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Buffett is Buying Energy and Retail: Should You?

Welcome to Episode #166 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.

The latest 13F filings are out. For value investors, that means getting a peak at what Warren Buffett’s Berkshire Hathaway is buying and selling.

The third quarter filing was a bit disappointing on first glance.

Berkshire only bought two new positions: RH RH and Occidental Petroleum OXY. They were both small positions, with a $206 million buy in RH and a $330 million position in Occidental.

Berkshire also has a position, of sorts, in Occidental. It bought $10 billion in preferred stock to help fund the Anadarko acquisition. That pays a dividend of 8%. Berkshire also gets warrants on 80 million shares for $62.50.

Buy the Worst Industries

Both of these two new acquisitions were in beaten down industries.

In the case of energy, most investors have fled after years of falling earnings and fears of falling demand due to a global recession.

Retail has been in the doghouse for nearly 3 years.

But good value investors dive in when everyone else is fleeing.

Should you do it?

Berkshire Owns Other Energy and Consumer Discretionary Stocks

1.       Suncor Energy SU was added to the portfolio in the fourth quarter of 2018. It’s a Canadian oil sands producer. Shares are still cheap, with a forward P/E of 12.6. The company pays a dividend, currently yielding 4% and recently increased its share repurchase program by $500 million.

2.       Phillips 66 PSX is a refiner. Berkshire has owned shares since the second quarter of 2012. And while it sold a small portion of the position in the third quarter of this year, the shares are still cheap. It trades with a forward P/E of 13.5.

3.       Restaurant Brands QSR was added to Berkshire’s portfolio in the fourth quarter of 2014. It bought well before the Popeye chicken sandwich or the Burger King Impossible Whopper became cultural phenomena. The shares are much more expensive now, with a forward P/E of 24.5.