With a net worth of about $120 billion, Warren Buffett is one of the most revered investors, as a good chunk of his wealth comes from investments in equity markets. He is best known as a value investor, constantly scanning for high-growth stocks with tremendous upside potential but trading at highly discounted levels.
There is always a lot of interest in what Buffett says and does, given the success he has enjoyed with his investments through Berkshire Hathaway. The legendary investor did not become a master of the game overnight. He inherited the investing wisdom from his father, who was a US congressman and later on a stockbroker.
His family's strong connections allowed him to raise significant funds to launch his career as an investor on Wall Street. Nevertheless, his ability to identify and stick to investing principles has affirmed his status as one of the greatest on Wall Street. Between 1965 and 2022, he averaged compound annual gains of 19.8%, outperforming the S&P 500 with average gains of 9.9%.
One of the things that makes Buffett stand out from other money managers is that he focuses on investing in businesses rather than stocks. While the focus is always on share prices and the rate at which they are likely to increase, Buffett focuses on the core business. The focus is always on how the business is going and how it is expected to perform in future.
Many believe Buffett only focuses on major, stable companies like Amazon.com, Inc. (NASDAQ:AMZN), Meta Platforms, Inc. (NASDAQ:META) and Microsoft Corporation (NASDAQ:MSFT). However, Buffett also pays attention to the small-cap companies given their tremendous room for growth as long as they are backed with solid underlying fundamentals. Buffett said at a shareholder meeting that if he were to start again with a small budget in the investing world, he’d pay more attention to small-cap companies.
“I probably would be focusing on smaller companies because I would be working with smaller sums and there’s more chance that something is overlooked in that arena," Buffett said.
DaVita Inc. (NYSE:DVA), Paramount Global (NASDAQ:PARA) and Ally Financial Inc. (NYSE:ALLY) are some of the small-cap stocks with a market cap of less than $10 billion that Buffett remains heavily invested in.
Buffett's investment philosophy of holding stocks for the long haul has been a key factor in his successful career. He has always insisted that one does not need to trade all the time, which explains why he invests in small-cap stocks and holds them for years to unlock value.
Warren Buffett Sees Big Gains in These Small-Cap Stocks
Our Methodology
We scanned Berkshire Hathaway's 13F portfolio for the third quarter of 2023 and picked the fund's small-cap stock picks.
Warren Buffett Sees Big Gains in These Small-Cap Stocks
Market capitalization as of November 24: $1.42 Billion
Year-to-date gain: -9%
Number of Hedge Fund Holders: 14
Liberty Latin America Ltd. (NASDAQ:LILA) is a communication services company that offers communication and entertainment services, including video broadband internet, fixed line, and mobile services. Liberty Latin America Ltd. (NASDAQ:LILA) also provides subsea telecommunication services.
Liberty Latin America Ltd. (NASDAQ:LILA) is the smallest company by market cap on Berkshire Hathaway's portfolio, offering exposure in the communication service segment.
Market capitalization as of November 24: $2.27 Billion
Year-to-date gain: 21%
Number of Hedge Fund Holders: 11
Atlanta Braves Holdings, Inc. (NASDAQ:BATRA), based in Englewood, Colorado, operates and owns the Atlanta Braves Major League Baseball Club. Atlanta Braves Holdings, Inc. (NASDAQ:BATRA) also operates mixed-use development projects, including retail, office hotels and entertainment projects.
Atlanta Braves Holdings, Inc. (NASDAQ:BATRA) is one of the latest additions to Warren Buffett's portfolio. Berkshire Hathaway acquired stakes worth $7.9 million in the company in Q3 2023. Atlanta Braves Holdings, Inc. (NASDAQ:BATRA) is up 21% year to date.
Market capitalization as of November 24: $4.42 Billion
Year-to-date gain: 3.3%
Number of Hedge Fund Holders: 38
Louisiana-Pacific Corporation (NYSE:LPX) is a small-cap industrial company that provides solutions for use in new home construction, repair and re-modelling, and outdoor structures. Louisiana-Pacific Corporation (NYSE:LPX) offers LP SmartSide trim and siding products, LP SmartSide Expert Finish trim and siding products, and LP Builder Series lap siding products.
While Louisiana-Pacific Corporation (NYSE:LPX) has struggled with slowing demand for building products and choppy pricing, it has remained resilient, going by the 3.3% year-to-date gain. Buffett took an interest in the small-cap stock in Q3 2022 and has seen this investment gain by 10%.
Market capitalization as of November 24: $4.44 Billion
Year-to-date gain: 67%
Number of Hedge Fund Holders: 32
StoneCo Ltd. (NASDAQ:STNE) is one of Warren Buffett's small-cap technology sector investment plays. The company provides financial technology and software solutions to merchants and integrated partners for conducting electronic commerce in-store, online, and mobile channels.
StoneCo Ltd. (NASDAQ:STNE) has become one of Buffett's top small-cap picks, going by the 67% year-to-date gain.
Market capitalization as of November 24: $7.35 Billion
Year-to-date gain: 5.4%
Number of Hedge Fund Holders: 34
Jefferies Financial Group Inc. (NYSE:JEF) is another of Buffett's small-cap plays in the financial services sector. The company engages in investment banking, capital markets, and asset management. Jefferies Financial Group Inc. (NYSE:JEF) provides banking advisory services for mergers or acquisitions, restructuring, or recapitalization. It also provides customers with investment-grade corporate bond sales and trading.
Jefferies Financial Group Inc. (NYSE:JEF) is up by about 5.4% for the year, as the financial service sector benefits from the high-interest rate environment.
