Eyeing Warren Buffett's new buy; More reason to avoid Boeing's stock
1) I'm always paying attention to what Warren Buffett is up to...
I closely follow his investment moves because he's the greatest investor of all time and I continue to think Berkshire Hathaway (BRK-B) is a solid holding for a conservative long-term portfolio.
This Wall Street Journal article from last week highlights his latest buys and sells in the fourth quarter: Buffett's Berkshire Holds On to Apple Shares, but Trims Stakes in BofA, Citi and Capital One. I wasn't surprised that he continued to sell some of his financial stocks, but I was a bit surprised that he didn't continue trimming his stake in Apple (AAPL).
However, I was mainly intrigued by Buffett's latest new position: spirits giant Constellation Brands (STZ).
Here's an excerpt from the WSJ article with more details on his recent activity:
[Berkshire] continued to sell Bank of America (BAC), one of its biggest stockholdings, slashed its stake in Citigroup (C) and unloaded part of its position in Capital One Financial (COF), according to a regulatory filing made public after the market closed Friday.
Berkshire unveiled a new position in Constellation Brands, which sells Modelo and Corona beer in the U.S., worth $1.2 billion at the end of December...
The new Constellation stake has hit an early rough patch. In January, the company missed earnings expectations and cut its outlook for the year. Its shares are down 26% this year.
As regular readers will recall, I analyzed Constellation's financials in my December 16 e-mail. At the time, while I didn't think the stock was an outright buy, I thought it was attractive enough to pay attention to. As I concluded:
In summary, while there are a few small areas of concern, overall I like what I see here with Constellation's financials... and the valuation is modest.
Since then, the stock is down 27%, and Buffett owns it... so were earnings really that bad? Let's take a look...
Constellation reported fiscal third-quarter 2025 earnings on January 10 (here are links to the full earnings release and investor presentation).
Revenue was down 0.5% and earnings per share were $3.39, both slightly below expectations. And the company reduced earnings guidance for the next quarter by $0.20.
In light of this, I might have expected the stock to be down 5% to 10%... but instead, it tumbled 17% that day.
It wasn't because of bad news on the cash-flow statement. Here's the chart I showed in my December 16 e-mail of Constellation's operating cash flow, capital expenditures ("capex"), and free cash flow ("FCF"):
This new chart shows the same metrics by quarter, including the most recent one:
Year over year, we can see that FCF was up last quarter due to a 31% reduction in capex as the company was investing heavily to expand capacity in Mexico, which is now mostly behind it.
And the stock is starting to look downright cheap for a high-quality global business that generates substantial (albeit flat for many years) FCF.
At yesterday's close of $169.38, close to a four-year low, the stock trades at only 11.7 times fiscal 2026 (mostly calendar 2025) forward earnings estimates – a 12-year low.
So why is the stock in the doghouse?
This blog post by the CNBC Investing Club with Jim Cramer captures the bear case nicely: We're exiting our stake in a disappointing stock that's getting a Berkshire bump. Excerpt:
We'd argue the Constellation Brands story has become more challenged since the start of the year. The company is dealing with a slowdown in its all-important Mexican beer business, and the recovery in its long-struggling wine-and-spirits division has failed to materialize.
Potential tariffs on goods imported from Mexico have added another negative wrinkle to the story after the industry failed to receive an exemption when President Donald Trump's tariffs on Mexican imports were first announced.
It's still possible that Constellation Brands avoids higher tariffs, should Trump end up following through with them after an initial pause of at least 30 days. But for now, we must be mindful of the downside scenario.
So, Warren Buffett likes the stock, and Jim Cramer's investing club doesn't... I know which side I would bet on.
My team and I here at Stansberry Research will take a closer look at Constellation. If we think it's a table-pounding buy for adding to our Stansberry's Investment Advisory model portfolio, as always, our subscribers will be the first to know.
If you aren't already an Investment Advisory subscriber, learn how to become one – and take advantage of a 30-day full money-back guarantee, if you aren't satisfied – right here.
2) Speaking of stocks I've discussed recently, regular readers will recall my latest warning a few weeks ago about aircraft maker Boeing (BA)...
As I noted my January 29 e-mail:
[CEO Kelly Ortberg] appears to be making the right calls to turn things around at Boeing, but I'm still wary of the many major problems the company faces, as well as its high debt load. I continue to recommend avoiding this stock.
This news in yesterday's WSJ makes me even more wary of the stock: This New Airbus Jet Is Bad News for Boeing. Excerpt:
Airbus has a new jet that's winning over some of Boeing's best customers. It also raises the specter of more trouble ahead for the U.S. plane maker.
The European company started delivering the new aircraft – the A321XLR – late last year against a backdrop of manufacturing upheaval and financial strain at its American rival. So far the XLR has racked up more than 500 orders, many from airlines looking to replace older Boeing planes.
The jet's success is one of the starkest signs yet of the diverging fortunes of the two companies, with Boeing's troubles leading to gaps in its product lineup that are now being exploited by Airbus. It is also a warning of a bigger threat looming: While Boeing is strapped for cash, Airbus is increasingly investing in an entirely new generation of aircraft that could shape the duopoly for decades to come.
And as the article continues:
"We spend more time arguing within ourselves than we do thinking about Airbus and how we're gonna beat Airbus to the punch," Boeing Chief Executive Kelly Ortberg told workers at a companywide briefing in November, weeks after the first XLR was delivered...
For Airbus, Boeing's woes mean the game has changed, said Christian Scherer, head of the plane maker's commercial-aircraft division. Airbus now has more freedom when making strategic decisions "instead of responding to a threatening move of the queen on the chessboard," he said.
Again, all of this is more reason to continue to avoid Boeing's stock.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.