One of the world's greatest investors isn't doing much investing these days. Warren Buffett was a net seller of stocks for the eighth consecutive quarter in Q3. He again slashed Berkshire Hathaway's position in Apple and sold shares of six other holdings.
However, Buffett and his two investment managers (Ted Weschler and Todd Combs) still put some of Berkshire's massive cash stockpile to work. He recently bought four stocks. One of them stands out as the best of the bunch.
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Buffett's favored four
Berkshire initiated new positions in only two stocks in the last quarter. Its biggest addition was 1.28 million shares of pizza franchiser Domino's Pizza(NYSE: DPZ). At the end of Q3, Berkshire's stake in Domino's was worth $549.4 million.
The conglomerate also dipped its toes in the water with swimming pool supplies distributor Pool Corporation(NASDAQ: POOL). Berkshire bought over 404,000 shares of Pool valued at nearly $152.3 million at the end of Q3.
Besides those two additions, Berkshire increased its positions in only two existing holdings. Its stake in satellite radio operator Sirius XM Holdings(NASDAQ: SIRI) increased by 6.99%. Some of this increase was due to the merger of Sirius XM and Liberty SiriusXM Holdings. Berkshire previously owned shares of the two tracking stocks reflecting Liberty Media's interest in Sirius XM. However, Buffett or his investment managers also bought more shares of Sirius XM Holdings in October.
Finally, Berkshire boosted its position in Heico(NYSE: HEI) by 0.52% in Q3 after first buying shares in Q2. The conglomerate's stake in the aerospace and electronics company was worth roughly $214 million at the end of the quarter.
How these stocks stack up against each other
If we only focused on performance this year, Heico would beat the other recent Buffett additions handily. The stock has skyrocketed over 50%. Domino's comes in second with a year-to-date gain of less than 5%. Pool and Sirius XM are in negative territory with declines of around 10% and 53%, respectively.
The picture looks much different, though, when we look at valuations. Sirius XM Holdings has a bargain-basement forward price-to-earnings ratio of 7.3. Domino's again grabs the second spot with a forward earnings multiple of 24.3. Pool is somewhat more expensive with its shares trading at 29.8 times forward earnings. Heico is the outlier with a sky-high forward earnings multiple of 63.7.
Buffett probably doesn't care what Wall Street thinks about these four stocks. However, it's worth seeing how they compare in analysts' eyes. Sirius XM is the clear winner based on earnings growth expectations. The consensus view is that the satellite operator will increase its earnings by a whopping 150.9% next year. Analysts project Heico will grow its earnings by 16.8%. Pool and Domino's trail well behind with expected earnings growth of 9.3% and 5.6%, respectively.
Analysts have different opinions on how well each stock will perform over the next 12 months, though. Sirius XM comes out on top with an average price target reflecting an upside potential of 11.6%. Domino's is close behind with analysts thinking the stock could jump 11.4%. Wall Street looks for Pool's shares to rise 6.4% over the next 12 months. Meanwhile, the average price target for Heico is 2.5% below its current share price.
All four stocks pay dividends. Sirius XM's dividend is especially juicy with a forward yield of 4.2%. Domino's and Pool are neck-and-neck with forward dividend yields of 1.4% and 1.3%, respectively. Heico comes in last place with a paltry yield of 0.08%.
The best of the bunch
I think Domino's is a great stock to buy and hold for the long term. But if I had to pick the best of the bunch among Buffett's recent buys right now, it would have to be Sirius XM Holdings. Sirius XM is the obvious choice for income and value investors. Its growth prospects look good, too.
However, I wouldn't say that Sirius XM is the best stock overall among all Buffett's holdings. I can think of several stocks in Berkshire's portfolio that I'd rather buy, notably including Amazon.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights has positions in Amazon, Apple, and Berkshire Hathaway. The Motley Fool has positions in and recommends Amazon, Apple, Berkshire Hathaway, and Domino's Pizza. The Motley Fool recommends Heico. The Motley Fool has a disclosure policy.
