- Warren Buffett needs to spend all or a large part of the $128 billion to beat a decade-long underperformance.
- The Berkshire Hathaway CEO blames expensive stock prices for not investing more.
- Buffett doesn’t need to go outside his comfort zone to get attractive equities or companies on the cheap though.
Warren Buffett’s Berkshire Hathaway is currently hoarding $128 billion in cash. The investing conglomerate has accumulated this amount over the years on the grounds that there are no attractive acquisitions to make as stocks have become too expensive.
This has come at a cost, as Berkshire Hathaway has now underperformed the S&P 500 for a decade. While its holdings have gone up 259% in the past decade, the large-cap index has posted a gain of 314%. In 2019, the S&P 500 appreciated by 18% while Berkshire Hathaway’s shares ticked up by 7.1%.
This underperformance, amidst ballooning cash reserves, means Buffett must go shopping. Earlier this year while delivering the investing conglomerate’s 2018 annual letter, Buffett promised to make an ‘elephant-sized acquisition’. As this has so far failed to materialize, 2020 is the year Buffett will come under enormous pressure to open his wallet.
Below are three stocks that could receive the ‘Warren Buffett seal of approval’ in 2020.
Earlier this year, Berkshire Hathaway made an offer to acquire technology distributor Tech Data for $5 billion. The Warren Buffett outfit was outbid by Apollo Global Management. Buffett’s rationale for his interest in Tech Data was its size, scale and fair value.
Additionally, with Tech Data being a middleman possessing hundreds of relationships with tech companies, it’s a ‘steady’ business cushioned from the negative forces that may plague one brand.
If Buffett is still interested in this kind of business, Ingram Micro fits the bill perfectly. For one, its parent company HNA Group tried to sell it in August. Regarding size and scale, Ingram Micro actually surpasses Tech Data.
The most recent publicly available report shows Ingram Micro’s global revenues were $42.6 billion versus Tech Data’s $37 billion. And per its website, Ingram Micro boasts of 35,000 employees, over 200,000 customers in 160 countries and represents over 1,700 vendors.
In the wake of the California wildfires, Pacific Gas and Electric Company (NYSE:PCG) is in bankruptcy due to liabilities resulting from the disaster. There is a chance that after the bankruptcy reorganization, some shareholder value will be retained. Traditionally, Buffett has shown a fondness for utilities. And while it’s hard to determine the stock’s current fair value, its price is dirt cheap right now, having fallen over 85% from its all-time high.