Berkshire Hathaway (BRK.B 0.09%) (BRK.A 0.59%) CEO Warren Buffett has guided his company to decades of incredible, market-crushing success and earned a reputation as one of history's best investors. The Oracle of Omaha's value-oriented approach has been central to Berkshire's world-beating performance through the years, and his commitment to backing sturdy businesses worth supporting long-term has helped the conglomerate build upon previous victories.
But while the Berkshire portfolio remains weighted toward big names including Apple, Bank of America, and Coca-Cola, there are also some intriguing divergences from the investing styles and philosophies that the holding company is most famous for. With that in mind, read on to see why two of the most unusual stocks in the Berkshire Hathaway portfolio stand out as great buys right now.
Image source: The Motley Fool.
1. Snowflake
With Snowflake's (SNOW 0.55%) market capitalization of $43.5 billion sitting at approximately 21 times expected forward sales, the data services specialist has one of the most atypical valuation profiles in the Berkshire stock portfolio. Buffett's company established a substantial position in Snowflake at the time of its initial public offering in 2020, and it's held on to its shares despite substantial volatility in the intervening years.
Why has the famously tech-averse Buffett opted to maintain a position in a company that's trading at such a heavily forward-looking valuation? It's probably because Snowflake is providing an important, category-leading service that's pushing the data analytics revolution forward. This leadership position is powering strong business results and setting the stage for impressive rates of expansion through the next decade and beyond.
Spurred by demand for its data-warehousing technologies, which allow for customers to combine and analyze data from otherwise walled-off cloud-infrastructure providers, Snowflake was able to increase its product revenue 67% year over year to $522.8 million in the third quarter. The company's total customer count jumped roughly 35% year over year in Q3 to 7,292.
Analytics and machine-learning applications are going to play a key role in growth strategies for companies both in and outside of the tech sector, and the software specialist is positioned to provide foundation-level services that make it possible to capitalize on the explosion of new data being created. With the business posting a 75% non-GAAP (adjusted) gross margin last quarter, Snowflake has the potential to shift into very profitable growth, and patient investors could enjoy very strong returns from the stock.
2. Activision Blizzard
Microsoft's $68.7 billion deal to acquire Activision Blizzard (ATVI) could be the largest purchase in the tech giant's history, but it will have to withstand an antitrust challenge from the Federal Trade Commission in an administrative court. In addition to the challenge from the FTC, the deal needs approval from regulators in the E.U. and the U.K., but it's not game over for the buyout yet.
The pending acquisition, which would see Microsoft purchase Activision Blizzard in an all-cash transaction valuing the game publisher at $95 per share, still has feasible avenues to closing. With the latter's stock trading at roughly $77 per share, there's potential for 23% upside from current prices if the buyout is completed.
While there are possible roadblocks on the horizon, Buffett still seems to have faith in the deal closing. Even after trimming its position in Activision Blizzard stock roughly 12% in the third quarter, Berkshire Hathaway still owns about 7.7% of the game company's stock. For another perspective, Activision Blizzard still stands as Berkshire's ninth-largest overall stock holding, and there are good reasons to think the proposed buyout can overcome antitrust challenges and allegations that the deal would crush the competitive landscape in gaming and tech.
Microsoft would still face strong competition in gaming and the broader technology space even if it acquires Activision Blizzard, and the software company has also been willing to make some big concessions in order to complete the deal. These include promises to bring Activision Blizzard's immensely successful Call of Duty franchise to its competitors' platforms through the next decade in the event that the acquisition closed. The annual entry in the Call of Duty series regularly ranks as the best-selling game in its given year, and the franchise has been a focal point in framing and analyzing the potential acquisition.
And in the event the deal does wind up getting blocked, Microsoft will have to pay a substantial breakup fee to Activision Blizzard -- potentially as much as $3 billion. The buyout is hardly a sure thing at this point, but Activision Blizzard stock continues to present an attractive risk-reward proposition.
