There are some fundamental truths about this market we can learn from watching Warren Buffett.

That’s certainly the case when his $770bn investment giant Berkshire Hathaway (NYSE: BRK.B) sells stocks.

And the third-quarter results are in. So let’s dig into what got culled, and what crucial lessons I’ve learned.

Results out

Berkshire Hathaway has boosted its cash pile from $130bn at the start of 2023 to a record $157bn today.

It has heavily cut positions in a series of top US stocks, the company revealed.

Results published in mid November showed the legendary investment firm sold off its last shares in American car stalwart General Motors. That was a position totalling £850m earlier this year. Buffett also trimmed his Amazon holdings and sold 10% of his position in oil giant Chevron.

There’s more. A total £100m stake in consumer goods giant Procter & Gamble and healthcare conglomerate Johnson & Johnson has been a good earner for Buffett. But he also sold these winners to make room for other opportunities, SEC filings show.

These bring the total Berkshire Hathaway sell-offs to $40bn in 2023 alone.

What to learn

Many investors incorrectly sum up Warren Buffett’s philosophy as being: buy and hold forever. Looking at his own moves, that’s patently false.

As chief executive of Berkshire, Warren Buffett has continued to sell shares in publicly traded companies before taking new positions.

That’s because being overinvested is a surefire way to miss opportunities when they arise. Overinvested, in this context, means having all one’s capital tied up in stocks with no extra cash left over.

So if a company an investor likes sees a dip that they think is overdone, the cupboard is bare when they come to take advantage.

Sometimes funding great ideas comes with a painful selling period to find the available cash.

But conviction is important. If I see more upside in one investment than another, I have to trust my gut and my experience. Warren Buffett certainly does.

Between July and the end of September 2023, the Oracle of Omaha sold stakes worth more than $5bn in US and offshore companies.

Pick unloved companies

It’s all very well piling into hot stocks when they make headlines. But I’ve made some of the best gains of my investing career by tracking undervalued companies and swooping in when nobody’s watching.

These businesses should be growing their profits and market share no matter what wider economic conditions look like.

I should look at a company’s balance sheet and scratch my head, thinking: “I don’t understand why this has sold off so much.”

Most new investors get this next part wrong, too. My job is not just to try to pick stocks to outperform the market. Even more important is to protect my capital and not lose money.

I can’t do that if my attention is split, or I’m constantly chasing the shiny new flavour of the month company.

In the dotcom boom, Berkshire Hathaway was ridiculed for ignoring internet stocks. But when the bubble burst and the Nasdaq lost 72% of its value from 2000 to 2002? Berkshire Hathaway increased its value by 80%.

Warren Buffett didn’t make his billions chasing fads. And neither should I.

The post Warren Buffett just sold these stocks appeared first on The Twelfth Magpie.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Tom Rodgers has positions in Amazon. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

So, what’s behind this sell-off? And is it time for me to start buying some beaten-down Nasdaq growth stocks for my portfolio?

Why are Nasdaq stocks falling?

The latest bout of volatility across the Nasdaq is predominantly down to bond yields, which have surged higher this year. Yesterday, the 10-year US Treasury yield climbed up to around 1.8%, roughly 20% higher than the yield at the start of the year.

The reason this has impacted growth stocks is that analysts typically value stocks by discounting their future earnings and cash flows back to a ‘present value’ using an appropriate interest rate. If interest rates are higher, future earnings and cash flows are discounted back to the present value at a higher rate, which gives a lower value. This ultimately impacts the projected value of the stock. Those with no earnings in the foreseeable future (such as Rivian) tend to be hit the hardest because their future earnings are discounted back heavily.

I’ll point out that I’m not particularly surprised by this sell-off across the Nasdaq. One of my top predictions for 2022 was that expensive high-growth stocks such as Rivian could struggle this year as valuation becomes more of a focus for investors. It’s obviously still early days, but so far, that prediction is looking pretty good.

Is it time to buy Nasdaq stocks?

As for whether it’s time for me to buy some high-growth Nasdaq stocks for my portfolio, here’s how I see it.

I expect bond yields to go higher this year. I think the 10-year US Treasury yield could easily hit 2% as the US Federal Reserve hikes interest rates. So, I expect to see further volatility across the Nasdaq. That said, I think it’s a good time to start buying some high-quality Nasdaq names for my portfolio. Because right now, many stocks are beginning to look attractive from a valuation perspective, to my mind.

It’s worth noting here that Nasdaq stocks can generally be divided into two categories. There are those that are generating strong levels of earnings and cash flows now, such as Microsoft, Adobe, and Nvidia. Then, there are those that are not expected to generate earnings for many years such as Rivian, Peloton, and DraftKings. I’ll be looking to invest in the former category – those that have earnings and cash flows now. The reason for this is that I expect the share prices of these companies to be impacted less by rising bond yields.

Attractive valuations 

One stock, in particular, that I think looks interesting right now is Microsoft. This is one of my favourite companies due to the fact it operates in a number of high-growth industries. After a recent share price pullback, its valuation is looking quite attractive, in my view.

Another is Adobe, which has pulled back from around $700 to near $500 recently and now trades on a P/E ratio of less than 40. I think that’s quite reasonable given Adobe’s dominance in the content creation software market.

Of course, these stocks could fall if bond yields continue to rise. However, I expect them to do well in the long run, as the world becomes more digital.

The post Why Nasdaq stocks are getting crushed right now appeared first on The Twelfth Magpie.

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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns Microsoft and Nvidia. The Motley Fool UK has recommended Microsoft and Peloton Interactive. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A Latin American e-commerce giant

Since it announced that it was raising around $1.55bn through a share issuance midway through November, the MercadoLibre (NASDAQ: MELI) share price has crashed 35%. This is despite the fact that the new shares were issued at $1,550 per share and had a very minimal dilutive effect. As such, its current share price of around $1,050 seems way too cheap and the sell-off looks overdone to me. This is especially true considering that the company is performing excellently, and over the Christmas period, I feel it can improve further.  

Indeed, in the Q3 trading update, the company reported revenues of $1.9bn, a 73% year-on-year rise. This means that revenues have totalled nearly $5bn so far in 2021. Further, I feel that, especially considering the Christmas boost, revenues will be able to reach $7bn for the full year. This puts MercadoLibre on a forward price-to-sales ratio of around just 7. Considering the firm’s excellent revenue growth rate, this seems far too cheap. For example, Amazon has a price-to-sales ratio of around four, yet its revenue growth rate is around five times slower. Like other good tech stocks, MercadoLibre also has diversified revenues due to its fintech business, MercadoPago.

As such, despite the risks of inflation, and the recent rights issue continuing to depress investor sentiment, I think MercadoLibre is way too oversold. I’ll continue to buy this stock on the dip.

A very established tech stock

PayPal (NASDAQ: PYPL) is one of the leaders in the fintech industry, yet it has fallen over 40% from its recent highs, and 16% over the past year. This has mainly been due to fears of rising competition, which includes companies like Square and SoFi. But while such competition does pose a risk, PayPal still seems in an excellent position to continue growing. Indeed, in the recent trading update, it was able to add another 13.3 net new active accounts. It also announced a partnership deal between its subsidiary Venmo and Amazon.

Therefore, I believe that PayPal has maintained a competitive edge over its competitors. As the fintech industry is growing quickly, it should also be in a strong position to capitalise. In fact, it’s already aiming for $50bn in revenues by 2025, around a 100% rise from this year. If it can achieve this, profits should also soar. This demonstrates that the share price still has plenty of upside potential. Accordingly, I’m willing to buy more shares in this established tech stock.  

The post The Nasdaq just fell another 2%. I’d buy these 2 tech stocks right now appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares in MercadoLibre, PayPal Holdings and SoFi Technologies Inc. The Motley Fool UK has recommended Amazon, Apple, MercadoLibre, PayPal Holdings, and Square. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.