Warren Buffett warns on US inflation
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New York (CNN Business)Berkshire Hathaway investors are set to descend on Omaha, Nebraska, for the company’s first annual meeting with shareholders present since 2019. It should be a victory lap for CEO Warren Buffett.
Shares of Berkshire Hathaway (BRKB) are up 10% this year and not far from a record high. Berkshire is easily beating the market. The S&P 500 is down nearly 12%.
Buffett has a lot to gloat about. Top Berkshire holdings such as Coca-Cola (KO) and Kraft Heinz (KHC) are thriving. The two food and beverage giants recently reported strong earnings. Coke’s stock is up 11% this year while Kraft Heinz has surged more than 20%.
Berkshire also has a sizable stake in oil giant Chevron (CVX), the Dow’s top stock this year with a gain of more than 35%.
Buffett and Berkshire vice chairman Charlie Munger have been criticized by some investors in the past few years as tech stocks took the market by storm. But Buffett and the 98-year-old Munger have held firm in their belief that owning quality, large cap American companies in the consumer, financial services and energy industries is a good recipe for long-term success.
That’s not to say that Berkshire is totally against the idea of owning tech stocks. In fact, Berkshire’s top holding is Apple (AAPL). The company has also invested recently in Amazon (AMZN) as well as HP (HPQ).
Still, investing experts point out that Buffett’s penchant for buying top companies and holding them for a long time is what remains key to the success of Berkshire Hathaway.
“One thing that stands out with Buffett and Munger is their ability to produce such great returns over such a long period,” said Bill Stone, chief investment officer with The Glenview Trust Company, in a report. “The investment business is littered with shooting stars that had great returns only to flame out, sometimes in spectacular fashion.”
Stone is also a Berkshire shareholder and will be attending the meeting.
But other experts say they want to know how Buffett and Munger feel about the market in light of the recent slowdown in the economy and concerns that the Federal Reserve is expected to keep hiking interest rates.
“With rising rates and inflation, what kind of asset allocation is appropriate? We’re looking for that Buffett and Munger wisdom,” said Sean Bonner, CEO of Guild, an investment education app catered to military members. Bonner is a Berkshire shareholder who’s planning to go to the meeting for the first time.
Investors will also want to hear what Berkshire plans to do with its massive cash pile, which stood at nearly $147 billion as of the end of February.
Berkshire has put some money to work this year, with plans to buy insurer Alleghany (Y) and a boost to its stake in oil company Occidental Petroleum (OXY). But Buffett has long talked about wanting to make an “elephant-sized” deal.
There’s one issue that Berkshire investors won’t need to ask about this year though: the question of succession planning. Buffett announced last year that vice chairman Greg Abel, who oversees Berkshire’s energy, consumer and other non-insurance businesses, will eventually take over as CEO.
Amazon and Apple add to market confusion
It’s been a volatile month for Big Tech, and markets can’t figure out what to make of it all.
Investors are suffering from whiplash: mega cap tech stocks led a 1,000-point drop in the Dow last week and then recovered on Monday. On Tuesday we saw another 800-point Dow drop and another large recovery on Thursday.
Investors’ hopes of finally removing their neck braces hinged on Apple and Amazon reporting first-quarter earnings yesterday afternoon. Some cohesion between the two trillion-dollar plus companies could provide clarity on the market outlook.
Strong numbers by Apple and Amazon would increase investor confidence as the Federal Reserve plans to hike rates next week. Both companies also serve as gauges of consumer confidence; good news could assuage fears of a forthcoming economic downturn.
But that didn’t happen.
Apple did beat earnings estimates. Revenue grew nearly 9% on an annual basis as sales rose 19%. Earnings per share came in at $1.52, beating estimates of $1.43. The company announced a $90 billion share buyback and a 5% dividend increase.
But Apple’s outlook doesn’t look great. Shares dropped after CFO Luca Maestri warned of Covid-related supply constraints that could hurt second-quarter sales by between $4 billion and $8 billion. Apple is not immune to supply chain challenges, added CEO Tim Cook.
Amazon disappointed investors with earnings well expectations. The stock dropped nearly 13% in post-market trading after the company reported a $7.6 billion loss on its investment in electric vehicle company Rivian. Amazon posted earnings of $7.38 per share, missing estimates of $8.36.
Revenue at Amazon grew by 7% during the first quarter, compared to 44% last year. That’s the company’s slowest rate of growth for any quarter since the dot-com bust of 2001. Forecasts for the second quarter were also disappointing. Growth could slow to 3% from a year earlier.
“The pandemic and subsequent war in Ukraine have brought unusual growth and challenges,” Amazon CEO Andy Jassy said in a statement.
McDonald’s has to ditch millions of Russian burgers
Trash bins in Russia are overflowing with bad Big Macs and moldy McNuggets.
McDonald’s lost $100 million worth of food and supplies after it closed its restaurants in Russia following the country’s invasion of Ukraine. The inventory will “likely be disposed of” said the company.
McDonald’s made the choice to shut down its 850 Russian restaurant locations and 108 restaurants in Ukraine due to the conflict but continued to pay its 62,000 employees and numerous suppliers in the region.
McDonald’s reported better-than-expected earnings and revenue as it offset Russian losses with price hikes in the US and strong international growth.
McDonald’s announced in February that it closed its Ukrainian restaurants for safety reasons but that employees would provide local councils with extra food wherever possible. The restaurant said it hoped councils would distribute products like buns, donuts, cheese, milk and water to Ukrainians in need.
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