How Warren Buffett Quietly Invested In Alphabet and Shopify Before Their Stock Splits
There has been something of a cottage industry this year in speculating whether or not Alphabet (GOOG -2.56%) (GOOGL -2.32%) and Shopify (SHOP -14.06%) were good picks to buy before their respective stock splits. Alphabet’s share price is now below the level it was prior to its stock split, while Shopify’s price is up somewhat. But those moves don’t seem to be related to the splits at all.
We now know that one prominent investor indirectly gained stakes in both stocks earlier this year. Here’s how Warren Buffett quietly invested in both Alphabet and Shopify well before their stock splits.
Buying a baby
You’re not going to find either Alphabet or Shopify on any 13-F filings for Berkshire Hathaway (BRK.A -0.91%) (BRK.B -0.93%), the company in which most of Buffett’s net worth resides. You won’t find any public comments or disclosures from Buffett himself about purchases of the two growth stocks, either.
However, Buffett indeed does indirectly own positions in Alphabet and Shopify now. How? Berkshire bought a 3.1% stake in Markel (MKL 0.22%) in the first quarter of 2022. And Markel owns shares of both Alphabet and Shopify.
Markel has been referred to as a “baby Berkshire” for good reason. Like Berkshire, it generates a lot of float from its insurance business. Markel focuses on the specialty insurance market, providing insurance to customers who typically can’t get traditional insurance.
Also like Berkshire, Markel is a holding company that invests heavily in other businesses. Some of those businesses aren’t publicly traded, but many of them are. Markel’s biggest equity position is in none other than Berkshire Hathaway itself.
Are Alphabet and Shopify now Buffett stocks?
Markel is a quintessential Buffett stock. I’d even argue that it’s a top contender for the best stock in the legendary investor’s portfolio. But should Alphabet and Shopify now be viewed as Buffett stocks?
On one hand, the answer is an unequivocal “no.” Berkshire didn’t buy Markel to get its hands on Alphabet and Shopify. The giant conglomerate could have easily bought either stock directly, had Buffett or one of his investment managers chosen to do so — but it hasn’t.
However, Buffett has admitted to making a mistake by not buying Alphabet (then Google) years ago. He even played a key role in Google going public in the first place.
The Oracle of Omaha doesn’t have that kind of history with Shopify. However, Buffett has admitted that he missed the boat on buying Amazon.com earlier. Amazon is now in Berkshire’s portfolio. Shopify shares several things in common with Amazon and is positioned as a formidable rival in e-commerce.
But there’s one factor about Shopify that makes it unlikely Buffett will push Berkshire to invest any time soon — its valuation. Shopify stock trades at a whopping 588 times expected earnings and nearly 10 times trailing-12-month sales.
Alphabet appears to be more reasonably priced, though. Its shares trade at less than 19 times expected earnings. That’s lower than Berkshire’s forward earnings multiple. Also, Alphabet’s price-to-earnings-to-growth (PEG) ratio is a low 0.78. Buffett might not use the PEG ratio in his analysis, but he certainly factors growth into the equation when evaluating a business.
One thing Buffett couldn’t care less about
You can rest assured Buffett couldn’t care less about stock splits in his decisions to buy any stock. The multibillionaire wrote to Berkshire shareholders earlier this year that he and his longtime business partner “are not stock-pickers; we are business-pickers.” If Buffett doesn’t pick stocks per se, he definitely isn’t focused on stock splits.
I suspect that Buffett would find a lot to like about the businesses of both Alphabet and Shopify. Although he only owns shares of the two companies indirectly, they could help make Buffett even wealthier over the next few years.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Alphabet (A shares), Amazon, and Berkshire Hathaway (B shares). The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Berkshire Hathaway (B shares), Markel, and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify, long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $1,160 calls on Shopify, short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.