Is This Buffett Stock a Buy Right Now?
In the first quarter of 2022, Warren Buffett's firm, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), plunked down $4.2 billion for 121 million shares of personal computer and printer maker HP (NYSE: HPQ). Shares of HP jumped as the news broke that Buffett took a position in the company. Before that, though, the stock had gained an underwhelming 50% since October 2009. What did Buffett see in the company that no one else saw?
Even the novice Buffett disciple can tell you that Buffett loves companies that generate tons of cash flow. HP checks that box. In its 2021 fiscal year ended Oct. 31, 2021, HP generated free cash flow of $5.8 billion and had a market cap of about $35 billion. That means the stock had a free cash flow yield of 16.6% -- not too shabby!
Buffett is also a huge proponent of valuation. He likes to buy the stocks of companies that trade at low P/E ratios, like HP. During the fourth quarter of 2021, HP's P/E ratio slumped to the mid-single digits. To put the P/E ratio in perspective, since 1935, the average P/E ratio of S&P 500 stocks has been 15.5. Buffett was able to pick up shares at an attractive valuation compared to historical valuations.
Source Fool.com
