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Warren Buffett, known as the Oracle of Omaha, is a legendary investor and CEO of Berkshire Hathaway who has built an extraordinary reputation for value investing and long-term financial strategy.
However, his recent shift, selling stocks for cash, is raising eyebrows in the investment community, and for good reason. With Berkshire Hathaway’s cash reserves ballooning to an unprecedented $325bn — 28% of its total assets and more than its holdings in publicly listed stocks — it’s time for investors to consider what this could mean for the market.
Why did Buffett sell?
Over the past year, Berkshire Hathaway has amassed its largest cash holding since 1990. The main stock trimming came in the form of selling Apple, a move that has generated $97bn in cash, but also one that signals a caution.
Historically, Buffett has been known for his long-term investments, particularly in companies with strong fundamentals. The fact that he’s selling off such a significant portion of his most profitable trade raises questions about his outlook on the tech giant and the market at large.
So, why did he sell Apple and why is he cashing in? Well, Buffett has pointed to the fact that many stocks are trading above their intrinsic value, and with possible capital gains tax rises, it was logical to cash in sooner rather than later.
With more cash than investments in listed stocks, Buffett’s cash hoarding could indicate that he sees limited opportunities in a richly valued market. And that’s probably not a huge surprise to investors who are familiar with his investing style.
Be selective
In essence, while Buffett’s cash pile might seem like a prudent strategy, it also serves as a cautionary tale for investors. When the Oracle of Omaha is holding back, it might be wise for investors to reassess their holdings, take gains, and deploy capital selectively.
So, instead of investing in a S&P 500 tracker, investors might want to consider finding pockets of value. One such company could be Celestica (NYSE:CLS). It’s not a Warren Buffett-owned stock, but it trades with favourable valuation metrics.
The stock is trading at 25 times forward earnings but boasts outstanding growth forecast. With earnings expected to grow by 28% annually over the medium term, the price-to-earnings-to-growth (PEG) ratio is 0.92.
Some investors might be concerned that two-thirds of the company’s sales comes from just 10 clients, and that margins could be stronger. However, I believe this is a gem of a stock, with artificial intelligence (AI) driving demand for its cloud computing products, like switches.
Moreover, this company keeps beating analysts’ earnings estimates. Celestica has surpassed the market’s expectation in all of the last 20 quarters — that’s phenomenal. And over the last year, it has beaten estimates by 10% on average.
I’ve recently bought more Celestica stock. It’s not my largest holding by some distance having cashed in on my 800% gains on AppLovin.
