This is the Value Investor podcast with Tracy Rinek, All Things Value All the Time. Welcome back value investors. So we've had the Berkshire Hathaway annual meeting and as all of you know, Warren Buffett is going to step down SEO at the end of the year here in 2025. And then we're going to have Greg Abel take over SEO in 2026.
But Buffett's not going away completely. He is going to stay on the board. But in October, he is turning 95. And as I've talked about in prior podcasts, this is and now is confirmed to be the Twilight of Warren Buffett's career at Berkshire Hathaway.
And so it's a good time now that we know for sure that he is stepping back to just take a look at some of the stocks in the portfolio. And I ran one of the Buffett screens here at SACS on our Research Wizard, which is our more advanced screening tool. I've covered that screen in the past, but it's never really returned many stocks. And the same is true this time because I only got one stock on it when I screened.
It's very narrow but is really looking for Buffett type companies. But what will all that mean going forward? What is a Buffett like company if there's no Buffett? And does it matter for those of us who don't own Berkshire Hathaway and for those of us who are in value investing?
Well, of course it does because many of us were really fans of Berkshire Hathaway because of Warren Buffett's folksy mannerisms and his folksy sayings, he made value investing easy, easy to understand, right? You buy good quality companies at a cheap price. It seems so easy. But as we know, it really isn't because even he's made mistakes, which we've talked about many times on this podcast, say for instance, IBM.
He sold that for a loss a number of years ago, but he changed course and found Apple just after that. So we've learned a lot over the years and I'm not going to put all the lessons into this podcast. We've already done some podcasts that are like that that talk about the lessons of Buffett and Berkshire Hathaway and just value investing. But we have to talk about it about his decision here because it is really the end of the end of an era.
And without our flagship person, let's just call him that, I do think it's going to be hard to get people interested in value investing going forward. Now there will probably be someone else who comes forward in the area of value investing because if you remember before Warren Buffett, there was Benjamin Graham, his mentor, who is also considered to be one of the greatest investors of all time as well. But now we are going to lose both of them. We've already lost Charlie Munger, also considered to be one of the top value investors.
So while we're in the wilderness, again, I thought that I'd take a look at what kind of stocks are Buffett like and look at two companies that are in the equity portfolio of Berkshire Hathaway. Now remember, they own a bunch of companies on their own, things like Dairy Queen, C's Candy, companies like that, BNSF Railroads. And then they have the cash position now, which is almost $350 billion. We now know Buffett did not do anything with the cash.
It's just sitting there, invested, making money. So we can't really complain about that. But he clearly so far doesn't see anything worth jumping into with that cash. And then we have the equity portfolio.
Now what's going to happen with that? That is the big question that's out there. It was never meant to be under the CEO's purview necessarily, except the current CEO is one of the best investors of all time. So he kept that in on his job title.
But it's thought that Greg able will not be managing that part of the company, but we have the two lieutenants, remember, Todd and Ted. And the thinking is that both or one of them will be managing more of the equity portfolio going forward. Now, so that's why I want to look at it. And I first ran the Buffett screen that we have that I mentioned on the research wizard.
As I said, it gave us one stock. That stock is Dream Finders. It's a home builder, ticker D F H. D is in dog F is in Frank H as in happy.
And we've talked about Dream Finders in the past because it has been cheap and it's come up in the various screens that we've done. I want to say maybe even classic value screen perhaps it might have come up. It's still cheap, but this screen that's on Zach's research wizard is, as I said, more complex and it includes things like debt to equity. It has the price of book in there, but it also has row.
It has sales growth instead of just like a price to sales ratio. It has a bunch of other stuff. And so that's why it is considered to be very narrow. The PE on Dream Finders is just 6.9 right now.
But remember the stocks, the home builders have been beaten up very badly. And this year, especially with the recession coming and the rates still remaining high. Remember when we started 2025, everyone was hopeful about the home builders that finally those mortgage rates would come down because the Fed was cutting, but now they're pausing. They're not cutting anymore.
And the treasury yields have actually gone up pushing those mortgage rates back above 7%. So the sales have slowed at a lot of home builders. Dream Finders, if you remember, is in Jacksonville, Florida. That's its headquarters.
It builds, however, in Florida, Texas, North Carolina, South Carolina, Georgia, Colorado, Virginia, Maryland, and Tennessee. So other than Colorado and Texas, most in the Mid-Atlantic and the Southeast as well as Florida. I don't know why they never put Florida in the Southeast. It's like its own entity a lot of times.
But these are all very hot states or at least they were. Now they are seeing some slowdown in home sales. Number of people moving in has slowed now that the pandemic is mostly over and people are not moving around quite as much as they were. Remote work is also taking a backseat.
So some people who might have moved to certain states now are not able to do so because their job is going to keep them tethered somewhere else. But that being said, these are still very popular states with good economies for right now, but inventory is building there. So what do they do this last quarter? They did report earnings already.
Net new orders were up 18%. However, even with all that, Jim and Gloom, I just told you, to 2032 from 1724, they did reiterate their full year guidance of 9,250 homes expected to close. So that's all good. Gross margins are key with home builders.
It was actually up 140 basis points to 19.2%. Usually, I like to see it over 20%. That's very much a bull market for the home builders that when it goes up over 20 were almost there, 19.2. But mostly other home builders aren't expecting to retrace back down much further as they really are just ramping up the incentives to get the buyers in.
They're paying down these mortgage rates again at the higher level. Now that they're back up over seven or high sixes, you got to pay more to buy them down. So there's a lot of changes going on. And I would no longer consider the housing market to be for the new home builders to be kind of this Goldilocks conditions because it was for a couple of years there.
They were able to sustain even in the high mortgage rates, but that is changing now. But the stock is cheap, as I mentioned. It has a price to book of just 1.6. And I look for a price to books under three.
This was in the screen. So it's coming up in the screen as cheap. The return on equity is at 29.4. And Buffett has always looked for double digits on return on equity.
So that's all good. Over the last five years, these shares are up only 4%. And that's after a big rally when housing was really bullish in 2021 and coming up during the pandemic really, when everyone was moving around and buying new homes. But it's given back a decent amount of that.
So up only 4% over the last five years, S&P 500 is up 92% during that time period. Now Berkshire Hathaway does own a lot of home type of businesses. It has a furniture retailer. It also has Clayton Holmes.
So it does have its own exposure. So it wouldn't be strange to see something like Dream Finders in the equity portfolio either. And the equity portfolio has had a couple of home builders. I think they sold out last year is what I remember.
But that was probably the lieutenants because they were fairly small positions. And then they were in for only a quarter or two. And then they were out of them. So as things began to change and the housing market was not looking as robust, they got out of there.
You do want to buy the home builders in the cycle a bit. And we are maybe heading into a little bit more trying economic times. So that is going to hit the home builders and those earnings and all of that. But right now, let me see, Dream Finders is a number two and it's an A for value.
So number two is the buy. So it's still got a good sex rank and it's got the good style score. So Dream Finders is the only stock right now that's in the Warren Buffett screen on Zacks Research Wizard. So take with that what you will.
Maybe there's a reason why Buffett has not deployed any of the $348 billion because there really isn't anything that meets a lot of his criteria. But let's look at a couple of the others. I want to talk about Coca Cola because as I was watching parts of the annual meeting, of course, as usual, because this does happen every year, the cans of Coke were sitting right in front of them. So it could be seen on anyone watching the feed, anyone playing back clips of it on various TV networks, there would be the Coca Cola cans.
We also know that Buffett himself is a big fan of Coke. In fact, supposedly he was drinking it every day, but that was some number of years ago. I'm not sure if 94 year old Warren Buffett is still in that habit. Let's assume that he is.
So and there's a lot of other people who are also in that habit with Coca Cola. That's why he bought the stock. He loves the product. And so does the world, basically worldwide.
But Coca Cola, ticker KO is, like I said, he's owned it for a long, long time. So he's really taken advantage of compounding in the stock. Over the last five years, the shares are now up 56.8%. So that doesn't sound too bad, right?
But remember, the S&P 500 is up 92 in that time period does pay a nicer dividend than the S&P 500 of 2.8%. But this stock hasn't been cheap for a while. And now it's trading near its all time high. People kind of hiding out in it during this trade war time period.
So the stock has been on the move higher instead of the other way. And now it trades with a forward PE of 24. So that's not very cheap for the growth. It's not really there for that kind of valuation.
So to me, Coke is just a little too pricey for me to want to get in there. I'm trying to look on sex.com right now. Okay, so the stock has mostly been moving sideways recently. It too is already reported.
And so, but given the volatility in the overall market to even move sideways over the last month or so is a victory. So it is up 9.3% over the last month. And I'm recording this on May 7th. So that is after Liberation Day, but before the pause on April 9th in all of the tariffs outside of China and Mexico, Canada.
So other than the 10%. I have to caveat it with all these things, but the rest of the reciprocal tariffs were paused. So it only includes, you know, two of those days before that happened. So the big sell off from April 2nd is not included in the last month anymore.
We're already moving beyond that. And Coke has mainly been going sideways since late April. It's just been kind of sitting there. Meanwhile, the S&P 500 has hit some bottoms and now it's rebounded pretty strongly up.
So Coke up 9.3% over the last month, but the S&P 500 ETF, the VOO, the Vanguard, it's the V as in Victor, OO is up 12.5. So it's already outperforming it. Let's look at the five day, five day, not much is going on. S&P 500 down just 0.3%.
Coke is up 0.4%. So we're waiting, waiting on the Fed. We're waiting for some clarity on the tariffs. It's a lot of waiting games right now.
But that's why people want to wait and hide out in Coca-Cola. You get that dividend, you're getting a known entity that can handle some of these tariffs. It's got, you know, manufacturing and supply chain globally. So Buffett's still in it and it's near those new all-time highs.
He's making a lot of money off the dividend now. It's just really compounding on itself year over year now, but we would get 2.8% on the dividend. So that's Coca-Cola, ticker KO. And then I wanted to look at Amazon because people forget that Berkshire Hathaway owns it.
It wasn't picked up by Warren Buffett. And when it was originally added to the portfolio a number of years ago before the pandemic, there was some outrage because it was revealed kind of at the annual meeting and people were like, you know, what's going on? This is trading at like 80 times earnings or maybe it was even like 100 at the time they bought it. And Buffett, he tried to like avoid the questions, but all he could say was that the lieutenants assured him that there was value in the stock.
And then he basically has never addressed it ever again. So it's just been kind of sitting there. I think they did sell a few shares at one point. Otherwise, it was a small position.
I think about a billion dollars and it's just kind of been sitting there over the last five years. It's up 58.7%. And as I said, Coke is up 56.8. So it's just barely beating out Coca-Cola.
It does not pay a dividend, not yet. A lot of the max sevens have been adding dividends in recent years, but Amazon is one that has not. But interestingly, the valuations have gotten much more attractive. And so that has made it not a value stock, at least not on PE basis.
But it is a lot more, as I said, attractive. If they were to buy it now or even add to their position, I don't think you'd see the outrage at the annual meeting that was there when they initially added the position. So Amazon year to date is down, still down 14.7%. And so that's where some of the weaknesses.
But the earnings aren't looking that bad. And the last earnings report was pretty solid as well. So it is looking more like it might be undervalued, not necessarily the classic value sense, as I said, but undervalued compared to peers for sure. And it shows up as among the cheapest of the Mag 7 stacks based on several different metrics, not necessarily PE.
There are cheaper ones on the PE because it's trading at 29.3 times now. But still, for Amazon to be trading under 30 is a low for Amazon itself in its long history. It's almost 20 years old now as a publicly traded company. So to see it now at its lows means, you know, the street knows it's much more mature.
They are buying much more of the earnings and the growth has slowed. So for 2025 sales growth expected to be 8.7%, 20, 26, 9.8%, but still under the double digits that we've expected from Amazon. But earnings expected to be up 13.9% this year, even with the trade war going on. Remember, there's a lot of different areas of Amazon.
You have AWS, you have Whole Foods, you have the marketplace, you have kind of their foreign team-u competitor marketplace. And remember on the marketplace, while they do make a lot of their own products, you know, I buy like a lot of my basics, the Amazon B6 from them, like pens and things like that. Otherwise, they are just a marketplace for a lot of goods, goods that they're not manufacturing that others are to sell on their platform. So keep that in mind when you're thinking about the tariffs, some of the business will definitely be impacted by the tariffs, however, but other aspects may not be.
So 13.9% earnings worth a share, 14.5% for next year, that's very solid on the earnings side. Analysts estimates are all over the place, some are higher, some are lower, everybody's trying to adjust to whatever they did just tell us on their conference call. It's a peg of just 1.4, so I'm liking that, that the peg ratio is pretty low. That means we still do have the growth and an attractive valuation.
The other metrics are lower, but not in the value category yet, but price of sales of three is pretty low for any of these max seven stocks, but not under one like a true value stock would be. But as we've learned from Warren Buffett when he did buy Apple, Apple did have a PE under 10 at the time he was buying it, it was like nine times, but still, Charlie Munger did encourage him to look beyond the old economy type of companies. That's why he got into IBM originally, and then sold that and then found Apple. It was one of his greatest trades ever.
Amazon has not been as great so far, but it's a little more mature, and he did pay a lot more for these shares without him, but one of the lieutenants did. One of the fundamentals that we've learned from Buffett over the years is it does matter what you pay for the stock, and it's going to matter in your returns. If you get it cheap enough, and it's a good company growing those earnings and those sales, then you should be okay over the longer haul. When you overpay for those earnings and sales, it might take a while to get in line.
And meanwhile, you're being outperformed by the S&P 500, which Amazon shareholders, myself included, I've owned it since 2016. Amazon shareholders are underperforming quite considerably, the S&P 500 over the last five years now. And again, it does not pay a dividend, which that little one or two or three percent, three isn't really little, but one percent, that can make a difference in your returns over 20, 30 years, huge difference. So Coca-Cola is actually when you include the dividend in its five-year returns outperforming Amazon now.
Who would have thought it? Well, Buffett himself, that's why he was annoyed at the Amazon buy, but he always did have a view that he would let Ted and Todd do what they wanted with their own part of the Berkshire equity portfolio. So, will we see more Amazon type trades if they take over running the entire equity portfolio? Someone's going to have to eventually when Buffett is no longer with us and no longer a member of the board.
For right now, it's seemingly Buffett may still have even into 2026 a veto power or maybe some kind of say over the equity and the cash portions of the portfolio. We will see as again, he is staying on the board for now. So, is a changing of the guard? It's the end of an era, I have to say.
I was pretty depressed, even though I knew that this announcement was coming and coming soon. After all, he is 94. Nobody can stay with us forever, but it's just been so great for those of us who are value investors to have someone of his investing caliber and to also be investors at a time when the greatest investor of all time has been alive and doing these trades and putting out New York Times op-eds, buying companies in distress, selling things out of his portfolio, cashing in when we are able to learn from him has just been great for all of us in the value space. And there will be a huge void there and we will miss it, but we're going to have to tend to all of the information he's put out over all those years as we like to read a Benjamin Moore's book or Benjamin Graham's book, sorry, on the Intelligent Investor, which Buffett said changed his life.
We will continue to be looking at the Berkshire annual shareholder letters, any of these annual meetings. I'm assuming he will not be at the annual meeting next year, but maybe I'll be wrong. Maybe he will be there, but not presenting. Who will attend the annual meeting next year if it's not led by Buffett?
These are all unknowns. We don't know changes good though. And so in the value space, we will continue on with the value investing that Buffett loved, that we love and we will continue to watch the Berkshire Hathaway portfolio and the machinations of Berkshire Hathaway throughout 2025 while we have the chance with Buffett still in charge for right now. So let me recap the three stocks we talked about.
There was Dreamfinders off of the Buffett screen that only gave us one stock and it's Dreamfinders D F H is the ticker. Then we had Coca-Cola K O it's pretty stretched here though. Then we had Amazon not as stretched as it's been, but not a true value here either ticker AM Z N. And as always, I'm finding you value stocks every week and you want to be sure to subscribe.
Get us on YouTube, get us on Zacks Podcast, put that into the search bar. You'll find our whole podcast channel there. Just subscribe there. You'll get ETF Spotlight, you will get Cook's Kitchen, or no, Mind Over Money.
Sorry, Cook's Kitchen is this video. Mind Over Money, you will get pull court finance, you will get all of our other podcasts that are there, but the market edge is still on our main channel, main YouTube channel for the market edge because it's a video and not just audio. But be sure to get us somewhere, get us on Apple, Spotify, Amazon, music, anywhere you can get podcasts, and I'll see you again next week with some more value stocks. This material is being provided for informational purposes only, and nothing herein constitutes investment, legal accounting or tax advice, or a recommendation to buy, sell or hold a security.
Do not act or rely upon the information and advice given in this podcast without seeking the services of competent and professional legal tax or accounting counsel. Publication and distribution in this podcast is not intended to create any information contained herein it's not constitute an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investment in securities, companies, sectors, and market are downright described, world will be profitable.
All information is currently listed as the date herein and subject to change without notice. Any user opinions expressed may not reflect those of Zacks investment research as a whole. Thank you.