Investing magnate and Berkshire Hathaway CEO Warren Buffett used his cash reserves in a big way over the third quarter, investing $23.9 billion, the biggest move for his company in at least 15 years. Could this signal an oversold market?
According to a report from Bloomberg, the "Oracle of Omaha" bought almost $7 billion of stocks over a quarter that saw some gigantic headwinds to the market, including Standard & Poor's U.S. credit downgrade and a frightening evolution of Europe's debt crisis. Stocks had their worst quarterly performance since 2008.
Berkshire's investments were filed on November 4; among the big moves were "$6.9 billion of equities, $5 billion for preferred shares and warrants in Bank of America and the acquisition of Lubrizol for about $9 billion," according to Bloomberg. Berkshire also disclosed new stakes in MasterCard (MA) and retailer Dollar General (DG), although Berkshire has not yet disclosed its full third-quarter stocks statement.
"We're ready to buy lots of things," Buffett told Bloomberg Television's Betty Liu on Sept. 30. "If the stock is cheap, we will buy it."
"Historically he has preferred consumer products and banking to industrial companies," said James Armstrong, president of Berkshire shareholder Henry H. Armstrong Associates. "But the market changes, so the names he comes up with changes."
Berkshire's holdings of stocks labeled "commercial, industrial and other" rose 62% over the third quarter to $17.4 billion, surpassing holdings in both financial and consumer-product firms.
Is Buffett's wide net for stocks suggesting an oversold market?
For ideas on potentially oversold and undervalued names, we ran a screen on S&P 500 dividend stocks undervalued by the Graham number.
The Graham number was actually developed by Buffett's former mentor Benjamin Graham as a proxy for a stock's maximum fair value. Stocks trading at a significant discount to their Graham number may be undervalued.
The Graham Number = Square Root of (22.5) x (TTM Earnings per Share) x (MRQ Book Value per Share). This equation assumes that a stock is overvalued if P/E is over 15 or P/BV is over 1.5.
Do you think these stocks are at good prices to buy in?
List sorted by potential upside implied by Graham number. (Click here to access free, interactive tools to analyze these ideas.)
1. NYSE Euronext
3. Best Buy
4. Sealed Air
7. The Travelers
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Alexander Crawford does not own any of the shares mentioned above. Data from November 7. BVPS, EPS, and price data sourced from Yahoo! Finance.
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