Home Value Investing Warren Buffett Moves Further Into Value Territory, Favors Strong Balance Sheets

Warren Buffett Moves Further Into Value Territory, Favors Strong Balance Sheets

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Warren Buffett is one of the greatest value investors of all time, and interestingly, he’s shifting even further on the spectrum toward value investing. His Berkshire Hathaway’s portfolio is currently performing in line with the S&P 500 (based on one firm’s proprietary model), which puts the firm in a strong position at a time when many hedge funds, including some run by big names, are struggling to post returns for the year.

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The great value investor goes even more value

Analyst Neil Fonseca of evaDimensions released the results of his analysis of Warren Buffett's latest 13F filing in a report dated March 3. He notes that typically, Buffett purchases companies that have low leverage and "high relative EVA profitability." This poses a problem though because EVA profits are falling, which gives Berkshire Hathaway "an active PRVit [performance-risk-valuation investment technology] score that is currently just in-line with the S&P 500," Fonseca says. evaDimensions uses a proprietary EVA-based model which gives a PRVit score, which he describes as his firm's "systemic stock ranking framework."

Warren Buffett Moves Further Into Value Territory, Favors Strong Balance Sheets

The analyst also looked at Buffett's activity over the last year and found that he appears to still be placing a premium on companies that have strong balance sheets. However, he adds that the legendary investor is starting to invest with a "slightly greater Value tilt than in the past."

How Warren Buffett could improve his performance

Fonseca also offers some suggestions about how the performance of Berkshire Hathaway could be improved. Certainly one would hesitate to offer suggestions to a legendary investor like Buffett, often referred to as the "Oracle of Omaha" for his exceptionally accurate predictions. However, as they say, "You win some, you lose some." At any rate, Fonseca only found a possible improvement of about 24 to 38 basis points per month, and when you're talking about a market that's been as volatile as what we've seen lately, that's very miniscule.

He states that removing any stocks that have a PRVit score of less than 20, the performance of Warren Buffett's public equity portfolio would improve 24 basis points per month. By removing stocks with a score of less than 50, Berkshire Hathaway's public equity portfolio would improve 38 basis points per month. He notes though that the firm consistently outperforms the markets. (And we would add that hindsight is 20/20.)


Warren Buffett is underweight seven of ten sectors

Fonseca's analysis also indicates that Warren Buffett is overweight on Financials, Consumer Staples and Energy but underweight on all other sectors. Further, the legendary value investor usually owns "high Quality ('P-R') stocks relative to the benchmark. He adds that in all the other sectors, Buffett's holdings are more oriented toward Value Investing as they usually under-earn their respective industries but also are valued relatively cheap.


And here's a look at Warren Buffett's recent new positions.


All graphs in this article are courtesy evaDimensions.

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