Warren Buffett hunts for value in cosmetics and aircraft parts

Warren Buffett’s Berkshire Hathaway investment group has placed new bets on Ulta Beauty, the cosmetics store chain, and Heico, an aircraft parts maker, after dumping stock worth billions of dollars in heavyweight Wall Street listings.

Berkshire, which has sold hundreds of billions of dollars of stocks in recent months, has built a stake in Ulta worth $266 million as of the end of June, according to a regulatory filing.

Ulta has a strong reputation in the cosmetics industry thanks to its steady revenue growth and strong market share. However, its share price had declined since March because of its disappointing annual forecasts. News of Berkshire’s stake sent the shares up sharply, by $40.04, or 12.2 per cent, to $369.09, in afternoon trading in New York.

Berkshire has sold out of Snowflake, a cloud computing company, as well as offloading its remaining holding in Paramount, the media and entertainment company. It also has trimmed its positions in Apple, Chevron, Capital One Financial and T-Mobile, as well as in Floor & Decor, a flooring retailer, Louisiana-Pacific, a building materials manufacturer, and in Liberty Media, the mass media business that owns Formula One Group.

Separate filings showed that Buffett’s group had pared back its investment in Bank of America, its second largest stockholding, to just over 12 per cent.

This month Berkshire revealed that it had slashed its stake in Apple in half. Buffett, who generally has steered clear of the technology sector, started building a stake in Apple in 2016. The company has been stalked by worries about slowing demand for the iPhone, but the stock nevertheless has risen by 21 per cent this year. Apple shares reached a record high in mid-July of almost $235, valuing the maker of iPhones, iPads and Macbooks at $3.6 trillion.

Ben Barringer, of Quilter Cheviot, the London-based investment firm, said Buffett’s decision to sell half his stake in Apple likely had been done on valuation grounds. “Berkshire typically looks to buy when the price to earnings ratio is in the low 20s and then sell when it climbs into the low 30s, suggesting he thinks the stock is fully or overvalued.”

Berkshire’s cash reserves are now a record $277 billion, which suggests that Buffett and his investment team are struggling to find value opportunities on the market. The billionaire told investors in May that he would “love to spend” the cash but would not do so unless Berkshire could find “something that has very little risk and can make us a lot of money.

“I don’t mind at all building the cash position. When I look at alternatives, what’s available in equity markets and the composition of what’s going on in the world, we find it quite attractive.”

The huge cash reserves at Berkshire include $234.6 billion of short-dated US treasury bills, more than the total held by even the US Federal Reserve, the American central bank. Treasuries typically are used by investors as a safe haven in which to park their cash during periods of uncertainty.

Buffett, who turns 94 at the end of this month, transformed Berkshire Hathaway from a failing textile company to one of the biggest names in the investment industry. Berkshire’s shares were worth $18 when he took over the business. Today, its class A stock is valued at more than $660,000.