Warren Buffett is at it again. Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) has been busy putting its massive cash stockpile to work.
Berkshire revealed on Monday that it has bought more shares of five stocks. Here are three things those stocks have in common.
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1. They're all based in Japan.
The five stocks that Buffett just bought are:
- Itochu(OTC: ITOCF)(OTC: ITOCY)
- Marubeni(OTC: MARUF)
- Mitsubishi(OTC: MSBHF)
- Mitsui(OTC: MITSF)(OTC: MITSY)
- Sumitomo(OTC: SSUM.F)(OTC: SSUM.Y)
You won't find any of these stocks listed in Berkshire's 13F regulatory filings, though. All five companies are based in Japan. The purchases of the stocks were made through Berkshire's wholly owned subsidiary, National Indemnity Company.
Buffett first initiated positions in these Japanese companies two years ago. They're the only publicly traded investments that Berkshire has in Japan right now.
However, the investments are substantial. After the latest purchases, Berkshire owns on average more than 8.5% of each of the five companies. Berkshire is now invested more heavily in Japanese stocks than in the stocks of any other country other than the U.S.
2. They're all in the same line of business.
Buffett isn't attempting to diversify Berkshire's portfolio with these stocks. Actually, all five companies are in the same line of business. They're what the Japanese call "sogo shosha" -- trading companies that deal in a wide range of products.
Many Americans are probably most familiar with Mitsubishi. It's the largest among the Japanese trading companies, with a market cap of over $72 billion. Mitsubishi is involved in multiple businesses, including automotive products, chemicals, energy, food, and mineral resources. It owns a 20% stake in automaker Mitsubishi Motors.
Mitsui and Itochu aren't too far behind Mitsubishi in size, while Marubeni and Sumitomo are considerably smaller. Their businesses aren't exactly the same, but are very similar. For example, each company is involved in chemicals, energy, and minerals.
3. They all have what Buffett likes.
What's the most important common denominator for these five stocks? From Buffett's perspective, it's probably that they all have what he likes: an attractive valuation, combined with the ability to generate strong cash flow.
Buffett told CNBC earlier this year, "I was confounded by the fact that we could buy in these companies." He noted that basically offered an earnings yield (earnings per share divided by share price) of close to 14%, with growing dividends.
Don't expect Buffett to sell any of these stocks anytime soon. Berkshire stated in its press release announcing the additional purchases that it intends to "hold its Japanese investments for the long term."
It's possible that Buffett could buy even more shares. Berkshire stated that it could increase its positions in any of the stocks by up to 9.9%. However, the U.S. conglomerate agreed not to up its ownership any higher than that level without approval from the individual Japanese companies' boards of directors.
Good picks for other investors?
U.S. investors can buy any of these Japanese stocks on over-the-counter (OTC) markets. But are they good picks? I think so.
All five stocks have soared so far in 2023. At least part of this increase can probably be attributed to Berkshire's buying activity.
Even with the strong performances, though, each stock remains valued at attractive levels. All five Japanese companies also offer solid dividends, with Sumitomo's dividend yield of more than 4.1% especially standing out.
When Buffett increases Berkshire's stake in certain stocks, it's smart to pay attention. I suspect paying attention, in this case, could pay off nicely over the long term.
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Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
