Warren Buffett gets really busy in troubled times

At this stage it is not difficult to think back to those days when the share market was literally bubbling along nicely and the “word on the street” was that Warren Buffett had lost his mojo.

While even his harshest critics had to admit Mr Buffett’s record over many decades speaks for itself, the modern wisdom was that he was missing all of the action by sitting on a ridiculously large pile of cash that was approaching $200 billion and doing nothing.

As usual, the reality was that Mr Buffett was watching very carefully and waiting for prices to normalise and when they did, the nonagenarian swung into action like a teenager.

A flurry of profitable purchases

There was a flurry of purchases over the first quarter of this year revealed in Berkshire Hathaway’s 13F statement to the US Securities and Exchange Commission, many of which are already looking inspired.

So, let’s have a closer look at some of the companies Mr Buffett bought into or sold to get a more detailed picture of what he was looking for and why.

The popular image of Mr Buffett is that he doesn’t like investing in technology companies, but that really is nonsense, given his largest investment position is in Apple.

What Mr Buffett does like to see in his purchases is not only a value for money share price, but also some profits and an ecosystem which can increase those profits over time.

Time for boring tech

That was not the case for much of the bloated US technology sector as it began reversing quickly early this year but it was the case for the humble Hewlett Packard (HP).

While those investing in the next blue-sky algorithm would have scoffed at a company like HP that “merely” produces personal computers and printers, Mr Buffett saw a company that, like Apple, has an understandable ecosystem and repeat sales.

Unlike most tech companies HP is also profitable and had a super-cheap price earnings ratio of under seven, reflecting the lack of investor interest compared to fancier but deeply unprofitable technology offerings.

Something else that began to be noticed after Mr Buffett had worked his way up to becoming HP’s largest shareholder was that HP has for two years beaten analysts’ estimates of what its earnings would be – a sure sign of a company that was literally travelling under the radar even as its business model was kicking financial goals.

Energy and insurance power up Berkshire

Two other purchases that caught investor attention were the $15.5 billion purchase of insurance company Alleghany and a big $9.6 billion into Occidental Petroleum which also made Mr Buffett the company’s biggest shareholder.

While the US market might have hit reverse when Russian tanks started to roll into Ukraine, Mr Buffett rightly thought the move would refocus attention on energy.

Did it ever and Occidental’s share price has more than doubled this year.

Alleghany is also a great purchase for Mr Buffett because he has a deep understanding of the insurance business and Alleghany chief executive officer Joseph Brandon used to run Berkshire’s Gen Re unit.

Mr Buffett also bought into reinsurer Markel, which like Berkshire Hathaway runs an in-house investment operation which – unsurprisingly – holds a big chunk of Berkshire Hathaway shares.

Insurance has long been one of Berkshire’s main pillars and suits the company well because it can provide deep wells of capital when required and churns out consistent profits.

Insurance also tends to grow with economic growth and inflation – both necessities in the current environment.

Reshuffle of the financials

Mr Buffett has always liked investing in financial companies so it was no surprise to see him buy into Citigroup and Ally Financial, even if he sold out of his stake in Wells Fargo to buy in.

Recycling capital is a strong theme for Mr Buffett and even in the middle of one of his bigger buying sprees there will always be some sales happening.

Mr Buffett still has plenty of financial holdings including American Express, Bank of America, and his large insurance group Geico.

Pharma, materials and a dash of streaming

Mr Buffett has sold out of many of his stakes in pharmaceutical companies such as Bristol-Myers Squibb, Merck, Teva Pharmaceuticals and Biogen but he bought into McKesson – a pharmaceutical distributor that also supplies health information technology, medical supplies, and care management tools.

He also made a big purchase of shares in materials company Celanese, which has a range of customers in industrial-type businesses and recently signed an agreement with a majority of Dupont’s materials arm.

Unsurprisingly, sales and profits soared in the first quarter, so it looks like Mr Buffett will be enjoying further earnings upside in the future.

Under-rated streaming company Paramount Global, which has an extensive library and plenty of upside, also showed that Mr Buffett appreciates a good streaming service as long as it has plenty of growth potential and a solid library.