Warren Buffett stands atop the pantheon of history's most successful investors. The CEO has guided Berkshire Hathaway to market-crushing performance across decades-long stretches and demonstrated an incredible penchant for identifying worthwhile investments even when conditions are turbulent.
With than in mind, taking inspiration from the Oracle of Omaha could be a great move as we approach the dawning of the new year. Here's why I think that buying these components of the Berkshire Hathaway stock portfolio before 2022 falls off the calendar will be a winning move for investors.
Image source: The Motley Fool.
1. Amazon
Amazon (AMZN -2.59%) stock has plummeted 49% across 2022's trading, and it's fallen 55% from the high that it reached last year. The company is now valued at just 1.7 times this year's expected sales.
AMZN PS Ratio (Forward) data by YCharts
Why has such a great company suffered such a stark valuation pullback? In addition to rising interest rates and other macroeconomic pressures, Amazon's last quarterly report arrived with mixed performance and guidance that alarmed investors.
While Amazon's revenue of $127.1 billion in the quarter fell slightly short of the average analyst estimate, its adjusted earnings per share of $0.28 in the quarter came in well ahead of the average analyst estimate's call for per-share earnings of $0.20.
The big earnings beat shows that the company has leaned into cost-cutting initiatives in response to the more challenging macroeconomic backdrop, but the near-term business outlook also reflects the challenges of this dynamic. Management's midpoint guidance calls for roughly 5% sales growth in the fourth quarter showed it was less than thrilled by this prospect.
But it wasn't all bad news. Revenue for the company's advertising business grew roughly 25.5% year over year in Q3, and the Amazon Web Services (AWS) cloud infrastructure segment remained a big profit generator despite some growth deceleration and margin contraction. The e-commerce business is under pressure due to inflation trends, mistimed spending pushes, and the end of pandemic-driven tailwinds, but this is still one of the best enterprises in the world.
Buffett has famously said that it's better to buy a wonderful company at a fair price than a fair company at a wonderful price, but this is a case where investors can seize on the best of both worlds.
2. Activision Blizzard
Microsoft is trying to acquire Activision Blizzard (ATVI) at a price of $95 per share -- opening the door for the gaming publisher's share price to jump 25% from current levels if the deal can overcome regulatory challenges. Buffett and Berkshire have appeared quite bullish on the chances of the acquisition being completed.
At one point, Berkshire held 9.5% of the game publisher's outstanding shares. The investment conglomerate actually trimmed its position in the company's stock in the third quarter, but it still owns 7.7% of Activision Blizzard's total shares. That's a far cry from throwing in the towel, and the gaming company still stands as Berkshire's ninth-largest overall stock holding.
Microsoft will have to defend its acquisition bid in an antitrust suit brought by the Federal Trade Commission and overcome regulatory challenges in the E.U. and U.K., but it's hardly game over for the buyout. The tech giant may be able to present a compelling case that acquiring Activision Blizzard wouldn't crush competition in the gaming industry and broader tech space.
Microsoft is actually trailing behind Sony's PlayStation 5 in terms of current-generation console sales, and in addition to other competitors in the hardware and game-distribution services space, the company is also competing against tech titans including Apple, Amazon, Alphabet, and Meta Platforms.
Regulatory roadblocks mean there's a real risk that the deal will be scuttled, but I think there's a solid chance Microsoft will be able to pull it off. And if the deal winds up getting blocked, investors can take some solace in the fact that the tech giant will wind up paying the game publisher a breakup fee in the neighborhood of $3 billion.
With that in mind, Activision Blizzard stock presents a worthwhile risk-reward dynamic at current prices.
