3 Stocks Warren Buffett Is Probably Buying During the Bear Market

One of Warren Buffett’s famous sayings is: “Be greedy when others are afraid.” With so much selling in recent weeks, Buffett is likely buying shares of his favorite companies at lower valuations. After all, Berkshire Hathaway it has more than $106 billion in cash sitting on its balance sheet, waiting to be put to good use.

Of the stocks that Berkshire currently owns, I think Buffett is likely to add to his position in many of them, but three in particular are Activision Blizzard (ATVI 1.90%), Visa (V 4.51%)Y Snowflake (SNOW 5.88%). These stocks are attractive for different reasons, but now they are all great buys. Let’s find out a little more about each one.

Warren Buffett's photo.

Image source: The Motley Fool.

1. Activision Blizzard

On January 18, Microsoft announced its intentions to buy Activision Blizzard for $95 per share. This purchase was approved by shareholders in April, with 98% of voters voting in favor of the acquisition. Despite Microsoft’s offer price, the shares are currently trading at around $75 per share.

That’s an implied 27% advantage if the deal goes through. Buffett saw this arbitrage opportunity (buy something for less than it’s worth) and took a 9.5% stake in Activision Blizzard. Why the discrepancy? The deal still has to receive the go-ahead from regulators.

Because Microsoft is so big, there are concerns about monopolistic practices. However, Buffett believes this deal will go through; otherwise he would not have established such a great position. If not, investors will be stuck with a company that trades for a fair 23x profit and owns the rights to several massive game titles.

Investors can join Buffett and make a quick profit if the deal goes through or stick with a big company that is cheaply priced if the deal falls through.

2. visa

Visa is a classic Warren Buffett business. It provides a vital payment infrastructure and takes a bit off the top of every transaction you process. As a result, Visa consistently reports around 50% Profit marginmaking it one of the most profitable companies in the world.

Visa only accounts for 0.5% of Berkshire’s portfolio, but Buffett could add to his position with Visa trading for 30 times earnings, tied for its lowest valuation in five years. Furthermore, the company is still reeling from the pandemic as it earns most of its revenue from foreign exchange generated from cross-border transactions.

During the second quarter of fiscal 2022 (ending March 31), Visa’s net income grew 25% year over year, and earnings per share rose 23%. In addition, the volume of cross-border payments increased by 47%, excluding transactions within Europe. Visa sees some headwinds due to ceasing operations in Russia, but it only accounted for about 4% of total revenue in 2021 and 2022, so the impact will be minor.

A wild card for Visa is the economy. If consumers spend less, Visa’s payment volume will also suffer, causing profits to drop. However, Visa would eventually recover along with the economy. This upside potential makes Visa an excellent buy if you can hold the stock for at least three to five years, regardless of whether the economy falls into a recession.

3. snowflake

Snowflake is not your typical Buffett stock; it is not profitable, it is based on technology and it is highly valued. However, this did not stop Buffett from buying a $250 million stake before Snowflake hit the markets when it made its initial public offering in late 2020. Buffett bought the shares at $120 a share in 2020, and investors (and Buffett) can buy the shares for around $140 today.

Snowflake provides the software infrastructure for the data cloud. Its tools allow companies to store massive amounts of data and then use that data to develop models that can be used to drive business decisions.

Customers are seeing the value of Snowflake’s product and have significantly expanded its use, with the average customer spending $1.74 in the first quarter of fiscal 2023 (ending April 30) for every $1 they spent last year . Overall, sales grew at a rate of 84%, with customers spending more than $1 million with Snowflake nearly doubling year-over-year in the first quarter. Snowflake’s outlook also looked strong, with its fiscal 2023 product revenue expected to grow 66%.

At one point, Snowflake stock traded for more than 150 times sales. It is now exchanged for a much cheaper (but still expensive) 25. times sales. This valuation may still be too rich for Buffett’s taste, but the long-term industry trend is in favor of Snowflake.

Even if Buffett isn’t snapping up this battered tech company, I think investors with a long-term mindset should take a look at Snowflake.

As I mentioned earlier, Buffett is likely methodically buying up his favorite companies at lower and lower valuations. However, he may not be laying down all his cash this quarter as the market may move lower and offer even better values. We won’t know what Buffett has been buying until the next F13 comes around (probably early August), but I’m willing to bet he has been strategically deploying cash in this market full of outstanding stocks.

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