According to the latest available information, Berkshire Hathaway (BRK.A 0.14%) (BRK.B 0.19%) had about $109 billion in cash and equivalents on its balance sheet. CEO Warren Buffett insists on keeping a $30 billion cash cushion at all times, but this still leaves nearly $80 billion of investable capital.
Buffett and his team may not be as eager to put their money to work as they were about a year ago. For one thing, Berkshire has already spent tens of billions in the recent market downturn. And now that interest rates have risen significantly, Berkshire can earn far greater returns on its cash, most of which is invested in short-term Treasury securities.
However, it’s also true that there are some excellent businesses trading at valuations we haven’t seen in years. Here are two excellent examples that could be great additions to Berkshire’s portfolio. You may want to take a closer look at them, regardless of whether Buffett and his team end up buying.
A great play on digital infrastructure
Digital Realty Trust (DLR 0.18%) is trading for 40% below its 2022 peak and at a five-year low, despite excellent demand for its properties. If you aren’t familiar, Digital Realty is a real estate investment trust, or REIT, that specializes in data center properties.
Think of data centers as the physical homes of the internet. When you access a website (like you’re doing now), upload photos to social media, or use a cloud-based software program, all of that data has to live somewhere. Data centers provide secure and reliable facilities to house servers and other networking equipment.
We know Buffett loves infrastructure plays — after all, Berkshire Hathaway Energy is one of the company’s key businesses. And data centers are a more modern type of infrastructure that are (so far) absent from Berkshire’s portfolio. Buffett would also likely love the dividend. Digital Realty yields about 4.6% at the current price and has raised its dividend every year since going public in 2004.
The stock is down for a combination of reasons, including worries about future demand and general pressure on income instruments in rising interest-rate environments. But the long-term catalysts for data center demand remain strong. After all, the volume of data flowing around the world isn’t exactly getting smaller.
Buffett was late to the party on U.S. e-commerce
At Berkshire’s 2018 shareholder meeting, Warren Buffett said that he “made the wrong decision” on Amazon (AMZN 0.89%), making the mistake of underestimating the e-commerce-giant’s potential. Amazon has since been added to the portfolio, but only after it reached “tech-giant” status, and it’s a relatively small position for Berkshire.
A company that has some of the makings of Amazon, but in the much earlier stages of growth, is MercadoLibre (MELI 1.87%). As the leading e-commerce marketplace in Brazil, Argentina, and Mexico, it’s often referred to as the Amazon of Latin America — but there’s so much more to the company.
It has the Mercado Pago payments platform, which processes over $200 billion in annualized volume. It has the Mercado Envios logistics platform, as well as the fast-growing Mercado Credito lending business. And it’s important for investors to realize that e-commerce adoption, cashless payments, shipping networks, and consumer and business credit aren’t nearly as far along in their maturity as in the United States.
In short, MercadoLibre may be the Amazon of Latin America, but you could also make the case that it’s the PayPal, eBay, and maybe even the Shopify of Latin America, all in one stock and in the earlier stages of growth.
Could Buffett actually buy these?
To be perfectly clear, there is absolutely no reason to believe Warren Buffett or any of Berkshire’s investment managers have even considered currently adding either of these companies to their portfolio. The point is that these companies have a lot of the characteristics that Buffett tends to look for, such as MercadoLibre’s leading market share and Digital Realty’s predictable and growing income stream. And right now, both of these stocks are trading for 40% or more below their highs.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Matthew Frankel, CFP® has positions in Amazon.com, Berkshire Hathaway, Digital Realty Trust, MercadoLibre, and Shopify. The Motley Fool has positions in and recommends Amazon.com, Berkshire Hathaway, Digital Realty Trust, MercadoLibre, PayPal, and Shopify. The Motley Fool recommends eBay and recommends the following options: long January 2023 $1,140 calls on Shopify, long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $1,160 calls on Shopify, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short January 2023 $45 calls on eBay. The Motley Fool has a disclosure policy.