Motley Fool Hidden Gems Investing - Warren Buffett’s Last Hurrah

Starting point is 00:00:00 We learned this week what Warren Buffett's final stock buys were, so what was his last hurrah? Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Travis Hoy. I'm joined today by Lou Whiteman and Rachel Warren. And guys, we got some information. we're starting to see those filings of what hedge funds and big companies are owning in

Starting point is 00:00:31 their portfolios, at least as of the end of 2025. One of the interesting ones came from Warren Buffett. He added some New York Times, some Chubb of all companies. But Lou, what did we learn from this filing and what do we think about Buffett and the Berkshire ecosystem now that Greg Abel is technically in charge? Yeah. So first of all, we should caveat, these are Berkshire moves. There's more than one person there, so it's not Buffett buying and selling, but you would think he at least gets a notification. He's got his chime on, on his iPhone. Yeah. You'd think they run it by him either way, right? Look, selling tech to buy media is the most boomer move ever. But kidding aside,

Starting point is 00:01:17 I think this is a boomer portfolio. The portfolio's maturity and what they're after, You really see it here. Here's the dilemma. And it's interesting because, you know, Greg Abel, in one sense, he inherited the earth. In the other sense, he has the toughest job in America. Berkshire is too big for even a home run move to make a difference. What is he going to buy? They could have owned 50% of GameStop when the meme happened, and it still wouldn't really move the needle for this company. It's a weird problem to have. It's a problem I think we all had, wish we had, but it's just a real dilemma for Berkshire management. There isn't much they can do to actually juice returns or actually show returns. Buffett got a pass for a long time

Starting point is 00:02:06 because he was Buffett. The shield is gone. So now what does this massive conglomerate with all its moving parts where no, even if like buying and selling Apple doesn't really move the needle, how do you generate market beating results? I don't know if I own the answer here and know the answer and looking at these moves and seeing just kind of, these are huge names and these are names we care about. And at the end of the day, they didn't really do anything to impact the portfolio. So what do you do? Yeah. Rachel, just to put some numbers behind what Lou was saying with selling tech, Berkshire Hathaway sold 4.3% of its stake in Apple. So not a huge sale on Apple, but selling a little bit of Apple, sold 77% of its stake in Amazon. And the buys for the quarter,

Starting point is 00:02:52 there's a couple of Liberty Media holdings, but New York Times, Domino's Pizza, Chubb, and Chevron. So it's just such an interesting collection of assets. Actually, ironically, some of those real world assets probably doing a lot better than a lot of the tech names that they could have owned in 2026 so far. Yeah, I think it's actually really interesting to see some of those kind of final moves that Buffett made while still at the helm really, I think, reflect a lot of the sentiment we're seeing in the market right now. I do think it also goes back very much to that value-oriented mindset that he has always had. What's kind of interesting, though, I mean, he clearly focused very heavily on stock picking towards the end of his tenure as leader of

Starting point is 00:03:29 Berkshire Hathaway, but Abel's been known as an operator. And so, it's very possible that investors might be able to expect more of a focus on growing Berkshire's operating subsidiaries, maybe than just some of the major flashy equity portfolio changes. I don't think it's super likely that the investment philosophy will shift drastically, at least not immediately. I think a lot of investors are wondering how is Abel going to differentiate himself. And I think that's probably the biggest question moving forward. But again, you're going to have the four pillars of Berkshire, right? Insurance, railroad, energy, and Apple that remain. You've got this extensive cash pile of over $380 billion that gives ABLE tremendous flexibility. You know, it's possible

Starting point is 00:04:11 we might see more 13F filings that are active in the industrial infrastructure sectors that would really reflect ABLE's expertise in energy and logistics rather than consumer tech. I think there's still a lot of questions there. I mean, there's kind of been some early signs that suggest that ABLE might be more aggressive in exiting some of the stagnant legacy positions. You know, there were some filings that were indicating a potential full exit from that Kraft Heinz stake, which was this long troubled holding that Buffett was sort of famously reluctant to sell. And I believe that filing was after the quarter ended. So if that happened or if that is starting to happen, we would not find it in this particular 13F filing.

Starting point is 00:04:49 That's correct. And so I think that we're going to see a lot more of that differentiation as we get into the next few quarters. I mean, I will note Buffett remains chairman of the board. So major capital allocation decisions are probably still going to carry his footprint for the foreseeable future. I think that's something else that's important to underscore. But I think there's the question under Abel, could we see a dividend? Could we see other major changes for Berkshire? I think there's a lot that investors are expecting of Abel's tenure. Lou, let's end on that. What are we going to see from a capital allocation policy standpoint? Berkshire Hathaway currently has about a $1.1 trillion valuation, but the cash pile is about

Starting point is 00:05:30 $380 billion, give or take several billion dollars. What should they do with that capital? And then what are they going to do with that capital? It's a heck of a rainy day fund, right? And again, I've said for a while, I think you can walk and chew gum here. I think you can have massive amounts of capital saved up for the next great financial crisis for all those opportunities that they're famous for and still pay a dividend. I think a dividend is coming. Whether or not buybacks are coming, we'll see. Because again, it's hard to move that mountain. I think a dividend would actually go over better with the market. And again, I just have to emphasize this. Buffett has said that not all trades have been his trades for a while. He's given a lot of credits to his

Starting point is 00:06:13 underling. As Rachel said, he is still going to be chairman. I don't know how much changes or how much is status quo. And again, the bigger, the existential question is kind of why do we exist from here? What can we do to generate market beating returns? I think total return is part of that. So I think a dividend is part of that. But I do think that just a lot of soul searching has to be going on in Omaha about, you know, how are we a consistent market beater from here? I think it has to be a combination of growth and income just because, again, what can you buy that makes this a growth stock. Well, and we've seen some of these big changes after founders leave. I think Steve Jobs is the one that I always go back to. He was very much anti-paying a dividend,

Starting point is 00:07:01 buying back stock, all of that kind of stuff. He wanted to grow the core business. They eventually got to the point where Tim Cook, when he took over, that was a huge part of his job as CEO, was saying, here's what we're going to do from a capital allocation standpoint. We're going to start paying a little bit of a dividend. We're going to start buying back a significant an amount of shares. Berkshire Hathaway could come out and pay a 5% dividend yield. Just based on my quick math here, they've got the operating cash flow and the cash on hand to do that for at least a decade. They could even bump it up to 6%, 7%, 8% if they want to. Just to emphasize that point, all of these businesses that they're in,

Starting point is 00:07:35 most of the competitors pay a dividend. You're not even really talking about eating into the $380 billion, but insurance, railroad, aerospace parts, all of these things, everyone in those sectors pays a dividend when we come back we're going to talk about the latest between warner brothers discovery and netflix you're listening to motley fool money welcome back to motley fool money netflix and warner brothers discovery continue to do their dance paramount has not given up on buying warner brothers discovery rachel this is one of the wildest stories at least so far in 2026 but what do we know so far as of as of at least today because we do have some deadlines that are coming up.

Starting point is 00:08:14 Yeah, so the saga continues. So this seven-day waiver granted by Netflix to Warner Brothers Discovery, it allows Paramount a final window to submit their best and final offer by February 23rd. And then the Warner Brothers Discovery Board votes on March 20th. Now you have to understand

Starting point is 00:08:30 that despite this sort of reopening of talks, the board continues to unanimously recommend the Netflix merger. Netflix also retains the right to match or exceed any new proposal Paramount submits. Remember, Netflix only wants the studios and HBO. They want to spin off the cable channels. Paramount is pursuing a $108 billion bid, including debt. That's $30 per share, all cash, to acquire the entire company. They've said maybe they could go higher,

Starting point is 00:08:57 up to $31 a share is a rumored number we've been hearing. They've also said they're willing to cover the $2.8 billion breakup fee with Netflix. There's a lot of drama here. We know, of course, that Warner Brothers previously rejected Paramount's offer. They thought it was a deficiency compared to the Netflix deal. I want to underscore the Paramount bid is bolstered by a personal guarantee from Larry Ellison, founder of Oracle, as well as support from Redbird Capital. It's also heavily backed by a variety of sovereign wealth funds, specifically from Saudi Arabia, the UAE, Qatar. You've got Jared Kushner's affinity partners involved as well. And Paramount saying that the Netflix Warner Brothers Discovery merger would face basically a regulatory mountain and

Starting point is 00:09:36 higher antitrust risk. But the thing with Paramount's deal is there's a significant amount of debt involved. It's a very debt-heavy pit. So I think what we're seeing, Netflix is probably still the likely winner unless Paramount significantly improves their offer. Honestly, Warner Brothers is allowing Paramount to submit their best and final offer. This could be more of a move to avoid litigation regarding the board's fiduciary duties. It'll be really interesting to see who comes out on top here. Nothing has changed here. We said before that this is Netflix to lose, and it still is. Ever since the deal was announced, Paramount has been running around screaming at anyone who could listen about how unfair it is. This is Netflix

Starting point is 00:10:17 saying, show up or shut up. Put your cards on your table, stop your whining, and let's see what happens. Netflix has a lot of cards to play. They still have right of first refusal. They can match anything Paramount does indefinitely. I still think they could partner with Comcast and sort of resolve the spinoff, the cable assets, and kind of put a real economic value on that. And that's with the Versant spinoff that they just recently did. Yeah. And maybe I think you could give Comcast some sort of access, you know, Peacock to what comes out of Warner Brothers Discovery, get them at least a slice of that. So I think there's options there. There is a question of whether Netflix wants to pay more. So I think this is

Starting point is 00:10:59 like, again, I want to be careful here and say Netflix controls its own destiny, not that they're going to win, but the incremental cost of raising the bid for a $300 billion company versus a $12 billion company is the determining factor here. Netflix, if they want to go higher, can do so at much lower pain thresholds than Paramount Skydance can. Assuming they want it, they are going to win this. And let's see what Antitrust has to say. We often put Larry Ellison in these negotiations, but Larry Ellison is also, most of his wealth is tied up in Oracle stock. That stock is down 53% as we're recording as of a few months ago. So that has to be part of the calculus if you're Warner Brothers Discovery's

Starting point is 00:11:47 board is not only, yep, here's this smaller company coming in, but you've got sovereign wealth funds involved. You have Larry Ellison backstopping it with a free stock that's in free fall. This is where part of their fiduciary responsibility too is, does this deal actually close? And if you get two years down the line, you do all the regulatory stuff and guess what? The check bounces. You don't want that to happen either. No, there is a ticking fee that will help with this if it goes past the end of this year, right? That Paramount has basically agreed to pay Warner Brothers Discovery shareholders every month past the end of 2026, a small amount. So that sort of helps offset that. But you're right. I mean,

Starting point is 00:12:29 look, there is no limits to the amount of money that can be found. I do think at the end of the day that maybe that's overstated, but it is uncertainty. The other thing too is, is that remember with all of this debt and proportionate to the size of the company, that helps you in Washington, if you're Netflix, because that is money for both buyers. That is money that can't go into new programming. So again, $300 billion company versus $12 billion company. The amount of an impact that the debt will have on being able to fund new programming is significantly different. I think that helps the antitrust case for Netflix. We'll see. But again, Netflix has a bigger bazooka to fire here. So I think with all of this drama and all of this sort of whining going

Starting point is 00:13:16 on, you should remember that. Netflix stock also not doing particularly well. The current drawdown is 42%. So I don't know how exactly this ends, but even if the deal doesn't close for Netflix, that may actually help the stock, at least in the short term. But we will see. When we come back, we're going to get a quick update on the housing market. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Toll Brothers was one of the big home builders in the U.S. They released earnings yesterday. And I'm always curious to hear about what's going on with these companies, what they say about demand in the U.S., where prices are going. So Rachel, what did we learn from Toll Brothers and just the general state of the housing market? The interesting

Starting point is 00:13:55 thing to note about Toll Brothers is that they are much more representative of the luxury segment of the housing market than the housing market overall, but certainly a good bellwether for that space. So they reported their Q1 2026 earnings. Yesterday, they beat expectations, really despite a mixed housing backdrop. And while the company's delivering fewer homes, their focus on luxury buyers, strategic land sales, that drove double-digit revenue and profit growth. So they reported, for example, diluted earnings per share of $2.19 on $2.2 billion in revenue. The average price of homes in their backlog surged to about $1.2 million. That was up from about $1.1 million a year ago. And they're in the process of completing the sale of their

Starting point is 00:14:35 apartment living portfolio to Kennedy Wilson for $330 million. And this is really key because they're exiting the multifamily developments business to really focus on that core luxury home building. You know, management said that even though the dollar value of contracts rose slightly, the unit volume of their backlog actually fell about 20% year over year. Even the affluent customer base, they're navigating high interest rates, but they're doing so better than the broader market. And that's why you're seeing a company like Toll Brothers maintaining gross margins of about 25%, even with softening overall demand. I think it's interesting. Unlike entry-level builders like the D.R. Hortons of the world, Toll Brothers buyers are a bit less

Starting point is 00:15:15 sensitive to interest rates. About 28% of Toll Brothers buyers pay all cash. Those with mortgages have a low average loan-to-value ratio of about 69%. And this is a segment that's being fueled by massive intergenerational wealth transfer. It's creating a pool of cash-rich buyers who bypass traditional financing. And even their first-time buyers, which are about 30% of their business, are typically older and more affluent than the national average. So all of that is fueling the results we saw with this business, which even as they are looking at maintaining their full-year guidance, they're looking at fewer units built, prices are continuing to climb. That's driving a lot of the revenue growth and profitability we're seeing. Lou, is this the K-shaped economy that you

Starting point is 00:15:55 keep talking about. I love that my bias is confirmed. All that we can conclude here is it's better to be in high end than not high end. But look, if anything, I'm going to take the glass half empty here because even in luxury, it seems fewer people are signing contracts to build the home versus a few years ago. The model here is big macro stinks for the home builders, right? Higher labor costs, higher input costs. Their only lever is you power through with pricing. this shows that you know maybe there's limits even on the high end to power through with pricing big picture any sign of weakness on the luxury side does not speak well for the entire housing or the entire economy this should work eventually but if anything this is sort of more a warning

Starting point is 00:16:39 sign than a than a victory lap right here i think the fact that they're building fewer houses in 2026 than they did in 2025 when everybody's talking about how we need more housing that is a bit of a concern but we'll see how this it speaks to what they're hearing from their customers and yeah that's not great as always people on the program may have interests in the stocks they talk about and the motley fool may have formal recommendations for or against so don't buy or sell stocks based solely on what you hear all personal finance content follows the motley fool's editorial standards and is not approved by advertisers advertisements are sponsored content and provided for informational purposes only to see our full advertising

Starting point is 00:17:15 disclosure, please check out our show notes. For Lou Whiteman, Rachel Warren, Dan Boyd, and Krista Waterworth behind the glass, I'm Travis Hoyum. Thanks for listening to Motley Fool Money. We'll see you here tomorrow.

Motley Fool Hidden Gems Investing - Warren Buffett’s Last Hurrah

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