Buffett on a shopping spree, HP Inc is new target
Buffett has been complaining about a lack of deals as he sat on a pile of cash ($146.7 billion) as of 31 Dec 2021. He only found $Berkshire Hathaway(BRK.B)$Berkshire shares to be cheap and focused on share buybacks for the good part of 2021.
All of a sudden, he is on a shopping spree in 2022. First, it was Occidental Petroleum $Occidental(OXY)$where Berkshire revealed a 14.6% stake in March. Berkshire already owned some preferred shares but it added another $6.4 billion position.
Second, Berkshire offered to buy Allegheny $Alleghany(Y)$in entirety for $11.6 billion in March too. This is the first major acquisition in 6 years.
Now, Berkshire bought 11.4% or $4.2 billion worth of HP Inc shares.$HP Inc(HPQ)$
Buffett has lamented about the lack of deals for many years. The tone has not changed in his latest shareholder letter. Investors aren't expecting these deals to come. But come they did.
That said, Buffett is still careful as we can see these acquisitions were not expensive.
Although Occidental Petroleum share price has gained over 100% from a year ago, it was just recovering to the pre-Covid levels where Berkshire had first invested at.
Alleghany's share price didn't go anywhere for the past 1 year - a mere 2% gain.
HP Inc was a laggard too. It gained 8% from a year ago.
The question is, why didn't he buy these companies last year? Fundamentals and the business qualities shouldn't have changed much in a year. If this year he found them at good prices, last year were even better. Why didn't he pull the trigger then?
Previously I shared that Berkshire is the best inflation stock and it remains the same with these acquisitions.
My guess is that Buffett doesn't want to hold on to cash which its value would erode quickly if inflation worsens. Hence, he is busy deploying capital now.
By right interest rate should go up to tame inflation and that means that cash should attract higher interest to keep pace with purchasing power. But if interest rate doesn't catch up fast enough, inflation would still overpower and erode value.
He did confess that he does not know where interest rates are going but he also acknowledged that interest rate affects all valuation. Maybe he is hedging his bets against inflation and the Fed would not raise interest rate fast enough to combat it.
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