2024-01-12 22:06:00
Warren Buffett is a legendary investor. Since he took over Berkshire Hathaway, through Buffett an investor, about six decades ago, he has managed to achieve an excess return on the market, thanks to his stock selection, or as he prefers to call it “company selection”, when among the most prominent and successful investments in Berkshire’s portfolio You can find Apple APPLE -0.17% Close:0 Open:186 High:186.74 Low:185.19 Cycle:– Page Quote News Graphs Company profile Recommendations More articles on the subject: and Coca Cola COCA COLA +0.84% Close:0 Open:60 High: 60.34 low: 59.87 cycle:– to the page quote news graphs company profile recommendations additional articles on the subject: .
But it turns out that Buffett is a human being like the rest of us, and like every human being he also misses sometimes – this is what happened with the Paramount share PARAMOUNT GLOBAL -0.04% Close:0 Open:13.27 High:13.67 Low:13.24 Cycle:– page quote news graphs profile Company Recommendations for additional articles on the subject: , a production company whose main activity today is from the streaming service Paramount Plus, which since the peak in early 2021 has already dropped by 85%.
Paramount stock in the last 12 months
Why did Paramount go down like this?
Most of the collapse in Paramount’s stock took place in a few days in March 2021 – when the company, which was still registered as ViacomCBS, announced the issuance of new shares in the amount of 3 billion dollars with most of the amount earmarked for investment in the new streaming service. Diluting the value of the shares of existing investors is something that usually results in a fall in shares, and that’s exactly what happened here.
In addition, many analysts downgraded the stock, with many analysts thinking that the company’s more than 650% increase in earnings in the 12 months beginning in March 2020 was overblown. Of course, the huge increase in numbers was mainly due to the fact that a lot of people were stuck in their homes and therefore consumed much more content, but the analysts recognized that this is not a trend that is going to continue in the future.
And if that’s not bad enough, the stock got another downward push – one of the company’s biggest investors, the Archegos investment fund, was making pretty big losses at the time. The banks invested in the fund pressured it to liquidate investments to the extent of 20 billion dollars, and unfortunately for Paramount, it was also in the same group.
Why does Buffett like the stock?
Berkshire entered a position in Paramount in the first quarter of 2022 (since then the stock has fallen by more than 50%) and it even increased the position in the following four quarters. Berkshire currently owns 15% of the shares, with an investment amounting to approximately $1.3 billion.
When trying to think what Buffett likes about this stock, the first answer that comes to mind is the price. Paramount is currently trading at a forward earnings multiple of 11, while for most of the period when Berkshire bought its shares it was trading at a multiple of under 16.
But in fact, Buffett does not like the stock at all, at least according to the way he talks about it – in an interview with the CNBC network last April, he was asked about the investment, and he replied that “streaming is not such a good business”, adding that “so far they have managed to attract subscribers New, but they do it at too low prices.” The interviewer pressed Buffett and told him that he was only giving reasons why not to invest in the stock, to which he replied: “Well, we’ll see what happens.” According to these reactions of Buffett in the interview, the market estimates are that Buffett himself did not make the decision to invest in the company at all, but one of its investment managers: Todd Combs or Ted Washler.
Is there a buying opportunity?
Regardless of who made the decision to purchase the stock, Paramount is a “Warren Buffett stock” since it is part of Berkshire’s portfolio, which is also the largest shareholder in the company, and investing in the footsteps of successful investors is a strategy that quite a few investors employ. As we have seen, Paramount’s price looks attractive on paper, and to be honest, its results are also improving – in the third quarter of 2023, the company showed a 71% increase in earnings per share compared to the corresponding quarter, and the CEO, Bob Bakish, said that he “anticipates a significant increase in earnings in 2024”.
On the other hand, you still have to take into account the things Buffett said about the stock in that interview in April. The streaming field is a very competitive field in which it is difficult to capture market share, and in front of Paramount there are rivals with very deep pockets (such as Netflix NETFLIX +0.01% Close:0 Open:500.51 High:500.56 Low:490.61 Turnover:– Page Quote News Graphs Company Profile Recommendations Additional articles on the subject: And Disney WALT DISNEY +0.84% Close:0 Open:89.73 High:90.83 Low:89.66 Cycle:– Page Quote News Graphs Company Profile Recommendations Additional articles on the subject: for example), and even there are still demands for cable TV that prevent quite a number of potential customers.
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