Playing follow-the-leader when it comes to investing can be a tricky game, and a money-losing one, because you’re not inside the mind of the investing gurus and don’t necessarily understand the rationale behind their stock picks.
Yet when that guru is Warren Buffett, who has a track record stretching back decades, maybe riding on his coattails isn’t such a terrible strategy. While basing your entire portfolio on his picks might not be a sound strategy, this team of Motley Fool contributors thinks picking up one or two stocks such as…
A Buffett pick you’ve never heard of
John Bromels (Axalta Coating Systems): A lot of Buffett’s picks are companies that have become household names, Amazon and Burger King included. But Buffett also has some money in stocks that most folks have never heard of, like his $716.7 million stake in paint and coatings manufacturer Axalta Coating Systems. The fact that it’s so under-the-radar (at least, for Buffett) may spell opportunity, albeit a somewhat risky one.
Axalta primarily makes paint and coatings for vehicles of all types, but also has a division devoted to coatings for other products like pipes, sculpture, and even roller coaster tracks. The company saw a big jump in share price in June when management revealed that it had formed a committee to explore strategic alternatives to maximize shareholder value. Specifically, in the press release announcing the change, the independent presiding director of Axalta’s board, Mark Garrett, said this includes “a potential sale of the company.”
So why should you consider buying Axalta now? Remember that a potential sale isn’t a sale until the ink is dry. It actually put itself on the selling block back in 2017 and wasn’t able to find a buyer, which is why the market’s reaction is more muted than it otherwise might be.
But if a buyer can be found, the price is likely to go up. And it would be unusual for Garrett to specifically mention a possible sale unless the company had some solid prospects, lest he damage his credibility with a second rebuffed sale in two years. Still, there is the distinct risk that if a sale doesn’t come quickly, the market may sour on the stock. That’s why this pick is a bit of a risk and isn’t for everyone.
But even if Axalta can’t find a buyer, it is — as usual with a Buffett pick — a well-run company that’s been growing revenue and net income. And even with the stock’s recent pop, its P/E is near an all-time low, and in line with other players in the industry. If you’re willing to swallow the risk, you might consider taking a closer look at Axalta.
Buffett didn’t blow it: Amazon still has room for growth
Jamal Carnette, CFA (Amazon.com): Earlier this year, the financial world was rocked when Berkshire Hathaway’s 13F filing revealed an investment in Amazon.com. However, this appeared choreographed years in advance: Although Buffett himself did not make the investment, The Oracle noted “he blew it” by not investing in the company earlier.
I (respectfully) disagree with Buffett. He didn’t blow it, because Amazon continues to boast three business lines with long runways for growth:
- E-commerce may seem ubiquitous, but it’s only 10% of total retail spend and continues to grow at multiples of the broader industry.
- Amazon Web Services will continue to benefit from increased computing and storage functions as AI proliferates.
- Amazon’s nascent digital advertising business will continue to post strong growth rates and solidify market share behind Alphabet and Facebook.
However, there’s a recent catalyst that makes Amazon a great investment now: Over the last two years, Amazon’s formidable e-commerce business was thought to be under threat from brick-and-mortar challengers, mainly Walmart, that were desperately trying to win market share by any means necessary. A recent report from tech news website Recode, however, challenges that view and notes Walmart is looking to scale back its operations in the digital channel as losses mount.
Recode’s report is a rather large departure from the prevailing narrative that Walmart was playing to win and, if true, could lead to Amazon building upon its huge lead in the e-commerce space. Walmart may cease investing for the long term, but Buffett continues to do so. Join him and buy Amazon stock…
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