Why Warren Buffett's Berkshire Hathaway Had to Buy Amazon

Tracey Ryniec

  • (0:45) - 2019 Performance of Value Stocks

  • (4:15) - Understanding Berkshire Hathaway's Purchase of Amazon

  • (9:50) - Tracey Breaks Down The FANG stocks

  • (17:00) - Episode Roundup: VTV, VUG, AAPL, FB, GOOGL, NFLX, AMZN, MSFT, MCD

  • Podcast@Zacks.com

Welcome to Episode #148 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

Stocks continue to hit new all-time highs this year.

In the first six months of the year, the NASDAQ jumped 21%.

But what about value stocks? How are they doing in 2019?

Like we’ve seen over the past 2 years, they underperformed growth for the first six months.

The Vanguard Value Index ETF was up 14% while the Vanguard Growth Index ETF gained 22.9%.

What’s a value investor to do?

Berkshire Bought Amazon in 2019

Despite Warren Buffett’s insistence that his lieutenants were still value investors, the Berkshire Hathaway portfolio took a turn this year when it bought nearly $1 billion worth of Amazon AMZN shares.

Unlike the purchase of Apple in 2016, there was no argument to be made that Amazon was a value stock by any classical definition such as P/E, P/S or PEG.

But perhaps the managers were tired of buying airline stocks, as the portfolio already owns four of those, or financials. Nearly half the Berkshire portfolio is now in financials, which are underperforming again.

Growth Stocks for Value Investors?

There’s nothing wrong with value investors diversifying their portfolios to include some growth.

There are no rules to investing in your own portfolio.

For instance, what about buying some big cap growth? Is there any value in any of the big cap FAANG names?

The Cheapest FAANG Stocks

1.       On a P/E level, Apple AAPL has been the cheapest of the FAANG stocks. But it’s not as cheap as it used to be. It now has a forward P/E of 17.3 and earnings are expected to fall 3.5% this fiscal year.

2.       Alphabet GOOGL is next cheapest with a forward P/E of just 23.7 and a Price-to-Book ratio of 4.1. Shares are up just 6.5% year-to-date.

3.       Facebook FB also sports a moderate P/E ratio of just 27.2. But it has a price-to-book of 6.4 and a price-to-sales ratio of 9.4. But that’s cheaper than Netflix NFLX which sports a P/B ratio of 28. Facebook shares have soared in 2019, up 48% year-to-date.

What other big cap growth stocks could value investors consider?

Tune into this week’s podcast to find out.

[In full disclosure, Tracey owns shares of FB, GOOGL, and AMZN in her personal portfolio.]

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
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