Source: PaxForex Premium Analytics Portal, Fundamental Insight
Warren Buffett is great at getting the attention of investors and Wall Street analysts. Perhaps this is due to the more than 3,800,000% cumulative return he has provided to his company's Class A stock (BRK.A) since he took over as CEO back in the 60s.
His phenomenal investment track record has allowed new and regular investors to follow him for decades and generate significant returns. Eventually, this is what makes Berkshire Hathaway's Form 13F reporting such an anticipated event.
Many of those who follow its buying and selling probably know that Apple is Berkshire Hathaway's largest position. A week ago, Apple represented 41 percent of Berkshire's $342 billion in invested assets. Apple was also one of three stocks that Buffett and his investment team added during Q4.
Similarly, Amazon has been part of Berkshire Hathaway's holding for four years (since Q1 of 2019). Oracle's previous comments from Omaha suggest that he was not the mastermind behind the buyout of the world's leading e-commerce company. Rather, it was one of his investment lieutenants, Todd Combs or Ted Weschler, who created what became a $1.06 billion stake in Amazon.
Before Berkshire Hathaway and New England Asset Management filed their latest 13F filings, Buffett was only indirectly familiar with the other three FAANGs - Meta, Netflix, and Alphabet - by owning Markel stock. Now the situation has changed.
In Q4, New England Asset Management bought 17,100 shares of Alphabet - particularly Class A shares (GOOGL).
The answer to the question "Why Alphabet?" is very simple and comes down to three factors: market share, cash flow, and valuation.
Let's start with the fact that Alphabet is a true monopoly in Internet search. According to GlobalStats, Google has accounted for at least 91% of global search share every month since December 2018. Although ad spending is cyclical, the nearly 90 percentage point advantage over the search engine's closest competitor gives Google unique pricing power when dealing with advertisers. Given that the U.S. and global economies have evolved over a long period of time, Alphabet, powered by advertising, is the clear beneficiary.
Second, Alphabet is nothing short of a money machine, allowing it to actively reinvest in a variety of high-growth initiatives. In 2022, the company generated $91.5 billion in operating cash flow. This tremendous cash flow helps the company expand the reach of its Google Cloud infrastructure service, which, according to a recent Canalys report, has absorbed about 10 percent of the world's cloud infrastructure share.
In addition, the incredible cash flow generated by Google, combined with $99 billion in net cash, cash equivalents, and marketable Alphabet securities, allows the company to reinvest in the streaming platform YouTube, which is the second most visited social site in the world. Alphabet is currently working on ways to increase the monetization of short videos, known as YouTube Shorts. More than 50 billion "shorts" are viewed daily!
And third, Alphabet is historically cheap, both in terms of future revenue potential and cash flow. Although the average price-to-earnings ratio over the past five years has been 25.4, the company is now valued at 15.5 times Wall Street's projected earnings for next year.
Moreover, over the past five years, Alphabet has averaged 18.6 times year-end cash flow. Based on Wall Street's most forward-looking projection of the company's cash flow, investors can buy Alphabet stock right now at just 6.5 times its projected cash flow in 2026.
In other words, Alphabet meets all of Buffett's investment requirements.
As long as the price is above 90.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 94.04
- Take Profit 1: 100.00
- Take Profit 2: 108.00
Alternative scenario:
If the level of 90.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 90.00
- Take Profit 1: 86.00
- Take Profit 2: 83.00
