As a savvy investor I looked for investing role models, and who better than The Sage of Omaha, Warren Buffett. Here are some famous quotes from the man himself. I used them to shape my portfolio.

Warren Buffett says invest for the long term!

“Our favourite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint”.

From the above quote, I learnt about buying and holding for the long term. There are many investors and strategies that are all about making a quick profit. This includes flipping stocks and shares when they may be up and down. I’ve adopted the approach of choosing quality stocks to own for a long time.

Taking advantage of price dips, like now!

Warren Buffett said, “When we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”.

I learnt that when a stock I have on my buy list dips in price, there is an opportunity to buy shares, or buy more shares in a stock I already own, at a cut price. I would expect the share price to bounce back, providing me with capital returns too. A perfect example of this is the current economic volatility. I have scoured the FTSE for many UK shares that I believe are marked down currently. Presently, the stock market is struggling against the backdrop of soaring inflation and geopolitical issues.

Research, read, think!

“The best way to think about investment is to be in a room with no one else and to just think. If that doesn’t work, nothing else is going to work”.

It is said that Warren Buffett spends approximately 80% of his day reading and thinking. What I took from this is a core part of my investment mantra. I do as much research and due diligence as possible before buying a stock. I must confess this is one of my favourite lessons and I do admit to making mistakes in my early days due to a lack of research.

Expertise

“The important thing is to know what you know and know what you don’t know”.

This particular quote hits home with me personally. Warren Buffett has publicly admitted in the past he has passed up the opportunity to invest in quality companies because he did not understand them.

I don’t profess to be an expert in any given field. However, I do have a decent understanding of technology, and property. I’ve tried to keep my portfolio diverse, and only purchased stocks I know enough about, including the sector they operate in. I own a number of tech stocks, such as Sage Group, as well as real estate investment trusts (REITs), such as Warehouse REIT.

To summarise, these, and many more, of Warren Buffet’s lessons have helped me shape my holdings.

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Jabran Khan has positions in Warehouse REIT and Sage Group. The Motley Fool UK has recommended Sage Group and Warehouse REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffett is widely regarded as the greatest stock market investor of all time. As a result, many people like to copy his moves.

Recently, Buffett has been ploughing billions of dollars into one specific sector. Should I follow him? Let’s discuss.

Warren Buffett is buying oil stocks

Looking at the latest 13F filing (large investment firms are required to disclose their US stock positions to US regulators via 13F filings) for Buffett’s investment company Berkshire Hathaway, I can see that he’s been putting a lot of money into oil stocks recently.

In the second quarter, Buffett bought 120.9m shares in oil giant Chevron. At today’s share price, that represents about $19.7bn worth of stock. Meanwhile, he also picked up about 5.9 million shares in Occidental Petroleum. At today’s market price, that represents about $442m worth of stock.

After these purchases, Buffett held 159.2m shares in Chevron and 226.1m shares in Occidental (at the end of June). At today’s share prices, these holdings are worth about $26bn and $17bn, respectively.

Should I follow Buffett into oil?

While I tend to pay close attention to Warren Buffett moves myself, and own a number of the stocks he does (Apple, Amazon, Mastercard, Visa, etc), this isn’t a move I’m tempted to follow.

One issue I have with oil stocks is that it’s hard to forecast future revenues and earnings. That’s because the price of oil – which has a major impact on energy firms’ revenues – is unpredictable. Going forward, it could remain high. Or, it could fall again.

Another issue for me is the ongoing shift to renewable energy. Right now, governments all around the world are making plans to cut back on fossil fuel use and transition to clean energy. This adds some uncertainty from an investment perspective when it comes to oil stocks.

Linked to this is the increasing focus on sustainable investments. Today, many large money managers are offloading their traditional energy stocks because they don’t meet ESG criteria. I think this trend is likely to continue. In the long run, it could limit share price upside.

Better stocks to buy

Of course, Buffett may end up doing well with oil stocks. Right now, oil prices are high due to supply/demand imbalances created during the pandemic, and oil companies are minting money as a result.

Chevron, for example, recently reported earnings of $11.6bn for the second quarter of 2022, up from $3.1bn a year earlier. As a result of their big profits, these companies are rewarding investors with dividends and share buybacks. If oil prices remain high, oil stocks could continue to generate attractive returns for investors.

However, this trade isn’t for me. All things considered, I think there are better investments for my portfolio today.

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Ed Sheldon has positions in Amazon, Apple, Mastercard, and Visa. The Motley Fool UK has recommended Amazon, Apple, and Mastercard. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In his many years of investing, Warren Buffett has amassed a net worth comfortably into the billions.

During his time as CEO of Berkshire Hathaway, the Oracle of Omaha has produced mouth-watering returns – double that of the S&P 500.

Along the way, Buffett has dropped nuggets of advice that I believe all investors should seriously consider when stock picking. Here are three pieces I’d use for my portfolio.

Buy the business

A lot of people judge their decisions based on the share price of a company. However, Buffett has stated in the past that it’s more important to focus on the strength of the business itself.

What this means is that he doesn’t necessarily buy stocks solely because they have a low valuation, for example. Instead, he looks more widely at whether he deems a stock attractive due to its core business features.

If this is the case, Buffett can then assess whether the share price offers value. This again doesn’t mean it’s just ‘cheap’ – but that he sees potential for growth.

Long-term outlook

As well as this, he also buys stocks for the long run. As he once said: “if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.”

Investments will undoubtedly go through volatile periods. But with a long-term perspective, these short-term headwinds are almost irrelevant.

Be greedy

Finally, Buffett has also talked of the ability to “be greedy when others are fearful” as a powerful tool to maximise returns.

The declines we’ve seen in global markets this year are obviously an issue. However, with Buffett’s advice, these declines also become an opportunity.

With many attractive businesses taking hits, now could be the perfect time for me to pile in.

These in action

With these in mind, it makes sense why Apple (NASDAQ: AAPL) is Berkshire’s top holding. The majority of people could tell you the value of Apple’s products and services, showing the strength of the business. And with the stock down 4% in 2022, this may be an opportunity to grab some shares.

On top of this, while past performance is no indication of future returns, the last five years have seen Apple stock rising 343%. For its long-term investors, these are some hefty returns.

Buffett deems Apple as one of his ‘four giants’. And in the second quarter, Berkshire topped up its holdings with an additional 4 billion shares.

The tech giant also posted some strong results in its latest update to shareholders, where net sales jumped 2% compared to H1 2021.

Within the results, CEO Tim Cook talked of Apple’s ability to “enrich the lives” of customers.

The business may see a slowdown in demand in the upcoming months as the cost of living continues to rise. Higher costs for materials and supply chain issues may also prove headwinds for the firm.

However, like Buffett, I deem Apple a strong addition to my portfolio. Its core business features are more than attractive. And if it carries on with its impressive growth, I think I could see some healthy long-term returns.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

After he has amassed a net worth well into the billions, looking to top investor Warren Buffett for investment inspiration doesn’t seem like too bad an idea.

Since the Oracle of Omaha became the CEO of Berkshire Hathaway, he’s managed to generate average annual returns of 20% – twice that of the S&P 500. Pretty impressive.

Apple (NASDAQ: AAPL) makes up nearly half of Berkshire’s stock portfolio, showing Buffett is clearly bullish on the stock, as he deems it one of his ‘four giants’. Here’s why I agree.

Understandable investment

What I most like about Apple is that the value of the company is easy to grasp. As Buffett said, “the important thing is to know what you know and what you don’t know”. In essence, investments should be understandable. Billions of people use Apple products worldwide, so it’s clear to see the use that the company has.

This is shown through the firm’s better-than-expected latest results, where despite the cost-of-living crisis, net sales rose nearly 2% year over year. This included a 3% jump in iPhone sales, while Apple’s services division also saw a rise.

Speaking on its performance, CEO Tim Cook highlighted how it showed “Apple’s constant efforts to innovate, to advance new possibilities, and to enrich the lives of our customers”.

Despite this positive outlook, Cook did also mention the impact of inflation. And this could be a threat to the business in the near term. With it being felt through wages and component costs, this could drag the Apple share price down.

However, with iPhone 13 sales remaining strong despite the near release of a new model, I think this highlights the company’s resilience.

Buyback scheme

Apple has also been boosted in recent times by its share buyback scheme. The aim of this is to return value to shareholders.

Strategies like this have helped towards a meteoric 320% rise in its share price over the last five years, as last year alone the business spent $85bn on buying back shares.

This trend continued in its latest quarter as Apple returned over $28bn to shareholders.

Apple concerns

Despite this, I do have a few concerns surrounding Apple.

With a price-to-earnings ratio of 27, the stock doesn’t seem cheap. Granted, it’s been higher in the past. But with it significantly above the ‘value’ benchmark of 10, this is a worry.

With inflation also set to rise further, Apple’s resilience may break should we see consumers tighten their belts. It has plans to release the iPhone 14 later this year. But with the cost-of-living crisis looking like it’s set to worsen, the business may see a fall in demand for products.

However, there’s talk of Apple freezing the price of the iPhone 14, which goes against the usual trend of incremental price increases for new models. Given the times, this makes sense. And hopefully, this will help offset a slow in demand.

Why I’d buy

So, despite my concerns, I’d still buy Apple shares. Its results show that its capable of navigating tough periods. And with its buyback scheme, along with being an understandable investment, I think it’s a strong addition to my portfolio.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffet is renowned as one of the greatest investors of all time. Since he took the helm at Berkshire Hathaway in 1965, his investments have generated an average annual return of 20% – double that of the S&P 500.

While not all the Oracle of Omaha’s stock picks have delivered blockbuster returns, there’s certainly plenty of valuable advice he has offered along the way. Here are two pieces I’m using when buying stocks today.

Seize opportunities

It’s no secret that global markets have taken a beating this year. Inflation has spiked globally. And with it reaching near 10% in the UK and US, investor confidence has been knocked.

However, I don’t think Buffett would be concerned about this. As he once said: “Be greedy when others are fearful.” And, as such, I think the large fall we’ve seen in some good companies presents an opportunity to get in cheap.

Long-term vision

As with all stocks I invest in, I like to think long term.

As the man says himself: “If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.”

It’s more than likely that investments may hit a bump in the road at some point. But a long-term outlook nullifies any near-term headwinds.

With market volatility running rife at the moment, this is a great reminder that picking stocks for fundamental long-term growth is key.

What I’d buy

So, what stocks are out there for me right now that fit these criteria?

Well, I like the look of Unilever.

The stock is down nearly 10% over the past 12 months, showing investor confidence may have taken a hit as wider pressures continue to mount. And as a long-term investor, I think it would be a solid addition to my portfolio.

I like Unilever because of its strong brand name. The business owns over 400 household brands, including companies such as Sure and Dove. And with a third of the world using its products daily, this shows its strength.

I think because of this, it may fare well against rising inflation. Although rising rates will see consumers cut back on spending, it’s unlikely to be on the everyday essential items Unilever brands sell. Its strong market position also gives it, to some degree, more pricing power — which the firm proved in Q1.

The business is also building strong foundations for the long run as it commences a €3bn buyback scheme. It bought €750m worth of its shares back in March. And this should see the stock’s price rise in times ahead. Its 3.67% dividend yield is a further bonus.

One concern I have with Unilever is its large debt. And with interest rates potentially being hiked further, this only magnifies this issue for the firm.

However, I’d still follow Buffett’s advice when buying the stock. At a cheap price, I see Unilever as a strong long-term hold.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffett is renowned for his quotes. Over his long and successful investment journey, Buffett has always liked to buy quality stocks for a cheap price. For example, amid the devastating financial crash back in 2008, he famously quoted in a letter to Berkshire Hathaway shareholders how “whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”.

With 2022 having seen big falls in the stock market so far (for example, the US S&P 500 is down 22% year-to-date), here’s why I’d follow Warren Buffett and buy Apple (NASDAQ: AAPL) stock today. It’s by no means a cheap stock, but it is marked down at the moment.

Apple share price history

Long-term investors in Apple have seen strong results over time. Following the firm’s rise, the last five years have seen its share price rocket by 275%. In fact, Apple has risen over 1,300% in the last decade. However, the stock has failed to repeat this form in 2022. It’s down 26% year-to-date. Despite a 7% rally in March, the share price has struggled to take off this year.

Apple shares make up nearly half of Berkshire’s stock portfolio. And amid its fall, Buffett has rushed to purchase more shares in the tech giant. At the end of March 2022, Berkshire had nearly $160bn worth of Apple shares.

Apple opportunities

With this fall, I think, just like Buffett, that Apple could be a strong addition to my portfolio. One reason for this is the firm’s buyback scheme. Led by CEO Tim Cook, in recent times the business’s performance has been boosted by the programme. Companies buy back their own stock for a variety of reasons, with one being to increase value for shareholders. Last year alone, Apple spent over $85bn on buying back shares.

Also, the current Apple share price can be seen to provide value from some viewpoints. Buffett has previously said that “the important thing is to know what you know and what you don’t know.” Essentially, what he means by this is that investments should be understandable. And with over a billion people using Apple devices across the world (myself included), it’s clear to see the useful services that Apple provides and to understand why it’s popular.

Apple risks

With this said, there are a few concerns I have with this stock.

Firstly, it’s currently trading on a price-to-earnings ratio of around 22. While it has been higher in times gone by, this is still not cheap.

Apple may also suffer from the cost-of-living crisis. With everyday life becoming more expensive, the business may see a slow in demand as consumers shy away from purchasing new expensive goods. This would no doubt impact the share price.

Why I’d buy

Despite this, I still deem Apple a buy. Although it could see a drop-off in demand, I think it holds such a strong position in the market this is unlikely. And along with the firm’s buyback scheme, I think the company is in a strong position to bounce back. Just like Buffett, I would buy Apple shares today for the long term.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Beating the stock market on a consistent basis, over a long period is a difficult task. Maybe almost impossible. However, Warren Buffett and his partner Charlie Munger are among very few investors who have ever achieved such a feat. His fund, Berkshire Hathaway (NYSE: BRK.A) has outperformed the S&P 500 by almost 3,000% since its inception! So, here’s how he does it.

Quality is invaluable

It’s no secret that Warren Buffett only invests in quality stocks that provide good value. Over his decades of investing, he’s reiterated that a good investment has three main factors:

1. A good valuation with room for growth.
2. Strong pricing power and fundamentals.
3. An excellent moat with a margin of safety.

This is evident when analysing his company’s portfolio. The firm has positions in many of the world’s biggest companies. Many of these stocks have one thing in common. They’re market leaders that exhibit quality profit margins and healthy fundamentals.

A buffet of stocks

As the US S&P 500 flirts with bear market territory, the Oracle of Omaha has been going on a shopping spree. Warren Buffett has been buying shares in excellent companies for cheap valuations, having done the same during the 2008 financial crisis. He’s made mistakes in his investing career too, but he learns from them and moves on.

Be fearful when others are greedy, and greedy when others are fearful.

Warren Buffett

The current forward price-to-earnings (P/E) multiple for the S&P 500 stands at 16.6. This is below the five-year average of 18.6, and 10-year average of 16.9. As such, Warren Buffett has increased and even bought positions in several blue-chip stocks. These include PC giant HP, oil behemoths Chevron and Occidental Petroleum, and recently, entertainment conglomerate Paramount Global.

These purchases allow Warren Buffett to dollar cost average, as he continues to buy value stocks on the dip. Berkshire’s move to increase its stake in oil also allowed the firm to capitalise on sky-high oil prices. This has allowed the fund to hedge against the potential slowdown in earnings from its other positions. Consequently, Berkshire Hathaway has outperformed the S&P 500 by almost 20% this year.

Keeping it simple

Warren Buffett has always stressed on keeping investing simple. Buy shares in a great business for less than it’s worth, with managers of the highest integrity and ability. But what is a great business? As hinted at earlier, these are businesses with low debt, high levels of cash, healthy margins, strong growth, and an inelastic good/service. While this may seem simple, companies exhibiting all these traits are difficult to find.

So, despite already having an array of renowned names on his portfolio, the 91-year-old has expressed his regret in not purchasing shares of several top US companies. One is a personal favourite of mine, Alphabet. Although the tech giant came short of earnings expectations recently, he sees plenty of promise in the Google-owning firm. With a 20-1 stock split around the corner, I think Berkshire may add Alphabet to its portfolio. If so, I’d be even more confident in Warren Buffett’s ability to continue beating the stock market.

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John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Golden opportunity?

Given the wild swings for stocks and lower cash value from high inflation, the casual observer might have expected gold to do well. On the contrary, this week saw gold trade at its worst levels since February. This was due to the strength of the US dollar, as it hit a 20-year high, rebuffing views that the greenback is a dying dinosaur. While both gold and cash offer more safety than equities, gold has underperformed the stock market over most time periods. As such, I feel the golden opportunity isn’t investing in gold, but rather in the stock market over the long term.

There’s been lots of noise but no real direction as to whether the falls are a great buying opportunity, or just the first step in a much more serious bear market. If inflation remains high, further rate rises look inevitable. This is bad news for property, equities, and bonds, especially if paired with an economic downturn. Despite that, it’s worth noting that although the stock market seeing plenty of red lately, history’s on its side. Since its inception, the US S&P 500 has rebounded from every single market crash, for instance.

Time in the market is better than timing the market

Many investors seek to time the market by finding a bottom before investing. Unfortunately, it’s very rare that this actually works. The best-known investor globally, Warren Buffett, once said: “I haven’t the faintest idea what the stock market is going to do when it opens on Monday.” More often than not, investors have to suffer a little bit of pain before seeing a return on investment. Be that as it may, being patient is easier said than done. It’s never easy investing your savings only to watch them lose half their value. Hence why it’s crucial to pick the right stocks.

Picking the right stocks

That brings me on to how to do that. Do your due diligence — that’s the most important thing before investing in the stock market. Like the oracle of Omaha, I follow a strict checklist before purchasing stocks. I look for:

• Solid fundamentals (Low debt and healthy cash levels).
• A company with pricing power or high margins.
• Great earnings potential.

These qualities sound simple, but they’re more difficult to find in many companies than not. Nonetheless, one such company that exhibits all these traits is Google owner, Alphabet. The mega-cap boasts an excellent balance sheet, healthy margins (30%), and great earnings potential through the development of its many offerings. Nevertheless, its share price is down 20% this year as the firm came in short of earnings expectations and future underperformance remains a risk. However, I’ll be capitalising on its lower price to add to my Alphabet position.

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John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffett famously said his “favourite holding period is forever.” I’m looking at two stocks that have been permanent features in the portfolio of his company Berkshire Hathaway through three major stock market crashes. He’s held them at least through the early 2000s dotcom bubble, the 2008 Global Financial Crisis, and the 2020 Covid-19 recession.

Let’s explore whether I’d buy these Warren Buffett stocks today.

Coca-Cola — Warren Buffett’s oldest stock position

Warren Buffett first bought Coca-Cola (NYSE: KO) stock in 1988. Accordingly, the soft drinks manufacturer was actually a stalwart of Buffett’s portfolio even before the relatively mild US recession in the early 1990s.

Berkshire acquired 400m Coca-Cola shares at around $3.25 per share. It’s never sold a single one. The Coca-Cola share price is now over $65, meaning the holding is valued in excess of $26bn today — a stunning unrealised gain of over 2,000%. On top of that, Warren Buffett (or at least, Berkshire Hathaway) earns an annual dividend yield above 50% on his initial investment.

Today, Coca-Cola’s in good financial shape. Net revenues grew 17% in 2021, operating income was up 15% and cash flow increased 28%. Moreover, the company continues to innovate with a new product range for 2022, including Coca-Cola with Coffee Mocha.

Based on consensus forecasts, the stock is arguably pricey at present, trading at 27x current year earnings. Nevertheless, I think there’s still value in this high-margin, cash-generative business that has increased its dividend regularly for the past 59 years.

American Express — Berkshire’s third-largest stock holding

Warren Buffett first invested in American Express (NYSE: AXP) back in 1963, when it was a young company mired in scandal, but began building the stake he owns today in 1993. Currently, the billionaire holds 151.6m shares, worth $29bn in total.

The American Express share price is up nearly 22% over 12 months. Last year, revenue grew 17% and total cardholder spending rose 25%. Additionally, AmEx recently raised its dividend by 20% to $0.52 per share.

Looking ahead, American Express stock should benefit from a continued recovery in the travel sector. Travel consultancy and associated card rewards have been historically important revenue streams.

As monetary policy tightens, the US economy may enter a recession in 2023. This could negatively impact the AmEx share price if consumer spending falls. However, the card payment company has always rebounded after recessionary shocks before and its long-term prospects still look good to me.

Would I buy?

A bear market could be imminent, but studying Warren Buffett’s long-term investing approach eases my worries. Buying and holding carefully selected stocks through thick and thin has handsomely rewarded the Oracle of Omaha over decades.

American Express and Coca-Cola currently trade near all-time highs. This could mean further upside is limited. Indeed, Berkshire built both positions years ago at considerably cheaper prices than today. However, they’re still in its top four stock market holdings, with no signs of selling.

In Buffett’s own words: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” AmEx and Coca-Cola are clearly wonderful companies in his view. That’s good enough for me.

Warren Buffett has a unique gift for identifying wonderful companies at wonderful prices. I’ll settle for those same companies at fair prices. I’d buy both shares today.

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Charlie Carman owns shares in Berkshire Hathaway. American Express is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Investing guru Warren Buffett recently purchased an 11.4% stake in HP (NYSE: HPQ) for his holding company, Berkshire Hathaway. The purchase now makes him HP’s biggest shareholder. To be clear, Hewlett-Packard split its business into two divisions in 2015. Hewlett Packard Enterprise would sell servers and enterprise services, while HP Inc would sell PCs and printers. Warren Buffett opted to buy shares in the latter. On the day his purchase was announced, the HP share price spiked by 15%. Nonetheless, it has since come back down to a more reasonable price. With Warren Buffett’s impeccable track record of beating the market, I will be diving into HP’s fundamentals and prospects to determine whether I will be buying HP shares for my portfolio.

Low HP

Warren Buffett has always preached his main investing philosophy. He encourages only buying shares in companies that have solid balance sheets, quality earnings, and strong pricing power. This is why I was left surprised when I saw his holding company acquire $4bn worth of stock in HP.

HP’s balance sheet certainly isn’t in a healthy position. With a -304.4% debt-to-equity ratio, the tech company has negative shareholder equity. This means that the company’s liabilities exceed its assets. Its cash and equivalents are not sufficient to cover its debt either, with only $3.4bn in cash and $7.1bn of debt. As a result, I am left scratching my head, as HP’s balance sheet doesn’t add up to the fundamental investing strategy of Warren Buffett.

Printing money

Nonetheless, the silver lining in HP’s dire balance sheet is that it manages to generate quality earnings. Since Q1 2021, HP has managed to grow its revenue and profit margins. The firm went from a 5.6% profit margin to 10.1% in its most recent quarter. In addition to that, HP has shown its intention to continue growing its business. Just last month, HP announced its acquisition of Poly, a voice and video solution company. This should boost HP’s growth strategy, as it aims to build a leading portfolio of hybrid work solutions.

More importantly, HP trades at a low price-to-earnings ratio of six, while also paying a decent dividend of $0.25 per share. It is perhaps for those reasons that Warren Buffett opted to invest in one of the world’s biggest PC manufacturers, as he expects HP to continue generating compounding amounts of free cash flow.

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Unfortunately, that is all the good news I have for HP. Despite the positives of the company, there are worrying trends that the PC giant faces. For one, market analysts are forecasting that PC growth will slow down considerably as inflation continues to eat away on consumers’ income. It doesn’t help either when UBS gives HP a stock downgrade, citing weakening demand for HP products, with Wall Street also expecting the S&P 500 company to see a decline of 12.4% in its earnings. Moreover, HP isn’t the market leader as it trails its rival, Lenovo, giving it less pricing power.

As such, despite HP’s value proposition, I don’t think the stock will be performing considerably well for the foreseeable future. The company’s balance sheet also leaves much to be desired, which is why I will not be buying HP shares for my portfolio any time soon.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.