft also faces gaming and overall product ecosystem competition from tech giants including Tencent, Apple, Amazon, Meta Platforms, and Alphabet.
While Microsoft may need to make some concessions in order for its big acquisition to pass regulatory muster in the U.S., Europe, and other markets, Buffett's big push into the stock reflects an expectation that the deal will close. I agree with that position and think Activision Blizzard shares look like a worthwhile buy.
3. Berkshire Hathaway
The strength of Berkshire's wholly owned subsidiaries, value-oriented approach to portfolio composition, and rock-solid balance sheet have all helped the company hold up very well compared to the broader market amid this year's pressures. But while the stock is handily outperforming the benchmark S&P 500 index, it still trades down roughly 16% from the high that it reached earlier this year and offers an attractive entry point for long-term investors.
Buffett and the management team at Berkshire made the smart move of keeping plenty of cash on the sidelines heading into this year. While the company has been ramping up its stock purchases, it ended last quarter with roughly $109 billion in cash. The investment conglomerate has been keeping plenty of powder dry, and with macroeconomic pressures having depressed valuations for many companies, Berkshire is in good position to make some explosive investments or outright acquisitions.
Berkshire's diversified holdings, massive cash pile, and time-tested management team give the company defensive characteristics that could help shares hold relatively well if turbulence continues to shape the broader market, and its shares should benefit from rebound momentum as bearish pressures shaping the current backdrop ease.
