known for philosophy Investment value An investment strategy that bets on a companies’ potential long-term value, not their current market price – Typically mega investor Warren Buffett’s portfolio holding Berkshire Hathaway, his investment holding company, holds companies with significant competitive advantages or technological differentials for an average term of more than 30 years.
What would happen if Warren Buffett had to pick Brazilian stocks to buy? What assets would you choose, given your investment philosophy, and for what reasons?
Currently, there is only one Brazilian company that integrates the Berkshire Hathaway portfolio. It is NubankNober 33), which, despite being a local company, decided to go public on the New York Stock Exchange in December 2021.
Itaú BBA, who sent a representative to the annual Berkshire Hathaway Conference to understand Investment value From Buffett, he decided to emulate Buffett’s choices in B3. In a podcast produced by the bank, Marcelo Sa, chief strategist at Itaú BBA, chose five assets that, in his view, would likely pass through the mega-investor’s sieve.
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According to Sá, Berkshire Hathaway focuses on analysis strategy bottom to top (bottom to top) – Which is concerned with the quality of companies’ work more than they are concerned with macroeconomic factors.
In this way, Buffett Holdings is looking for good companies that can stay in existence for 10, 15 or even 20 years, with good growth and cash generation.
Sa points out that Berkshire also prioritizes companies that have a very strong competitive advantage in the marketplace – whether it’s commercial excellence, superior technology or a strong brand.
Good management of these companies is also important, since Berkshire does not have a policy to change the management of invested or acquired companies. For this reason, they look at the quality of the leaders and how the capital is allocated. “They look at whether the deliverables are good, whether the company has operational efficiency, and whether the incentive package for executives is in line with shareholders,” says Saa.
on evaluation, the Itaú BBA strategist highlights that Berkshire Hathaway doesn’t always prioritize buying super-cheap stocks. “They have a philosophy that it is better to buy a great company at a fair price than to pay a great price for a reasonable company,” Sa points out.
In this way, the holding company can purchase assets that are more expensive if they offer potential for growth and quality.
Sa also points out that the average investment period is usually over 30 years, because it is a long-term philosophy. The holding also focuses on a large portion of the investments in a few assets.
The chief strategist at Itaú BBA has detailed his theses on two of the five assets he considers to have the potential, in a hypothetical scenario in which Warren Buffett invests in the Brazilian stock exchange, in the mega investor’s portfolio.
According to Sá’s simulation, the selection of Suzano will occur due to the company’s growth and cash generation potential.
Marcello explains that Susanoo is a company in strong growth, due to increased demand for paper for health purposes. “China’s per capita consumption is still very low, and Brazil has a huge competitive advantage,” he says.
According to Sá, Brazilian forests grow much faster than competing forests in Canada and the Nordic countries. “It’s been six years here versus 30 in other countries,” he says.
He also stated that Susanoo had very efficient logistics, with railways passing close to production plants. The company also has a good track record in allocating capital.
In terms of cash generation, the strategist notes a 15% potential in Susanoo’s projects, not considering the Cerrado project, which will already account for 5% of this future cash generation. “This project will be the most efficient in the world,” assessed Sá.
He also believes the company is underpriced, trading below its historical average. Suzano is currently trading at multiples of 5.6 times Ebitda (earnings before interest, taxes, depreciation and amortization), below the historical average of 7.5 times.
Vivara will be a company with strong growth potential in a segmented market and has room for consolidation, according to Sá.
According to Itaú BBA Strategist, Vivara offers a strong return on invested capital. He explained that the company is the largest player in the market with a 10% share, while the second player sells its operations in Brazil and the third is facing financial difficulties. For this reason, Vivara will be in a very favorable competitive environment for continued growth.
He asserts that the company also has more control over its earnings due to its vertical business model, holding gold and silver stocks to ensure a year of production.
“They can either change the design of the jewelry and choose the composition of the product, depending on the cost of placing the products and the price the consumer can pay. “Vivara has more control over their cost,” he says.
The company is also well managed and in the evaluation of Itaú BBA it is discounted. “She trades on P/E [Índice Preço Lucro] 16 times, lower than the historical average of 25 times,” he concludes.
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