Market Commentary: Warren Buffett’s Latest Moves Will Shock You

Warren Buffett may have tossed to the curb his only Real Estate Investment Trust, STORE Capital Corp., but he’s not exiting the property business entirely. The latest 13F filings indicate Berkshire Hathaway invested in multiple U.S. homebuilders including D.R. Horton and Lennar Corp.

In Q2 2023, Berkshire acquired 5,969,714 shares of D.R. Horton, translating into a stake valued at almost $650 million. It seems like Buffett is banking on a housing market that remains resilient despite rising mortgage rates and inflation. And maybe he’s onto something. In spite of rising rates, DHI revenues climbed 10.7% last quarter on a year-over-year basis.

Berkshire also acquired a stake in Lennar Corp, one of the oldest names in the U.S. home construction business. Berkshire bought 152,572 shares valued at just shy of $20 million. The diversification that Lennar offers, ranging from mortgage financing to title insurance, adds another layer of intrigue for investors.

The Lennar move is perhaps more puzzling given that revenues have fallen for two quarters in a row on a YoY basis. Clearly, Buffett sees a more resilient market than most.

Key Points

• Warren Buffett’s Berkshire Hathaway has shifted its real estate focus by building ownership stakes in U.S. homebuilders D.R. Horton and Lennar Corp. in spite of challenging market conditions.
• Berkshire also maintains its decades-long holding in Coca-Cola, despite the beverage company facing challenges from declining popularity due to weight-loss drugs like Ozempic.
• Buffett has surprised many by increasing stakes in Japan’s financial sector, with companies like Mitsubishi Corp. and Mitsui & Co. soaring over 20%. 

Coca-Cola Fizzing Out Or Set To Sizzle?

Buffett didn’t offload any of his Coca Cola shares. Quite the contrary, Berkshire Hathaway has held onto Coca-Cola stock for more than three decades, but perhaps the fizz is going flat. KO stock is down 14% for the year, while the S&P 500 is up 13%.

So, what’s causing the decline?

The answer will surprise you because the popularity of weight-loss drugs like Ozempic is blamed for consumers losing their taste for the century-old beverage. These drugs suppress appetite and have reportedly led to reduced sales of sugary foods and beverages.

With Walmart—America’s largest grocery retailer—noticing fewer food and calorie purchases and Coca-Cola failing to attract younger demographics, Buffett’s favorite soda firm is facing some serious headwinds.

With that said, this could be a unique buying opportunity. Coca-Cola’s P/E ratio is at its lowest in years, perched just above 22x, and its dividend yield has surged to 3.41%.

The kicker for prospective investors is that Coca-Cola has managed to diversify away from sugary beverages over the years, which could mitigate the impact of weight-loss trends. In Q2, Coca-Cola reported an 11% rise in organic revenue.

If Coca Cola has been a disappointment over the past year, Buffett’s most surprising international play has outperformed.

The Oracle’s Nod to Japan’s Financial Sector

Buffett’s international moves caught many off guard. Companies in the trading and financial sector in Japan, such as Mitsubishi Corp. and Mitsui & Co., have soared by over 20% since Buffett increased his stakes.

With an average price-to-book ratio of 1.1 for insurers and 0.7 for lenders in the Topix, these companies offer attractive valuations for long-term investments.

Speculation about the Bank of Japan ending negative rates provides a further boost to these stocks.

While it’s difficult for ordinary investors to capitalize on these companies directly, the obvious way to align with Buffett is to purchase Berkshire Hathaway shares.

Final Thoughts

Whether it’s a strategic entry into homebuilding stocks, sticking with a long-time favorite like Coca-Cola, or expanding horizons to Japanese financial firms, Buffett’s moves have been surprising of late.

As always, his decisions seem to be rooted in solid fundamentals and attractive valuations rather than market hype. Given the Oracle of Omaha’s track record, it might just be worthwhile to pay attention.