It has been a challenging year for investors, but we can all take heart in the fact that some of the world's most renowned investors are finding opportunities in the bear market and are initiating positions in new stocks.
These billionaires have long track records of building significant wealth, and according to the latest 13F filings, they were all adding new positions during the third quarter. Let's look at three interesting new buys that billionaires made during the period.
Image source: The Motley Fool.
1. Warren Buffett: Taiwan Semiconductor
Warren Buffett is arguably the most renowned investor of all time, so anytime his Berkshire Hathaway initiates a new position, it makes a splash within the investment community. His newly revealed position in Taiwan Semiconductor Manufacturing Company (TSM -1.67%) went a step further and made waves because the $4 billion investment instantly becomes a top-10 position for Berkshire.
Buffett has said that it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. TSMC seems to be both a wonderful company and available at a wonderful price. The company has a significant moat in that it makes some of the world's smallest and most advanced computer chips.
Not many companies can simply set up shop and start competing with it. Apple, Buffett's largest holding, is TSMC's largest customer and the chipmaker is considered such an important supplier that it is building a foundry in Arizona to serve Apple further. Outside of Apple, Taiwan Semiconductor serves an array of end markets including artificial intelligence, high-performance computing, Internet of Things-enabled devices, and the automotive sector.
The stock is down 33% year to date as investors worry about an oversupply of semiconductors in the market. But this sell-off created an attractive price for Buffett. The stock trades for just 14 times forward earnings. While TSMC is down year to date, Buffett and his team recognize that semiconductor demand will continue to increase over the long term as chips go into more devices. As a leader in such an industry trading at an attractive valuation, it looks like a great long-term investment.
2. Seth Klarman: Lithia Motors
While it's not quite as catchy or alliterative as "the Oracle of Omaha," Seth Klarman is sometimes called "the Oracle of Boston." And Klarman, the portfolio manager of Baupost Group, is a noted value investor in his own right.
He founded the hedge fund in 1982 and has grown it to over $31 billion in assets under management. Klarman is notable in that he is a hedge fund manager who doesn't even own a Bloomberg Terminal because he is unbothered by day-to-day price changes, which is a good lesson for all investors.
During the third quarter, he initiated a position in Lithia Motors (LAD -2.45%), an Oregon-based company with a growing network of auto dealerships across the United States and Canada. Given Klarman's penchant for value investing, it's not surprising that Lithia Motors caught his eye. The stock has returned nearly 500% over the past decade, but after a 25% decline year to date in 2022, it trades at just 5 times earnings, which is music to Klarman's ears.
The stock is down because investors are concerned about a cooling auto market and a slowing economy, but a long-term investor like Klarman recognizes that Lithia has grown earnings at an impressive 32% compound annual rate over the past 10 years. During the most recent quarter, Lithia reported the highest revenue and earnings per share (EPS) in its history.
Its goal is to grow EPS to $55 or more by 2025, up from about $45 today. Given Lithia's track record, this seems like a credible target. It also returns considerable capital to shareholders via share repurchases and a small dividend. As the company continues to grow earnings and deliver buybacks and payouts, Lithia looks poised for solid returns over the long term.
3. Bill Gates: Waste Connections
While Bill Gates is best known as the founder of Microsoft, the Bill and Melinda Gates Foundation also has a $34 billion investment portfolio. Buffett is a trustee for the foundation, so Gates is getting insight from one of the best in the business.
During the third quarter, Gates started a $290 million position in Waste Connections (WCN -0.81%), making the waste collection company a top-10 holding. While waste collection isn't the most glamorous industry, it is resilient as an essential business that customers rely on no matter what type of market we are in. Gates seems to appreciate that durability -- Waste Management (NYSE: WM) is another one of his largest holdings.
Waste Connections isn't cheap at 24 times forward earnings, but this defensive stock has vastly outperformed the broader market in 2022 with a 3% gain year to date, while the S&P 500 and Nasdaq are deep in the red. The company has handled inflationary pressures on fuel and labor well, and is guiding to higher EPS, revenue, and free cash flow in 2023. In a volatile market, there's something to be said for this type of consistency and stability. Waste Connections looks like a great choice for investors wanting to preserve their capital with a high-quality defensive stock.
While investors should always do their own due diligence, it's never a bad idea to study what some of the best investors are doing and to look for new ideas based on their buys. Billionaire money managers also wisely know that market pullbacks are buying opportunities over the long run.
All three of these stocks that billionaires bought last quarter look like good long-term investments, with Taiwan Semiconductor and Lithia Motors standing out based on their attractive valuations.
