Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
A recent analysis by Thomas Niel highlights three stocks held by Warren Buffett’s Berkshire Hathaway—DaVita, Kraft Heinz, and Pool Corporation—as potential opportunities for investors. These companies are presented as currently out of favor on Wall Street but possess underlying qualities and valuations that could lead to future gains, aligning with Berkshire’s strategy of investing in “wonderful businesses at fair prices.”
Berkshire Hathaway’s Investment Strategy
Berkshire Hathaway, under Warren Buffett’s leadership since 1965, has generated significant returns through a combination of its owned businesses and a diverse portfolio of stock market investments. According to its most recent Form 13F filing with the Securities and Exchange Commission, Berkshire holds stakes in nearly 40 U.S.-listed public companies, in addition to international investments.
DaVita: Undervalued with Long-Term Growth
Berkshire Hathaway maintains a substantial 42.6% stake in DaVita, a company operating kidney dialysis centers, and has been an investor for over a decade. Despite this endorsement, market sentiment towards DaVita has been bearish, influenced by recent disappointing quarterly results. The company currently trades at approximately 10 times forward earnings, a valuation considered discounted compared to its projected near-term earnings growth of 11% in 2025 and 17% in 2026.
This anticipated growth is attributed to aggressive share repurchase efforts and organic expansion in overseas markets. Long-term tailwinds for DaVita include the increasing incidence of chronic kidney disease in the United States.
Kraft Heinz: High Yield and Restructuring Potential
Berkshire Hathaway holds a 27.5% stake in Kraft Heinz, the packaged foods giant. While this investment has been described as a “value trap” for Buffett in the past, the article suggests that current investors can acquire the stock at a low valuation, trading at nine times forward earnings. This represents a discount compared to industry peers like General Mills and Kellanova, which trade at higher forward price-to-earnings ratios.
A planned split-up of Kraft Heinz into two separate public companies is noted as a potential catalyst to unlock value, similar to the outcome for Kellanova’s predecessor, Kellogg. In the interim, the stock offers a forward dividend yield of over 6.5%.
Pool Corporation: Recent Buffett Buy with Recovery Prospects
Over the past year, Berkshire Hathaway acquired a 9.2% stake in Pool Corporation, a supplier of pool construction materials and maintenance supplies. The company’s earnings have been affected by weak demand for new pools. However, the article suggests that once new pool demand normalizes, a steady increase in home pools could positively impact sales of pool maintenance products.
This potential for steady growth is anticipated to support Pool Corporation’s valuation and drive share appreciation in line with earnings. The company has also demonstrated a history of dividend increases over the past 14 years and currently offers a forward dividend yield of 1.75%, positioning it as an emerging dividend growth stock.
Key Takeaways
The analysis indicates that DaVita, Kraft Heinz, and Pool Corporation offer distinct investment appeals within Berkshire Hathaway’s portfolio. DaVita presents a potentially undervalued asset with significant growth drivers, Kraft Heinz offers a high dividend yield and future value-unlocking potential through restructuring, and Pool Corporation represents a long-term play on market recovery and consistent dividend growth.
