Earlier in March, Warren Buffett described the market crash as a one-two punch — a combo of pandemic and falling oil prices. It was before the market hit its lowest point. And now, the oil has hit rock bottom as well.
Warren Buffett is known to make a fortune in market crashes by buying amazing companies at low prices. His well-placed decisions and strategy of “being greedy when others are fearful” have allowed him to amass an empire of powerful investment. But despite the fact that his firm is sitting on a huge pile of cash, that he and the firm haven’t made any significant purchases might be a warning in itself.
One thing this “restraint” indicates is that it’s possible that Warren Buffett didn’t know how bad the pandemic would get. The wizard of Omaha might be seeing a clouded future, just like the rest of us. Some people are also speculating that Buffett is still waiting to make his move, that maybe the market hasn’t fallen hard enough yet. Meanwhile, Berkshire Hathaway’s current portfolio is also suffering heavy losses.
The airlines and financial elements of the company’s portfolio have been hit the hardest and are still taking a lot of time to recover. However, the one sector that has been working well for Buffett’s portfolio is technology.
A software company
If Buffett’s current moves and recent non-existent purchases do not offer a viable investment insight, we can look at some of his older decisions that are currently paying off, like investing in tech companies. One option that investors might want to consider is Kinaxis (TSX:KXS), which, at a price-to-earnings ratio of 117 for the last 12 months, might be one of the most overvalued stocks on TSX.
Kinaxis is a supply chain solution management. It provides cloud-based supply chain solutions to a wide variety of industries, usually major multinational organizations.
Some of the important clients of the company are Ford, Cisco, Avaya, Qualcomm, Nissan, and Yamaha. The company’s crown jewel product is RapidResponse — a cloud-based integrated supply chain planning platform.
Kinaxis’s current market capitalization is $3.5 billion, and its enterprise value is $2.29 billion. Its balance sheet is strong, with almost no debt, a large amount of cash and decent cash flows. When the market fell in March, Kinaxis’s share price went down 22%, but it’s already recovered and is currently at its five-year highest point. Its five-year returns are about 359%, and the CAGR is 35.6%.
Even in this uncertain market, where many great companies have been run to the ground, some stocks are still performing well. But it’s hard to say if this streak will continue, especially if the world enters a new recession. If gurus like Warren Buffett are unable to predict the market and are exercising caution, other investors might benefit from staying their hand as well.
This might be a hard thing to do, especially with so many amazing stocks available at such discounted prices. But even if you do invest, make sure it’s in a company that you understand and has a reasonable chance of surviving the worst that’s yet to come.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. David Gardner owns shares of Ford. Tom Gardner owns shares of Qualcomm. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool owns shares of Qualcomm. The Motley Fool recommends KINAXIS INC and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares).