Buffett has bet nearly $5bn on the acquisition going ahead. Should I do the same with the smaller amount of cash I have available?

Microsoft’s monopoly

To the shock of the entire video game industry, tech specialist Microsoft announced that it would acquire Activision Blizzard in January 2022. The all-cash purchase is set to cost the Xbox maker $68.7bn at a price of $95 per share.

On the announcement, the stock price jumped nearly 40% before falling slightly to $72-$80 a share for much of last year.

The share price hasn’t reached the valuation Microsoft plans to pay because of regulatory concerns.

Activision Blizzard is a giant video games publisher. The company is so big that no other independent companies come close to its output and impact on the console gaming market. Its biggest competitor Electronic Arts‘ market cap ($35.65bn) is around half of the proposed value that Activision Blizzard commands.

The purchase would instantly make Microsoft the third-largest gaming company in the world. However, Sony (the second-largest) has been fighting hard against the acquisition.

Regulators worldwide have reviewed the acquisition rigorously to see if it violates antitrust laws. But Microsoft claims that because it would only be the third-biggest player by revenue, that’s not a monopoly. However, regulators don’t necessarily agree.

Buffett’s bet

Warren Buffett’s big buys of Activision Blizzard shares show him putting his money where his mouth is. He believes the deal will pass regulatory scrutiny, so in his opinion, there’s potential for easy money to be made.

Currently, the share price is around $75. If the acquisition goes ahead, there’s a profit of around $20 per share to be had from buying now. Buffett stands to make north of $1bn if the deal goes through.

So should I follow him and invest some of my own money in Activision Blizzard shares? Well, I’d actually bought shares in the company a week before the acquisition news for $62.35 a share. I sold my position on the day of the announcement for $84.95 each. That’s a fast turnaround for me as I’m generally a long-term investor.

I had no prior inclination that the company would be acquired, but I was happy to take the quick profit.

Early last year, I was pretty confident the deal would go through, as was Warren Buffett. However, now I’m not so sure. Microsoft has been trying hard to convince regulators in Europe and the US that the deal is good for the industry. Yet, as mentioned, they don’t seem to agree.

The US Federal Trade Commission is attempting to block the acquisition, though Microsoft intends to fight that in court. In short, the deal is getting messy.

I think it’s still likely to go through and I’ve been mulling whether to buy some shares again since the price fell to around $72. However, I’m not quite as confident as Warren Buffett, and I think investing now, it would be a pure gamble. I’m glad I sold my shares on the announcement day. I think I’ll quit while I’m ahead on this one.

The post Warren Buffett bought 9.5% of this company in 2022. Should I buy in now? appeared first on The Motley Fool UK.

Higher prices make shares less attractive to investors like me. It means that I have to pay more for the same stocks that I was buying last week and last month.

That makes it harder to find attractive opportunities. But Activision Blizzard and Berkshire Hathaway are stocks that I’m happy buying for my portfolio today.

Berkshire Hathaway

Let’s start with Berkshire Hathaway. Share prices have been going up across the board and Berkshire’s shares are 11% higher than they were a month ago.

That means the stock is less attractive than it was a month ago – I’d rather buy shares at $276 than at $306. But Berkshire is still one of my best shares to buy right now.

The company is facing a number of headwinds at the moment, most notably inflation and the possibility of recession. But I think that Berkshire’s strength will see the business do well over time.

Unlike other insurance companies, Berkshire invests its float in common stocks, rather than bonds. This allows it to earn a greater return than its competitors, which allows it to buy even more stocks.

Why don’t other insurance companies do this? Investing in stocks rather than bonds requires substantial cash to cover the possibility of underwriting losses. Berkshire has this, but other insurers don’t.

In other words, Berkshire’s biggest advantage is its balance sheet. This allows it to be conservative in its insurance writing and to invest at higher rates of return than its competitors.

Activision Blizzard

Activision Blizzard is also one of my best shares to buy right now. In a turbulent market, I think that the stock offers a degree of predictability that is hard to find at the moment.

Since the company is the subject of a takeover bid, the investment thesis isn’t entirely about its earnings. Microsoft is attempting to buy Activision in its entirety at a price of $95 per share.

Today, the Activision share price is $80. This implies a gain of just over 18% if the deal goes through. 

There’s a risk that the deal might not complete, though. If it doesn’t, I think that the stock is likely to fall to around $67, meaning a probable downside of around 16%.

I think that the deal is likely to go through, though. That means that I think the stock is attractive on a risk vs. reward basis.

It’s not just me that thinks this. Yesterday’s 13F filings revealed that Warren Buffett has been buying shares as well.

Shares to buy now

The stock market looks uncertain to me at the moment. Rising share prices are making stocks riskier, so I’m looking for opportunities that are as straightforward as possible.

That makes Activision Blizzard and Berkshire Hathaway two of the best shares for me to buy today. Activision’s future is relatively clear one way or another, and Berkshire has enduring strengths.

As such, with £500 to invest today, I’d look to buy both stocks. 

The post 2 of the best stocks to buy now with £500 appeared first on The Motley Fool UK.

The stock is Activision Blizzard (NASDAQ:ATVI) and it’s an unusual investment for Buffett (and for me). But I think that shares are a bargain at the moment, so I’m buying them for my portfolio.

Normally, Buffett prefers to invest in companies that he thinks will do well over time. The plan is to hold the shares indefinitely and earn an ongoing return from the cash the business generates.

With Activision, however, the story is different. The intention is to turn a relatively quick profit by selling the shares to Microsoft next year.

Like Buffett, I usually prefer to invest for the long term, based on the strength of a company’s fundamentals. I see Activision shares as an opportunity to do something different, though.

Arbitrage

Earlier this year, Microsoft agreed to buy Activision Blizzard in its entirety at $95 per share. I just bought Activision stock at a price of $79.47. 

If the deal goes through, I’ll sell the shares for 20% more than I bought them for. I think that’s an attractive opportunity.

Buffett seems to think something similar. Berkshire has bought 10% of Activision’s outstanding shares with a view to profiting from Microsoft’s takeover of the company.

That makes Activision stock Berkshire’s 10th largest investment. At just over $5bn, it’s the size of Buffett’s investments in Amazon.com, Visa, and Mastercard combined.

To me, this indicates that Buffett has confidence that Activision stock is a good opportunity at the moment. And I have the same view.

The deal is scheduled to conclude early next year. So I’m anticipating turning my £500 investment into £600 in relatively short order.

Risk

Obviously, the biggest risk to this is the deal not completing. If it doesn’t, then the share price will likely fall to roughly where it was before the announcement of the Microsoft deal.

I don’t think that this would be a disaster for me, though. Even as a regular investment, Activision shares look reasonably attractive to me.

The price I bought the stock at implies a market cap of $62bn. The company has a strong balance sheet, with $3.6bn in debt offset by $10.4bn in cash.

Activision generates around $2bn in free cash flow for its shareholders. At the price I bought the stock at, that’s a return of around 3.5%.

I don’t think that a 3.5% return is an amazing opportunity. But for me, it’s adequate as a contingency if things don’t go to plan with my investment thesis.

That’s why I’ve been buying Activision shares. If things go as I expect, I anticipate making 20% in a year and if they don’t, then I’ll own what I think is a solid business generating a 3.5% return.

The post I just invested £500 into this Warren Buffett stock appeared first on The Motley Fool UK.

Buffett’s merger arbitrage

Berkshire first invested in Activision in Q4 2021. The stock price had plummeted over 25% after a state lawsuit alleged a sexist culture. The allegations were disturbing and the company’s executives have a lot to answer for. Change was and is still needed. However, Activision owns popular franchises such as Call of Duty, World of Warcraft and Candy Crush. With 150 million monthly active players, Buffett sensed an opportunity to own a good business at a discount. So did Microsoft.

In January, Microsoft announced intentions to buy Activision for $95 per share – a $69bn valuation. It hoped to complete the deal in the first half of 2023.

Following this news, Berkshire loaded up on Activision stock. Its position grew from around $1.1bn to $5.8bn. That is a sizeable position for most but notably less than 1.5% of Berkshire’s portfolio.

This was a merger arbitrage trade. That means buying shares in a company at a discount to the takeover price and selling at a higher price when the deal completes. Amidst uncertainty of whether a deal will go through, the share price can be lower than the takeover price, creating this opportunity. Here’s what Warren Buffett had to say about the position at Berkshire’s 2022 Annual meeting in April:

“Occasionally I’ll see an arbitrage deal and do it. Occasionally it looks like the odds are in our favour, but absolutely we can lose money on that company, fairly large sums of money, depending on what happened if the deal blows up. We don’t know what the Justice Department will do, we don’t know what the EU will do, we don’t know what 30 other jurisdictions will do. One thing we do know is that Microsoft has the money.”

Activision shares trade at just under $78 per share. Based on the current valuation, an investment today could return nearly 22% if the deal go through. Berkshire could make over $1bn.

Not a sure thing

As with all acquisitions, it’s uncertain whether the deal will be approved. The deal will face the Federal Trade Commission, which recently blocked a merger between Nvidia and Arm. That was due to monopoly concerns.

This deal is different, however. Even after an acquisition, Microsoft would not have a monopoly in the gaming industry. Microsoft lags significantly behind Sony, Tencent and Apple for gaming revenues. In fact, Sony’s PlayStation Network has roughly four times more subscribers than Microsoft’s Xbox Game Pass.

That being said, the Activision acquisition would be the largest technology deal of all time, raising antitrust eyebrows internationally.

Calculated risk

A return of over 20% in a year’s time is enticing, especially in this market. Of course Warren Buffett hopes that the deal goes through so Berkshire can make a healthy short-term gain. However, if the deal collapses, Berkshire will own nearly 10% of a company that Buffett already wanted a piece of before the news of any deal.

The post This Warren Buffett gamble could return over 20% in the next year appeared first on The Motley Fool UK.

A Warren Buffett favourite

The first tech stock I’m considering buying is Activision Blizzard (NASDAQ:ATVI). In its own words, its creates “the most epic interactive gaming and entertainment experiences on earth, immersing players in new, unimagined worlds.” The share price is down 17% over the past year.

The business model has been working well in recent years, with the company in the process of being bought out by Microsoft. The deal still needs to go through lengthy regulatory approval, so I’m not buying the stock based on this.

Another investor also sees the appeal in buying this top tech stock, none other than Warren Buffett. The legendary investor revealed recently that via Berkshire Hathaway, he now owns 9.5% of the firm’s shares.

As a risk, Activision Blizzard has suffered reputational damages recently due to alleged cases of sexual discrimination and harassment. I’ll watch closely to see how this unfolds.

A long-time top tech stock

Another top tech stock that I like the look of is Intel (NASDAQ:INTC). The share price is down 24% over the past year, having a particularly bad time last week following disappointing results.

First-quarter revenue was down 7% year-on-year, with the forecast for the rest of the year being somewhat underwhelming. I understand this is a risk, with semiconductor chip shortages being compounded by supply chain issues. The lockdowns in Asia are also hindering production for the tech stock.

However, I’m bullish on the company in the long term. Production issues should ease later this year when lockdown restrictions end. Further, Intel has a well-diversified business with revenue coming from AI, computing, graphics and other divisions.

It’s also a tech stock that isn’t as high-risk as some other growth players that are still trying to reach mass to make a profit. In Q1 alone, Intel generated net income of $8.1bn, with a generous operating margin of 23.7%. Therefore, I don’t see it at any immediate risk of slumping to a loss.

The benefits of investing in tech

Even though I like the above US tech stocks, there are other UK-based options that I also find attractive. The great thing about the tech space is that it’s such a broad and fast growing area. As such, there are always new investing options popping up. Unfortunately, I don’t have an unlimited cash pool to invest in everything!

There’s a great piece that goes into detail on some top UK tech stocks, which can be read here. Some share options include Avast, Darktrace, and Ocado Group.

The post With £1k to invest, I’d buy these 2 top tech stocks appeared first on The Motley Fool UK.

Just this week, Jefferies placed a ‘buy’ recommendation on Activision Blizzard (NASDAQ: ATVI). The target price was set at $90 a share. Last week, the share price closed at $62. Is this an opportunity for me to buy?

Is ATVI a growth stock?

I think it’s safe to say that Activision Blizzard has been a growth stock in the past. The share price rose a huge 600% from 2013 to 2018. But recently, the share price has really underperformed other US growth stocks. In a year, the share price has fallen nearly 19%. And from the high in February, the stock is down a huge 41%.

But it’s important for me to review the financials. This says to me that the company is still a growth stock. For example, profit before tax is forecast to grow an impressive 30% this year. It’s notable that this profit growth is expected to slow to 5% the following year. But it picks back up again to 23% for 2023. Video game stocks do sometimes have inconsistent growth that depends on game release schedules.

The valuation is undemanding in my view. Indeed, on a price-to-earnings (P/E) ratio, the shares are valued on a multiple of 16 for this year. This is a steal for a growth stock nowadays. The S&P 500 is valued on a forward P/E of 23, so ATVI might be showing value at this share price.

Recent share price weakness

So what has caused this growth stock to underperform lately? The company does boast huge game franchises, such as World of Warcraft and Call of Duty, after all.

Well, it has been dealing with a host of accusations over employee abuse and harassment. The CEO this week was even reported to be considering stepping down, which would no doubt cause further disruption at the business. Worryingly, employees even staged a walkout in November, demanding that the CEO resign due to the allegations at the company.

It’s understandable, then, why the share price has weakened. Accusations like these should never happen. But simply focusing on the business aspect, it may have caused huge disruption in gaming development schedules, not to mention poor employee morale. And there’s a question on whether investors would want to buy the shares of a company where employees aren’t being treated right.

What I’d do

I really like the prospects for continued growth of the gaming sector. It’s the biggest entertainment industry, and e-sports is an accelerating trend that I think will explode from here.

The company still shows impressive earnings growth, and I believe it can still be classed as a growth stock. Its valuation is also attractive, in my view.

However, for now, I’m going to see how the situation plays out. If the CEO does step down, and the company is able to work through its controversies, I think there’s a promising growth stock here. But I feel there might be better stocks to buy just now.

The post Jefferies says this growth stock is a buy. Here’s what I’d do appeared first on The Motley Fool UK.