Berkshire Hathaway (BRK.A 0.58%) (BRK.B 0.72%) has absolutely trounced the market since Warren Buffett took control six decades ago. Much of the conglomerate's success has been the result of smart stock picking by Buffett -- or as he would prefer to say, business picking.
Not all of the stocks added to Berkshire's portfolio have performed well, though. Paramount Global (PARA +0.00%) has especially been a big loser, with its shares plunging 85% from its previous peak. But is this beaten-down Buffett stock a no-brainer buy right now?
NASDAQ: PARA
Key Data Points
Why Paramount Global has plunged so much
Much of Paramount's steep decline came in just a few days in March 2021. Then known as ViacomCBS, the company announced it was issuing $3 billion in new shares, with some of the money going toward funding new streaming content. Diluting the value of existing shares usually causes stocks to fall, and that's what happened in this case.
Analyst downgrades stood out as another major culprit. Wall Street viewed Paramount's gain of over 660% over the 12 months beginning in mid-March 2020 as greatly overdone.
To make matters worse, Archegos Capital Management's banks forced the investment firm to sell more than $20 billion of some of its holdings to cover some big losses. Paramount was in that group. The sudden sale added even more downward pressure.
Those haven't been the only issues for Paramount Global, though. The company has continued to rack up significant losses in its direct-to-consumer streaming business, which includes Paramount+, PlutoTV, BET+, and Noggin. Cord-cutting has also hurt Paramount's cable networks such as CBS, BET, and MTV.
What does Buffett like about the stock?
Berkshire first initiated a stake in Paramount Global in the first quarter of 2022. It added to the position over the next four quarters. The conglomerate now owns over 15% of Paramount, with its stake worth close to $1.3 billion.
What does Buffett like about the stock? The seemingly obvious answer is its valuation. Paramount currently trades at around 11 times forward earnings. During much of the period when Berkshire was buying shares, Paramount's forward earnings multiple was below 16.
However, Buffett actually doesn't seem to like Paramount at all. In an interview in April 2023, CNBC's Becky Quick asked him about the investment. He replied that streaming is "not really a good business." He added that so far, Paramount has "been able to attract subscribers, but they attract 'em at a terrible price."
Quick then pressed Buffett some, saying, "You gave a whole lotta reasons why not to buy Paramount. Why did you buy it?" He responded, "Well, we'll see what happens."
My best guess is that Buffett didn't personally make the call to invest in Paramount Global. The decision could have been made by one of Berkshire's two investment managers, Todd Combs or Ted Weschler.
A no-brainer buy?
Regardless of who initiated the purchase of Paramount Global, it's by default a Buffett stock since it's in Berkshire's portfolio and Buffett is the conglomerate's single largest shareholder. But let's return to our initial question: Is this beaten-down stock a no-brainer buy?
As we've already seen, Paramount's valuation seems to be attractive. Its business fundamentals are also improving. For example, in the third quarter of 2023, the company delivered year-over-year earnings-per-share growth of 71%. CEO Bob Bakish predicted "significant total company earnings growth in 2024."
However, Buffett's comments in the CNBC interview last year are still applicable. Streaming is a tough business, and Paramount Global faces multiple rivals with deep pockets. The headwinds for cable TV also don't appear to be about to wane anytime soon.
I don't view Paramount Global as a no-brainer buy for these reasons. Investors have too many other choices that offer better potential returns.
