Warren Buffett Just Spent $3.9 Billion Investing in 10 Different Stocks. Here’s the Best of the Bunch. | The Motley Fool

Warren Buffett turned Berkshire Hathaway (BRK.A 0.77%) (BRK.B 0.63%) into a trillion-dollar company primarily by investing in stocks. “That preference won’t change,” Buffett wrote in his most recent letter to shareholders.

But Buffett has been challenged by the current market to find great value in equities. He’s sold more stocks from Berkshire’s publicly traded portfolio than he bought every quarter for nearly three straight years. As valuations continue to climb higher, there’s more reason to sell Berkshire’s biggest holdings, and fewer reasons to buy new positions with the proceeds and the company’s operating cash flow. As a result, Buffett’s seen his company’s cash position balloon to $344 billion as of the end of June.

Despite the difficult market, Buffett did find a few opportunities last quarter. Berkshire bought $3.9 billion worth of equities, including 10 publicly traded stocks disclosed in its quarterly 13F filing with the Securities and Exchange Commission (SEC). Here are all 10 of Buffett’s recent buys, including the one that looks like the best opportunity for investors right now.

Buffett’s buy list

Berkshire Hathaway filed form 13F with the SEC on Aug. 14, revealing all of the moves Buffett and his fellow portfolio managers made during the second quarter. The filing also included an amendment to the company’s first-quarter 13F, which detailed previously undisclosed purchases.

All told, Berkshire established or added to 10 of its positions last quarter:

• UnitedHealth (UNH 2.48%)
• Nucor (NUE -0.65%)
• Lennar (LEN 0.10%) (LEN.B)
• Constellation Brands (STZ 1.70%)
• Pool Corp
• Lamar Advertising
• Allegion
• Heico
• Chevron
• Dominos Pizza

The amended filing also disclosed that Berkshire established a new position in homebuilder D.R. Horton (NYSE: DHI) in the first quarter, but trimmed back shares slightly in the second quarter.

There are a lot of great investment candidates among the new purchases in Berkshire Hathaway’s portfolio.

The new position in UnitedHealth comes at a time when the stock has been beaten down by a series of poor financial results and declining consumer sentiment. It’s facing an investigation into potential Medicare Advantage fraud, which could result in billions in revenue clawbacks and penalties. At the same time, medical costs and utilization have increased, weighing on its profitability. The stock looks like a classic “be greedy when others are fearful” purchase from Buffett.

Nucor is another interesting investment, as many see it as a stealth artificial intelligence stock. As a leading U.S. steel supplier, the company is well-positioned to capitalize on new data center construction across the country. And with President Donald Trump imposing a 50% tariff on steel imports, it could benefit Nucor’s pricing. Costs have weighed on Nucor recently, but less competition from foreign suppliers could open the door for bigger profits going forward, especially as demand increases with data center buildouts.

Homebuilders Lennar and D.R. Horton have been pressured by the current market. High home prices combined with high interest rates have led to a drop in buying activity, forcing them to offer incentives to buyers like buying down their mortgage rates. That’s weighed on both revenue and profit margins, which in turn has weighed on their stock prices. But the housing shortage isn’t going away, and that could make right now an opportunity to buy one of the homebuilders.

But another stock on Buffett’s buy list looks like an even better value than the rest, and it’s no wonder he’s been buying shares for three straight quarters.

The best of the bunch

Warren Buffett loves a company with a wide moat. And one of the companies with extremely strong competitive advantages on Buffett’s buy list is Constellation Brands.

The company owns the exclusive distribution rights to many of the most popular Mexican beer brands, including Modelo and Corona. It’s worked to expand its portfolio and build strong distribution relations that have led it to gain market share over the last decade. It’s now the second biggest beer vendor in the United States, dominating the premium import category.

Despite headwinds for the beer industry, Constellation continued to gain market share last quarter. Management said the beer business captured 0.6 points of dollar sales share. That growth was supported by expanding distribution and continuing to spend on strategic marketing to expand its customer base to more non-Hispanic drinkers. That positions it well to capitalize when consumer spending turns around.

Constellation’s wine and spirits business has been a drag on its results, though. To that end, management divested its low-end brands in the segment in June, and it now operates a leaner portfolio of premium brands. Still, management expects the segment to weigh on profits for some time as it resizes the operations.

Importantly, Constellation generates significant free cash flow, with expectations for $1.5 billion to $1.6 billion this year. It should be able to consistently generate that level of cash flow every year with steady sales growth and minimal capital expenditure needs. That supports its share repurchase program and quarterly dividend. Management bought back $306 million worth of shares last quarter while returning an additional $182 million through its dividend.

The stock price has dropped since Buffett’s initial purchase at the end of last year. With the pressure on the beer industry, the stock price has remained low, and shares now trade for less than 13 times forward earnings estimates. Despite the slow growth of the business, it’s well-positioned to continue making steady gains and outperforming its peers. Combined with share repurchases, it should be able to generate respectable earnings-per-share growth. That makes its current valuation very attractive, especially for investors who like to follow Buffett’s value investing style.