Warren Buffett’s sitting on $189bn in cash. What’s this telling us?

Warren Buffett’s sitting on $189bn in cash. What’s this telling us?

Fans of Warren Buffett taking his photo

Image source: The Motley Fool

Last weekend, legendary stock market champion Warren Buffett held his annual investor meeting in Omaha, Nebraska. And one of the big takeaways from the meeting was that his investment company, Berkshire Hathaway, is currently sitting on around $189bn in cash.

That’s an enormous amount to be holding. To put it in perspective, only two companies in the UK’s FTSE 100 index (AstraZeneca and Shell) have bigger market capitalisations. So what’s this huge cash pile indicating?

Massive cash pile

For a while now, Buffett’s been saying he’s looking to make a major acquisition for Berkshire Hathaway. So, in my view, the main takeaway from his monstrous cash pile is that he’s simply not seeing any acquisition opportunities that jump out at him right now.

It’s worth noting that Buffett has always liked taking his time when deploying his capital. He’s often prepared to wait for a really attractive stock market opportunity to present itself. And with decent rates on offer from cash savings products and short-term government bonds at the moment, he seems happy to wait for the right opportunity.

I don’t mind at all under current conditions building the cash position. When I look at the alternatives, what’s available in equity markets and the composition of what’s going on in the world, we find it quite attractive.

Warren Buffett

Value to be found

We could look at Buffett’s huge cash pile – and his lack of buying activity – and conclude that now’s not a good time to buy stocks. But personally, I don’t think this is the right way to look at things.

Yes, global stock markets have had a good run recently. Over the last year, the MSCI World index has risen more than 20% in GBP terms.

But most experts agree that there’s still plenty of value to be found in the market for those willing to dig around a little. Right now, I’m still seeing a lot of great investment opportunities worth considering.

An opportunity today?

Shares in Coca Cola HBC (LSE: CCH) – a major bottling partner to Coca-Cola – are a good example.

This is a company with a great track record. Over the last five years, for example, its revenue has climbed from €6.6bn to €10.2bn.

And looking ahead, it has plenty of growth potential. To my mind, it’s well-placed to benefit from increased spending on travel across Europe as well as higher levels of disposable income in developing countries.

Yet right now, it can be snapped up on a price-to-earnings (P/E) ratio of about 14. I think that’s an attractive valuation, especially when you consider that US-listed Coca-Cola (which is currently one of Buffett’s largest holdings) trades at about 22 times this year’s forecast earnings.

Of course, this stock isn’t without risk. If we were to see a major economic slowdown, revenue growth could stall.

All things considered however, I think it looks very appealing at current levels. A dividend yield of around 3.1% adds weight to the investment case.

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