Warren Buffett told it Berkshire Hathaway shareholders in 2022 that anyone who advises their children on how to “make money per point of IQ and per erg of energy should tell them to go to Wall Street.” However, that doesn’t necessarily mean that Buffett thinks Wall Street is full of high-IQ individuals. The legendary investor also said he would bet on stock-picking monkeys before betting on Wall Street.
But what does Wall Street think of Buffett’s recent investment moves? Analysts appear to view one of his trades in the third quarter as particularly smart.
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Before we get into what Wall Street thinks was Buffett’s smartest move in the third quarter, I should point out that analysts disagreed with most of Buffett’s recent trades. That’s because Buffett sold more stocks than he bought — and Wall Street thinks most of those stocks will rise over the next twelve months.
For example, analysts appear to disagree with Buffett’s decision to sell another 100 million shares. Apple. Thirty-two of the 47 analysts surveyed LSEG Rate the iPhone maker as a ‘Buy’ or a ‘Strong Buy’ in November. The average 12-month price target for Apple reflects an upside potential of around 5%.
Wall Street disagrees with Buffett’s third-quarter revenue figures Now Holding or Ultimate beautyor. The consensus price target for Nu is 12% above the current stock price, while the consensus price target for Ulta is about 9.5% above the current stock price.
However, analysts generally agreed with some of Buffett’s third-quarter decisions. The deal was primarily focused on the shares the “Oracle of Omaha” bought rather than the shares he sold.
An example of this is that Berkshire Hathaway has increased its position in the US SiriusXM Holdings (NASDAQ: SIRI) with 7.35 million shares in the third quarter. Some of this was due to the merger between SiriusXM and Liberty Media’s Sirius XM interests, in which Berkshire previously owned interests. However, after the end of the third quarter, Buffett bought more shares of SiriusXM.
Wall Street is clearly in favor of these moves. Analysts’ average twelve-month price target for SiriusXM still reflects around 8% upside, even after the stock is up nearly 13% since the end of the third quarter.
Analysts are positive about Buffett’s purchase Domino’s Pizzaat. He started a new position at the pizza company in the third quarter and bought almost 1.28 million shares. Domino’s shares are up about 9% since the end of the quarter, but the consensus price target is still nearly 2.5% above the current share price.
But Buffett’s smartest move in the third quarter appears to have been his exit from Berkshire’s stake in US equities, according to Wall Street. Flooring and decor companies (NYSE: FND). Buffett (or one of Berkshire’s two investment managers) decided to sell all of the specialty retailer’s approximately 3.98 million shares after first purchasing the shares in the third quarter of 2021.
Many analysts undoubtedly think this sale was a wise move. The average price target for Floor & Decor over a twelve-month period is almost 13% below the current share price. And the stock has fallen slightly since the end of the third quarter. Of the 26 analysts LSEG surveyed in November, only seven recommended buying Floor & Decor.
While Wall Street may view Buffett’s exit from Floor & Decor as his smartest move in the third quarter, I think another move by the legendary investor was even smarter. And it had nothing to do with buying or selling stocks. Instead, I have in mind Buffett’s decision to further increase Berkshire’s cash hoard. The conglomerate had as much as $325.2 billion in cash and short-term investments at the end of the third quarter.
Why is it smart to hoard so much money? Buffett is a value investor through and through. There aren’t many stocks that meet his strict buying criteria right now. Increasing his cash position is therefore the smartest thing he can do in light of his investment philosophy.
Sooner or later, stocks will be available again at more attractive prices. Buffett can then reverse and load. The strategic move to build Berkshire’s cash position to a record high could one day seem absolutely brilliant in retrospect.
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Keith Speights has positions at Apple and Berkshire Hathaway. The Motley Fool holds positions in and recommends Apple, Berkshire Hathaway, Domino’s Pizza and Ulta Beauty. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
Warren Buffett’s Smartest Move in the Third Quarter, According to Wall Street was originally published by The Motley Fool
