Warren Buffett may be selling stocks, but he still owns this FTSE 100 stock
Image source: The Motley Fool
Earlier this week, a filing showed that billionaire investor Warren Buffett has been reducing his stake. Bank of America. This increases his cash pile, which sits at $277bn in the latest quarterly earnings. However, he catches one FTSE 100 a company in his portfolio that makes for an interesting consideration.
Details to consider
Buffett owns less than 228,000 shares Diageo (LSE:DGE) equivalent to a purchase price of $40.2m. This purchase was made back in Q1 2023 and since then he has not changed his position at all.
As a point of clarity, the shares were bought through Gen Re, the insurance company that sits within his portfolio. However it is still valid to say that Diageo is part of the overall stock portfolio that it controls Berkshire Hathaway.
Diageo shares have fallen 25% in the past year. Fortunately, a holding of this size for Buffett is not a big deal, given the holdings of billions in other similar stocks an apple. Of course, when the Q3 earnings report comes out, it may indicate that Diageo shares have sold off. But as far as we know right now, the global beverage producer is still included.
Why would I consider buying
Others are flagging that Diageo shares now offer an attractive value proposition. Last month, investment bank analysts Citigroup he said they believe the stock can do well from here. They added that there is “scope for the second half of 2025 organic growth to accelerate” and that it is “time to revisit what remains a compelling mid-term growth story”.
It is true that recent results have given some reasons for optimism. In the first half of this year, the company was able to increase or hold a total market share of more than 75% of the total sales in the limited market. This is included in the US, an important location for the company.
In addition, it managed to achieve record production savings of almost $700m during that period. This will help reduce costs at a time when income, due to weak consumer demand, is falling.
Accidents right now
The biggest risk to me buying Diageo shares now is that consumer sentiment remains weak for the foreseeable future. Although the main area of decline is Latin America and the Caribbean, it is a large enough area to have a financial impact. Therefore, even if geographical diversification is an advantage, it does not mean that companies cannot achieve something in one area.
The price-to-earnings ratio is very high at 18.92. I would expect that, after the price drop we have seen in the last year, this rate should be lower. A lower rating is often seen to indicate a better value. So this would highlight that it is not a basement purchase for me to consider.
In this case, I don't see enough reason to buy Diageo shares right now. Time will tell if the stock stays in the Berkshire Hathaway pot, but now is not the time to put it in my (very small) portfolio.
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