They don’t call him the Oracle of Omaha for nothing. Warren Buffett, CEO of the conglomerate Berkshire Hathaway (BRK.A 0.94%) (BRK.B 1.03%), gained a well-deserved reputation for being one heck of a stock picker. Every investor could learn a thing or two from the man’s investing wisdom parsed out over the course of the past five decades.
Buffett is still involved in the management of Berkshire Hathaway’s portfolio these days but he also has a team of long-time acolytes that are exercising more control over what changes are made to the portfolio.
As you consider stocks for your own portfolio, it wouldn’t be wrong to consider adopting a few of Berkshire’s holdings as investment ideas for yourself, even if these companies are performing well at the moment. Here’s a closer look at three stocks in the Berkshire Hathaway portfolio that are not getting a lot of investor enthusiasm right now.
1. Paramount Global
Entertainment stocks haven’t historically been core pieces of Berkshire’s portfolio. Paramount Global (PARA 2.90%) is a notable exception and was added 2012 when the company first purchased a stake in Viacom (the business eventually became Paramount Global after merging with CBS in 2019). Buffett’s team recently underscored their faith in the media giant by purchasing another 2.4 million shares of the stock late last year.
While Paramount’s not Buffett’s typical sort of pick, it’s clearly got some of the qualities he appreciates. Dividends are one of these attributes. The current company’s precursors have dished out a dividend every quarter since 2006, and the present yield itself is a healthy 4.3%.
More important, though, Paramount is better prepared for the future of video entertainment than the stock’s recent performance suggests it is.
Sure, cable TV itself is fighting an uphill battle, which works against Viacom and CBS. Paramount Global is also one of the key reasons cable television is dying a slow death, however. The company’s premium streaming platform, Paramount+, now serves 77 million paying customers, while 79 million people are now regular viewers of its free, ad-supported PlutoTV platform. This is where the business’s growth is.
That’s particularly true for PlutoTV. In Tivo’s most recent video market trends report, the company’s researchers determined the number of free, ad-supported services regularly being utilized by U.S. consumers jumped 69% year over year during the fourth quarter of 2022, and the total amount of time spent watching free programming grew from 10.3% to 23.5% of consumers’ viewing hours.
Credit card giant Mastercard (MA 0.59%) is a far more conventional Buffett pick. Berkshire Hathaway is still holding nearly 4 million shares of the stock despite selling some of its stake early last year (part of a position it’s been sitting on for over a decade).
It’s a dividend payer, though the current dividend yield of 0.6% isn’t much to write home about. The chief reason to own a piece of Mastercard, rather, is for its growth potential. And there’s certainly plenty of that on the table.
While a booming economy is clearly more beneficial to the company than a tepid one, Mastercard does just fine in almost any normal (read: not-crimped-by-a-pandemic) environment. Its reliable growth is ultimately rooted in the ongoing displacement of cash and checks as a means of purchasing goods and services. The Federal Reserve Bank of San Francisco’s Diary of Payment Choice indicates that cash’s usage in the United States has steadily fallen from 2016’s 31% of transactions to only 20% in 2021, while usage of credit and debit cards has grown from 45% of purchases then to 57% now.
That’s impressive growth, but the more important fact is that so many payments are still being made in a highly inconvenient way.
Mastercard is making sure it’s a top-of-mind name as this trend away from cash continues, too. Although it’s temporarily pausing new crypto initiatives, the company operates a division called Mastercard Labs, which is aimed at finding ways to help consumers and its payment clients to make more card-based transactions.
This initiative is one of the key reasons Mastercard saw a slight year-over-year increase in total payment volume during the final quarter of last year despite an economic/inflationary headwind, and further witnessed an 18% uptick in the total number of transactions it processed.
3. Taiwan Semiconductor Manufacturing
Finally, add Taiwan Semiconductor Manufacturing (TSM 0.69%), better known as TSMC, to the list of Buffett stocks that might deserve a place in your portfolio as well.
TSMC makes semiconductors. But it doesn’t produce its own in-house semiconductors. Rather, it contracts out the manufacture of other companies’ chip and processor designs. Apple, Nvidia, and Advanced Micro Devices are among its top customers.
That’s a somewhat scary proposition against the current backdrop. In the wake of supply chain disruptions stemming from the COVID-19 pandemic, lots of tech companies are now looking to build their own chip foundries to better secure their supply and reduce disruptions. Micron Technologies is committing $40 billion on its own manufacturing capacity, while Intel is planning a comparable investment. Apple is exploring the establishment and expansion of its own microchip manufacturing facilities as well. Other technology companies will surely follow suit. All of it bodes poorly for Taiwan Semiconductor.
And yet there are two reasons not to be terribly concerned about the chip industry’s shifting supply strategy, even in light of Berkshire selling the bulk of its stake last quarter. After all, the conglomerate still holds more than half a billion dollars worth of this stock.
The first of these reasons is the world needs mountains and mountains of new microchips every year, and companies won’t even come close to being able to meet this demand on their own anytime in the foreseeable future. For perspective, research outfit McKinsey believes the annual semiconductor market will grow from around $600 billion now to more than $1 trillion by 2030.
The second reason not to sweat the impending chipmaking shake-up is that TSMC is still going to be a critical manufacturing partner. It will just do so closer to home for some of its client companies. TSMC is now investing $40 billion in Phoenix-based chipmaking facilities, and Apple, Nvidia, and AMD have already confirmed they’ll be buying silicon manufactured at this U.S. site.
Given all of this, it’s not clear why Taiwan Semiconductor shares have been tepid performers lately other than general worry about the economy slowing sales of the devices its chips are installed in. On the other hand, that weakness translates into a compelling entry point for newcomers. This year’s brewing headwind is likely to be temporary, as well as already baked into the stock’s price.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Berkshire Hathaway, Intel, Mastercard, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $370 calls on Mastercard, long January 2025 $45 calls on Intel, long March 2023 $120 calls on Apple, short January 2025 $380 calls on Mastercard, short January 2025 $45 puts on Intel, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.