Warren Buffett is widely considered one of the most successful investors in history. And when he buys stocks for his Berkshire Hathway (BRK.A +0.70%) (BRK.B +0.51%) portfolio, it can be profitable to pay attention. That said, everyone makes mistakes. And investors shouldn't blindly follow the legend's investment decisions despite his good track record.
In the fourth quarter of 2024, Berkshire Hathaway bought shares in Occidental Petroleum, Verisign, Domino's Pizza, Pool Corp., Sirius XM (SIRI +2.16%), and Constellation Brands (STZ +1.50%). Let's explore why the last two might underperform in 2025 as they grapple with changing consumer tastes and the potential impact of Trump's tariff policy.
Sirius XM
Sirius XM is one of Buffett's most perplexing long-term investments. Berkshire added around $281 million to its position in the fourth quarter, bringing the total value of its holdings to $2.7 billion -- a 35% stake in the company. However, with shares down by a whopping 53% over the last five years, it is proving to be a punishing bet.
NASDAQ: SIRI
Key Data Points
On the surface, it's easy to see why Buffett might like Sirius. It is the only satellite radio provider available in the U.S., making it a monopoly. This status is allowed because regulators believe terrestrial radio provides sufficient competition, and they are right.
While Sirius starts at $9.99 per month, terrestrial radio is free. The rise of new automotive entertainment options like Apple Car Play and Android Auto will likely further erode Sirius' moat by giving consumers access to a virtually limitless variety of online music and podcasts.
Sirus' valuation of 7.41 times forward earnings is significantly lower than the S&P 500 average of 28. However, while a reasonable valuation can limit a company's downside risk, investors shouldn't get baited into buying a company in long-term decline. Sirius' fourth-quarter revenue declined 4% year over year to $2.19 billion, highlighting the company's stagnation.
Constellation Brands
Constellation Brands is a new position for Berkshire Hathaway after the holding company purchased 5.6 million shares worth around $1.24 billion in the fourth quarter. Like Sirius XM, Constellation Brands is a value investment because its forward P/E of just 12.5 is much lower than the market average. That said, Trump's tariffs could undermine its business.
Constellation Brands is the country's largest beer import company, specializing in Mexican beer brands like Modelo, Corona, and Pacifico, which make up around 82% of its revenue. While these products are popular (Modelo Especial is America's top seller), they are produced by Grupo Modelo at its factories located across Mexico. This dynamic could put constellation brands in the middle of an escalating trade war between the U.S. and its trade partners.
Image source: The Motley Fool.
On April 2, the Trump administration plans to exact broad tariffs on a wide range of countries, including Mexico. While the specifics are yet to be determined, it is expected that a 25% tariff will be placed on imported Mexican beer, making it less competitive against domestic alternatives.
While some investors may see the trade uncertainty as a temporary headwind, it may turn into a long-lasting challenge. The U.S. beer industry has an 80% unionization rate, making protectionism politically expedient, even when Trump leaves office. Investors should stay far away from Constellation Brands stock until the dust settles.
Buffett is getting cautious about the market
While Sirius XM and Constellation Brands look like weak picks for Berkshire Hathaway, they represent a small part of the holding company's $284.6 billion public stock portfolio. Buffett's biggest lesson may come from what he isn't buying. As of the fourth quarter, Berkshire held a whopping $334 billion in cash, which suggests the legendary investor is looking for a better time to get into the stock market. With tariff uncertainty and a rising risk of recession, it isn't hard to see why.
