Warren Buffett just bought these shares

According to Forbes, the ability to buy large stocks made Warren Buffett one of the richest people in the world. This kind of success suggests that it is smart to buy the same stock he does. Fortunately, Warren Buffett’s company, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), reveals its latest transactions in a 13-F filing with the Securities and Exchange Commission every three months.

Its latest document reveals that Berkshire Hathaway has established new positions in large-cap pharmaceutical stocks AbbVie, Bristol Myers Squibb, Merck, is Pfizer. He has also established new positions in T-Mobile (NASDAQ: TMUS) is Snowflake (NYSE: SNOW). Are these stocks worth adding to your portfolio? Here’s why Buffett might be a fan of these companies.

A bet on Biden or against the economy?

Warren Buffett’s interest in healthcare companies suggests he thinks healthcare demand will increase under Biden’s presidency, but it could also reflect growing anguish over economic slowdown caused by the resurgence of COVID-19.

Image source: The Motley Fool.

Joe Biden wants to expand the Affordable Care Act, which allows about 20 million Americans to have health insurance. However, Biden also wants to give Medicare the ability to negotiate lower drug prices from manufacturers, and that could offset the favorable winds associated with insurance for more people. Additionally, the Supreme Court is currently hearing the latest challenge in Obamacare; his decision is not expected until next summer. If the court sides with plaintiffs, health insurance rolls could shrink.

Warren Buffett’s health gamble may be less about election results and more about concerns that the US economy will stumble if predictions for a COVID-19 resurgence prove correct. Unfortunately, newly diagnosed COVID-19 cases are accelerating, and hospitalizations due to COVID-19 are also on the rise. An increase in the positivity rate, or the percentage of positive cases on all tests, caused in-person education this week in New York City, suggesting a return to stricter requirements.

If things do not improve, businesses could close, causing a spike in unemployment and a corresponding decline in economic activity. In such a scenario, owning pharmaceutical stocks might be smart, because the demand for drugs is less economically sensitive than the demand for other goods or services.

Warren Buffett’s decision to buy Bristol Myers Squibb, AbbVie, Merck and Pfizer may also have been supported by their relatively favorable valuation. All four had P / E forward ratios close to 10-year lows earlier this year, and none currently have a forward P / E ratio above 15.

Bristol Myers Squibb is the only one of the four to boast operating margins of less than 25%. His operating margin is only 9%, but he has a lot of iron on fire that could boost results in the future, including the potential approval next year of a next-generation multiple myeloma cancer drug from which he got the license. bluebird bio.

Arguably, AbbVie is the cheapest stock in the bunch. It has the lowest price-to-sale ratio, price-free cash flow, and price-to-earnings ratio because its best seller, Humira, may see a drop in sales due to generic competition. However, this risk doesn’t seem to bother Berkshire Hathaway. This may be because AbbVie is managing its Humira risk by cutting licensing deals with drug manufacturers to control generic drug launches.

There are also good reasons to own Merck. Its cancer drug, Keytruda, generated more than $ 10 billion in revenue in the first nine months of 2020, up 30% year-over-year. Sales may continue to grow as well, as a bevy of combined trials are underway that could lead Keytruda to gain approval for more indications.

Pfizer may be the more intriguing of the four now, though. This week, it said its COVID-19 vaccine was 95% effective, positioning it as one of the first companies with a chance for Food and Drug Administration approval. If approved, its vaccine could add billions of dollars to its topline over the next year because Pfizer and its partner, BioNTech, have already reached a $ 1.95 billion deal to supply 100 million doses to the US government, with an option for another 500 million doses.

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Warren Buffett’s Berkshire Hathaway also became the owner of 2.4 million shares of T-Mobile last quarter. The stake – valued at approximately $ 275 million at the time of writing – is relatively small, which suggests the decision to buy was likely made by Buffett co-managers Todd Combs and Ted Weschler.

In April, T-Mobile completed its merger with Sprint to become the second largest wireless operator in the United States. Because Sprint and T-Mobile have a lot of overlapping resources, management estimates they can unlock $ 43 billion in savings after the merger, significantly increasing free cash flow. Additionally, investments in its next-generation 5G network could allow it to go beyond wireless to ultimately compete with cable companies for internet services.

Unlike its peers, T-Mobile doesn’t pay a dividend (yet), but it’s quite profitable and the only one of the big three that’s pure wireless gaming. AT&T owns media assets such as WarnerMedia, the owner of HBO. Verizon offers fiber optic cable and telephone services and owns multimedia properties, including Yahoo!

An IPO home run

Finally, Berkshire Hathaway also took advantage of a hot market for new issues by signing up to buy $ 250 million of shares of the expensive Cloud software Snowflake when it went public in September.

A provider of data archiving and analytics software to more than 3,000 companies worldwide, Snowflake’s initial public offering, or IPO, was one of the most anticipated this year. The company’s sales increased 121% year-over-year to $ 133 million in the second quarter due to an impressive 158% net retention rate, a measure of sales among existing customers in the previous year.

Despite his growth, Snowflake only works with 146 Fortune 500 companies, suggesting there are far more leads to expand his business. Thanks to its potential to acquire more customers, its shares have risen to over $ 260 per share from its offer price of $ 120, giving Berkshire Hathaway a big win in just over two months. Whether Snowflake will remain in his wallet remains to be seen, though. Historically, Warren Buffett has shied away from tech stocks in favor of easier-to-understand companies.