Does Warren Buffett Still Matter to Value Investors?

  • (1: 00 ) - What Is Warren Buffett's Current Holdings?
  • (5: 05 ) - Should You Be Buying What Warren Buffett Buys?
  • (9: 40 ) - Tracey's Top Three Picks: Investing Ideas
  • (13: 00 ) - Episode Summary

Welcome to Episode #30 of the Value Investor Podcast

As the editor of the Value Investor portfolio service , I love looking at value stocks. Every week, I share some of my top value investing tips and stock picks.

You might have noticed that the big hedge fund and money managers had to file their Form 13F filings, which disclose what stocks they bought and sold in the fourth quarter of 2016, by February 15.

While it's backward looking by at least 45 days, it still shines a window into what some of the biggest names in the investing business are doing with their money.

One of the biggest of them all is Warren Buffett. Among value investors, he is considered to be the greatest value investor of all time. I know some investors who are so in awe, they try and mimic his stock moves in their own portfolios.

What were those moves in the fourth quarter?

Berkshire added three new positions:

1. Southwest Airlines (LUV) which is the fourth airline Berkshire has bought in the last 2 quarters. He also owns Delta, America and United. I'm not a big fan of this trade. You can check out the Value Investor Podcast where I discussed Buffett's third quarter airline buys, why I didn't like those 3 buys, and whether or not the airlines were true value stocks. Listen here>> .

2. Monsanto (MON) which is just 0.57% of his portfolio.

3. Sirius XM Holdings (SIRI), which is also a small position overall, at just 0.5% of the portfolio.

Buffett also added to his Apple (AAPL) position which is now among the top 10 and is about 4.5% of the portfolio. I've discussed how Apple is a value stock in prior podcasts so this larger position isn't a surprise.

Concentration at the Top

His largest position continues to be The Kraft Heinz Company (KHC), which is about 19.2% of his portfolio. It is hitting new 52-week highs in 2017.

Although the portfolio was holding 46 stocks in the fourth quarter, it was heavily concentrated in the top 10 holdings. Those accounted for over 80% of the portfolio.

The top 5 positions, many which have been held for years, read like a who's who of the Dow Industrials.

What Happens When You Have Too Much Cash

Thanks to a record stock market, the market value of Berkshire's holdings has soared to about $150 billion. That's a lot of cash to invest. The Kraft Heinz position alone, in the fourth quarter, was worth $28 billion.

But this also means that Buffett and his managers are stuck in a one-trick pony. They basically have to buy big cap stocks. The only way to get small cap exposure is by buying the company outright.

Buffett has talked, in the past, about wishing he were in his 40s again and investing. He would have a smaller portfolio and a longer time horizon in which to invest. These are ideal conditions.

Seize the Opportunity to Go Small

Buffett may be stuck with the large caps, but you don't have to be.

I've talked about small cap value, and how historically it is one of the best investments in the entire stock market (yes, it beats growth over long periods).

You can listen to the Value Investor Podcast on Small Caps for the Win to get all the details on why value investors should be in small caps. Listen here>>

While buying airlines and Apple aren't awful strategies, for those of us who don't have $100 billion to invest, there are so many other intriguing options.

3 Small Cap Value Stocks to Consider Instead of Buffett's Picks

1. Gray Television GTN has a forward P/E of 13.9 and a market cap of $821 million.

2. Malibu Boats MBUU has a forward P/E of 14.5 and a market cap of just $400 million. But, alas, it's not based in Malibu. It's headquartered in Tennessee.

3. Republic Bancorp Inc. RBCAA is one of the many community banks that are publicly traded. It's headquartered in Louisville, Kentucky. It has a forward P/E of 14.5 and a market cap of about $750 million. It pays a dividend, currently yielding 2.4%.

While Warren Buffett still fascinates value investors, I'm urging you to look beyond his moves in the Berkshire portfolio.

There are plenty of hidden value opportunities among the small caps that Buffett, no matter how much he wants to get in, just can't buy.

But you can.

Find out what else I think about Berkshire Hathaway's fourth quarter stock moves and value stocks in this week's podcast.

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Southwest Airlines Company (LUV): Free Stock Analysis Report

Gray Television, Inc. (GTN): Free Stock Analysis Report

Apple Inc. (AAPL): Free Stock Analysis Report

Malibu Boats, Inc. (MBUU): Free Stock Analysis Report

Republic Bancorp, Inc. (RBCAA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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