Given CEO Warren Buffett's straightforward investing advice and a long track record of huge returns, it's not surprising that investors closely follow Berkshire Hathaway's (BRK.A 0.64%) (BRK.B 0.54%) every move. That includes perusing its 13-F filings every quarter to see what Buffett's conglomerate bought and sold. The most recent of these was released on Nov. 14.
As usual, the third-quarter filing had a few surprises in it. Let's take a look at two Buffett stocks referenced in the recent disclosure that would be a good fit for almost any investor. These are a couple of stocks you might want to get greedy with.
Image source: Motley Fool.
1. Taiwan Semiconductor Manufacturing
Berkshire's most surprising purchase in the third quarter was Taiwan Semiconductor Manufacturing (TSM -4.86%), the world's largest microchip manufacturer. TSMC, as it is often called, is the company that chip designers like Nvidia, Advanced Micro Devices, Apple, and Intel enlist to actually produce the chips they design.
TSMC is a new holding for Berkshire, which bought more than 60 million shares of it in the third quarter, worth about $4 billion. It's now Berkshire's 10th-biggest holding.
TSMC has a number of attributes that make it a classic Buffett stock. First, it has a huge economic moat as the largest semiconductor foundry. A wide range of companies and products depend on TSMC, and it dominates the foundry arena with a 53% market share.
Majority market share in an essential industry sounds perfect for a Berkshire holding, and TSMC also enjoys the kinds of margins that are indicative of a monopoly. In its most recent quarter, the company reported an operating margin of 50.6%, as it spends relatively little on overhead costs to run its foundries.
TSMC is also growing quickly, with revenue up 48% year over year. And Buffett would almost certainly approve of the price tag, as it trades at a price-to-earnings ratio of 15 and offers a 2.3% dividend yield. TSMC likely trades at a discount due to investor concerns about Chinese stocks, but the chipmaker hasn't faced as much backlash as Tencent or Alibaba. Unlike those companies, TSMC makes essential infrastructure, and its base in Taiwan makes it more politically sensitive than Mainland Chinese companies.
With TSMC's market cap of more than $400 billion, Berkshire can invest billions in it without having to worry about special disclosures that are required when a company owns a significant percentage of another company (generally when the ownership exceeds 10%).
2. RH
RH (RH 0.64%), the high-end home furnishings company formerly known as Restoration Hardware, is much smaller than TSMC, but Berkshire added to its RH holdings in the third quarter, buying 190,000 additional shares of the home-goods stock. That brings its total to 2.36 million shares, or roughly $230 million.
Share prices of RH have fallen more than 50% from their peak in September 2021 because demand for home furnishings is slowing as the boom from the pandemic fades and recessionary headwinds set in.
However, RH is still highly profitable; its adjusted operating margin was 24.7% in its second quarter. That's an unusually wide profit margin for a retailer, which is a sign of its competitive advantages.
RH employs a unique business model, selling memberships in order to build customer loyalty and encourage repeat purchases. Wall Street was dismissive of the idea when RH first introduced it in 2016, but the stock and the business have soared since then, proving RH CEO Gary Friedman right.
The company is now looking to expand its brand beyond home furnishings by managing hotels and restaurants and leasing planes and yachts. RH is also launching its own streaming service, which will focus on architecture and design. Those moves show that the company aims to leverage its brand equity in home furnishings into new categories. With its wealthy, loyal customer base, the strategy could pay off, especially the streaming content.
The retailer is likely to feel the macroeconomic headwinds over the next few quarters. But when the economy strengthens, RH looks primed to soar because its new businesses will have had time to build momentum.
Currently, the stock trades at a price-to-earnings ratio of just 10, which looks like a great value for a disruptive luxury brand with a long track record of outperformance. Buffett and his team have clearly taken notice.
