It is impossible to tell when market turbulence will come to an end, but that doesn’t mean investors shouldn’t be searching for attractive and value stocks.
It will always be impossible to time the market. Therefore, we shouldn’t try. However, it always makes sense to buy stocks that are trading at a deep discount to intrinsic value. As long as you buy with a deep enough discount, when you buy shouldn’t matter. Over time, the discount between price and value should narrow.
With that in mind, now seems like a good time to go through the portfolios of super investors to see if any stocks currently featured in their portfolios that could be attractive investments after recent declines.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Seth Klarman’s value buy ” data-reactid=”21″>Seth Klarman’s value buy
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The largest investment in Seth Klarman (Trades, Portfolio)’s portfolio at the end of 2019 was cable company Liberty Global (NASDAQ:LBTYK).” data-reactid=”22″>The largest investment in Seth Klarman (Trades, Portfolio)’s portfolio at the end of 2019 was cable company Liberty Global (NASDAQ:LBTYK).
In terms of prospective investments, this is an interesting one. Defensive utility businesses tend to be the best investments to own through economic instability, so on this front, Liberty Global comes out on top. What’s more, the broadband internet service provider could actually see an increased demand for its services as more people are asked to work from home or are put into enforced quarantine.
On the other hand, Liberty Global does have a tremendous amount of debt. This reduces the company’s financial flexibility, which could become a problem if we are at the beginning of a long economic depression.
Still, with the company forecasting $1 billion of free cash flow for 2020 at the beginning of the year, the stock is currently dealing at a free cash flow yield of 8%. That looks quite cheap.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Tiger cub buying ” data-reactid=”26″>Tiger cub buying
In a recent note to investors, Tiger Cub hedge fund Maverick said that it was using market volatility to increase its holdings of some of its favorite businesses. These include companies that are benefiting from “stronger secular tailwinds,” the note reported.
Looking through the firm’s latest 13F filing, there are a couple of businesses that stand out as meeting this objective and may thus present potential buy opportunities.
For example, around 4% of the hedge fund’s portfolio at the end of December 2019 was invested in video streaming service Netflix (NASDAQ:NFLX). The fund increased its position in the company by 54% during the three months ended in December. Netflix is one of the companies that could see an increase in the demand for its services as workers are asked to stay home to slow the spread of Covid-19.
Other companies that feature in Maverick’s portfolio that could be worth buying are Alibaba Group Holding (NYSE:BABA) and CommScope Inc., (NASDAQ:COMM).
Global network infrastructure provider CommScope has been in Maverick’s portfolio since the second quarter of 2018. After recent declines, the stock is trading at a forward price-earnings of just under 4, which looks dirt cheap. However, one thing to consider here is the fact that it has a lot of borrowing. Net gearing was over 500% at the end of 2019.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Buffett’s buybacks ” data-reactid=”32″>Buffett’s buybacks
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="One of the most owned stocks among value investors is Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B). Despite its $128 billion cash pile, this conglomerate has not been able to escape the current market sell-off.” data-reactid=”33″>One of the most owned stocks among value investors is Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B). Despite its $128 billion cash pile, this conglomerate has not been able to escape the current market sell-off.
Towards the end of last week, shares in the group dropped down to the mid-$170s before bounding back. While it is difficult to tell how much of an impact the current market sell-off has had on Buffett’s $200+ billion equity portfolio, at the end of 2019, the conglomerate had a book value of $425 billion, which implies that the stock is trading at a price to book multiple of around 1.1 at the current levels.
We also know that Buffett has been happy to buy back stock at levels above $220 over the past 12 months. This suggests that he believes intrinsic value for the business is above that level. These numbers imply Berkshire is cheap after recent declines.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
- Howard Marks: Be Conscious of the Cyclical Nature of Things
- Finding Value in the Current Market
- Warren Buffett 1986 Letter: Being Greedy When Others Are Fearful
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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="This article first appeared on GuruFocus.
” data-reactid=”44″>This article first appeared on GuruFocus.
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