One of the most efficient ways to position our investment in stocks is to follow the big whales to try to get our small piece of the pie (or at least the crumbs of it). And that is precisely what we have been doing recently. It seems that Berkshire Hathaway (BRK.B), owned by the great Warren Buffett, has a strong commitment to investing in Japanese stocks. To be more exact, they have continued their investment trend in raw materials as they did previously with Occidental Petroleum (OXY) but in this case investing in the five largest Japanese companies in the raw materials sector. So let's analyze why the "Oracle of Omaha" has increased its investment in shares in these 5 companies in Japan.
What are the five stocks that Berkshire Hathaway has invested in?️
As we have discussed in the first paragraph of this article, Berkshire has declared a 5% exposure in the five largest companies in the commodities sector during the month of August 2020. These companies are Itochu Corp (8001), Marubeni Corp ( 8002), Mitsui Corp (8031), Sumitomo Corp (8053) and Mitsubishi Corp (8058). As we can see in the graph below, they have since achieved returns ranging from 74% in Itochu Corp to a stellar 173% in Marubeni Corp.
During last weekend they announced that they had increased their investment in shares between 1-2% in each of the selected companies. The total amount of invested assets amounts to $11.000 billion and, as could not be otherwise, they are well diversified. For example, Mitsui focuses its business on iron ore and oil, Sumitomo Corp on metals such as copper and nickel, and Mitsubishi Corp on coal and oil. The astonishing returns that this investment in Japanese stocks yields is due to the interest rate policies applied by the Bank of Japan (BoJ) and in turn for offering dividends that return an average of 3,5%, something that Buffett loves.
If we look at the analysis metrics we can see how the average P/E ratio of these five companies is currently x5,3. At the same time, all of them plan to exercise a share buyback and a very large free cash flow (FCF), something that the Oracle of Omaha also loves.
And why have you increased your investment in shares of these companies?
As we have commented in the first paragraph, Berkshire is seeing a strong commitment to the raw materials sector, one of the sectors that is best on track in the current decade due to the geopolitical tensions and energy crises that have emerged during this last decade. anus. As we already commented in an article a few months ago, the demand for raw materials continues to grow strongly, and added to a considerably scarce supply caused by the war in Ukraine, they position them as a great option to position our investment portfolio in stocks. This is mainly due to the riots that recently occurred in China due to the Covid zero policy, which has forced the Chinese government to reactivate production in its factories.
As we can see in the following graph prepared by Goldman Sachs, the supply of different raw materials is quite scarce. Regardless of what happens in China, the crisis that has hit us will not last forever, and little by little the usual demand in this sector will recover. This demand may come both from the European energy crisis in relation to natural gas and from the depleted US strategic oil reserves. For its part, the bottleneck in cereals and wheat could lead India to buy large quantities to replenish its weak supply. There is also likely to be high demand for new types of raw materials. For example, the semiconductor crisis has been one of Berkshire's objectives, given that it has made an investment in shares in Taiwan Semiconductor Manufacturing Company (TSMC), the largest semiconductor manufacturer in the world.
How can we take advantage of this opportunity for our equity investment portfolio?
If you are wondering if you are too late to copy the footsteps of Buffett and Berkshire, that is not the case. As we have mentioned, the growing demand for raw materials and the scarce supply place raw materials in the foreground. After all, Berkshire recently announced that about a third of the $9.000 billion it has invested in stocks so far this year has gone toward energy companies like Occidental Petroleum (OXY) and Chevron Corp (CVX ). This tells us that Berkshire is confident in maintaining its investment in stocks in the energy sector and raw materials in general. In the month of September we already told you about the strength of the raw materials market in this article.
If you don't remember, we recommend the abrdn Bloomberg All Commodity Strategy K-1 Free ETF (BCI), one of the cheapest, most liquid and well-diversified ETFs. We also recommend the L&G All Commodities UCITS ETF (BCOG), which tracks the Bloomberg commodities index that is diversified in energy, soft commodities, and precious and industrial metals. Last but not least, if you just want exposure to the energy sector, you can also gain exposure through the iShares US Oil and Gas Exploration ETF (IEO) or the iShares Global Energy ETF (IXC).