Even as investing master Warren Buffett is set to retire at the end of this year, Berkshire Hathaway has maintained an active pace of stock transactions. Looking back at its history, through the Berkshire group, Buffett and his team have made many remarkable investment decisions, such as the hundred-fold investment in American Express. Today, on the eve of Buffett’s retirement, he and his team are still actively buying stocks for the company’s portfolio. Recently, they invested a total of $1.33 billion in three stocks, which has undoubtedly attracted widespread market attention.
In the second quarter, Berkshire Hathaway purchased 5.1 million shares of Lennar Corporation (LEN). This homebuilder has experienced a turbulent period during the massive shifts in the real estate market triggered by rising mortgage rates. Its stock price fell from over $180 in the second quarter of 2024 to around $100, before recovering to approximately $120 on October 14th. Homebuilders are a typical cyclical industry, and Lennar, as one of the industry leaders that has stood the test of time, generated $35 billion in revenue over the past 12 months. However, its net profit for the same period dropped to $2.7 billion, down from $3.9 billion in 2023 and $4.6 billion in 2022. This was mainly due to rising costs and declining home sale prices, factors closely related to rising interest rates. If the Federal Reserve cuts interest rates in the future, leading to lower mortgage rates, it could help push home prices higher. Berkshire likely views Lennar as a undervalued stock with potential for profit growth. Despite the current profit downturn, its price-to-earnings ratio is only 12.7, and the severe housing shortage in the United States is expected to continue generating construction demand for Lennar in the coming years.
Constellation Brands (STZ) is a beverage alcohol company focused on Mexican beer, owning well-known brands such as Pacifico, Modelo, and Corona. Against the backdrop of an overall decline in U.S. beer consumption, its stock price has fallen 48% from its peak. Last quarter, the company’s beer shipment volume decreased by 8.7% year-over-year. Despite challenges from declining alcohol consumption, Berkshire Hathaway likely values its long-term pricing power as a leader in the discount sector. The stock’s enterprise value to EBIT ratio is only 11, making the valuation appear quite attractive for entering investors. Alcohol consumption has been part of society for centuries and, in the long run, it is expected to remain a lasting asset for Berkshire. With these high-quality Mexican beer brands continuing to strengthen their position in the U.S. market, the Constellation Brands shares purchased by Buffett at a low price could potentially bring substantial returns to shareholders over the next decade.
Among the three stocks Buffett recently bought, Chevron (CVX) is particularly noteworthy, as it is already Berkshire Hathaway’s fifth-largest holding. As a decades-old oil and gas giant, Chevron’s performance is typically closely tied to oil prices—since the Russia-Ukraine war in 2022 caused oil prices to soar to $120 per barrel, prices have since fallen by about half. Its stock currently appears cheap and can serve as an effective hedge for Berkshire against inflation. Chevron’s P/E ratio is about 20, which at first glance doesn’t seem particularly cheap, but this is primarily because the company’s net profit over the past 12 months has fallen to $14 billion, far below the over $30 billion when oil prices exceeded $100. Currently, the company’s stock offers a high dividend yield of 4.5%, and if oil prices rise again in the future, its earnings have significant potential for growth. Buffett might not describe Chevron as an outstanding business like American Express, but during favorable market periods, holding Chevron is undoubtedly a quality asset for diversifying portfolio risk and hedging against long-term inflation.
