According to Berkshire Hathaway’s fourth-quarter 13F and 13G filings, Buffett and his investment team added shares to several existing positions, including Lousiana-Pacific Corp. (LPX), Paramount Global (PARA), and Apple (AAPL).
Do they have a place in your portfolio?
- Berkshire Hathaway increased its holdings in Louisiana-Pacific Corporation (LPX) by more than 21% to just over 7 million shares.
- Berkshire increased its stake in Paramount Global (PARA), which owns a popular streaming service, Paramount+, and has demonstrated solid fundamentals over the years. PARA’s dividend yield of 4.3% may have contributed to Buffett’s decision, but valuation was likely a major factor as well.
- Berkshire Hathaway’s most significant holding remains Apple (AAPL), with over 895 million shares valued at over $115 billion.
Louisiana-Pacific Corporation (LPX)
Berkshire increased its holdings of Louisiana-Pacific by more than 21% during the last quarter to just north of 7 million shares.
Valuation seems to be a significant factor that led to Buffett’s heavy investment in Louisiana-Pacific, as well as the company’s outstanding balance sheet. On a valuation basis, we ran the numbers and arrived at an intrinsic value of $71 per share, suggesting as much as 23.5% upside.
The company also has an interesting P&L. Top line sales often increase significantly during up years but rarely result in big drops during down years. For example, revenues were up 23% in 2013, 18% in 2016 and 63% in 2021 but the worst down year over the past decade was in 2014 when sales fell by “just” 7.2%.
Another factor that may have enticed Buffett is the company’s dividend. More than half of Berkshire’s holdings pay dividends and LPX falls into the bucket of dividend paying companies, offering a yield of 1.66%.
Paramount Global (PARA)
Although Paramount’s earnings are expected to decline in 2023, its streaming service, Paramount+, holds substantial growth potential in the years ahead. The company owns popular networks like MTV, CBS, Nickelodeon, and Comedy Central, but it is the streaming service that is attracting investor attention. Hits like “Top Gun: Maverick,” which grossed over $1.4 billion worldwide, are buoying investor hopes alongside a streaming deal with the NFL.
Paramount’s current dividend yield of 4.30% may have contributed to Buffett’s decision to increase his stake, but valuation was no doubt a consideration too. Our models show fair value sits just above $26 per share, suggesting Berkshire could capture another 17% of value before reaching a valuation ceiling.
While Paramount may not be the top choice for all investors, the company has demonstrated solid fundamentals over the years. Despite relatively choppy revenues and a sharp descent in free cash flow, it still generates ample cash to fuel its streaming goals.
Although Buffett’s change in Apple shares was just 0.04%, that still equated to over 333,860 additional shares. This company remains Berkshire’s most significant holding, with 895+ million shares, valued at over $115 billion.
There’s plenty to like about Apple. While 2022 was challenging for many businesses, Apple showed strength among its peers. Evidence of that is the company’s decision not to lay off staff, unlike virtually all its peers. In addition, it’s well-positioned to enter high-growth markets, supporting already strong revenue from iPhones and high gross margins from its services businesses.
Apple has all the hallmarks of a company Buffett would love: strong branding, strong free cash flow generation, and attractive long-term prospects. It also offers a modest dividend of 0.6%, which could increase significantly in the years ahead.
Which Stock Is Best?
If you’re looking to buy shares of just one company on this list, Apple leads the pack. Unlike the other two companies, Apple continues to report earnings growth. Its brand loyalty is tough to beat, and based on the tech giant’s level of innovation, Apple investors can anticipate future growth. From Apple’s long-rumored self-driving car to opportunities in the payments industry, Apple is now much more than a hardware company.
Our calculations show fair value of $142 is close by to the current share price so while it’s the best of the bunch in our view, it may be better to wait for a pullback to scoop up shares.