Stocks week ahead: Warren Buffett has the last laugh as Berkshire

On Jan 30, 2022

But that’s not causing Berkshire Hathaway’s Warren Buffett to lose any sleep.

Banks, energy firms and other value stocks have rallied this year, which is great news for Buffett since the Oracle of Omaha’s conglomerate invests in many of these companies. Value stocks typically have lower price-to-earnings ratios, and they’re definitely not trendy.

Berkshire Hathaway (BRKB) shares are up about 3% this year and near an all-time high, while all the FAANGs, Microsoft (MSFT) and Tesla (TSLA) are deeply in the red. FAANG refers to Facebook, Amazon, Apple, Netflix and and Google.

Many of Berkshire’s top investments are financial firms which have started the year in green, including Bank of America (BAC), American Express (AXP) and US Bancorp (USB).

Berkshire’s portfolio has also gotten a boost from Chevron (CVX), which is Buffett’s twelfth-largest holding. The oil giant’s shares are up 10% this year, making it the top performer in the Dow.

If this keeps up, Dave Portnoy of media company Barstool Sports, who has positioned himself as an investing guru for a new generation of traders, will have to eat these words from a June 2020 tweet: “I’m sure Warren Buffett is a great guy but when it comes to stocks he’s washed up. I’m the captain now.”

It’s too soon to say whether the current market trends will hold. But value investors who showed patience are looking pretty good so far in 2022.

“Buffett’s the tortoise. Value investors just plod along,” said John Buckingham, a value stock fund portfolio manager at Kovitz. “Yes, the Portnoys and Cathie Woods will have their day. But so many view investing as a casino. The key is to be patient and accept volatility.”

Sure, the 91-year-old Buffett’s biggest holding is Apple (AAPL). which is down 5% so far in 2022 but just reported stellar earnings and strong iPhone sales. Berkshire even has a tiny stake in Amazon (AMZN), which has fallen 15%. So Berkshire hasn’t avoided the Nasdaq meltdown entirely.

But Berkshire doesn’t own Facebook (FB) parent Meta, Netflix or Google (GOOGL) owner Alphabet. it also doesn’t invest in Microsoft (MSFT), due to Buffett’s friendship with Microsoft co-founder Bill Gates. Berkshire does not have a stake in Elon Musk’s Tesla (TSLA), but it has invested in Chinese electric car firm BYD (BYDDF).

Berkshire isn’t just an investing firm. It owns well-known companies ranging from battery maker Duracell and the Burlington Northern Santa Fe railroad to Dairy Queen, Fruit of the Loom and paint seller Benjamin Moore.

However, Berkshire is primarily a financial services firm thanks to the fact that it owns insurance giant Geico and several other companies in the industry.

Berkshire has also benefited from the fact that investors have flocked to financial stocks due to expectations that the Federal Reserve will soon start raising interest rates. Berkshire is the largest holding in the Financial Select Sector SPDR (XLF) exchange-trade fund.

“When investors gravitate towards value they will buy financial stocks…