The stock market has been a tough place to be in 2022, and even the best investors in the world have had difficulty navigating the difficult investing environment. Warren Buffett has an impressive long-term track record, but even he has had difficulty picking stocks that have shown immediate results.
Indeed, many of Buffett’s newest picks over the past year have seen huge declines. But one winner stands out from the crowd. Below, you’ll learn more about that company and its future prospects, but first, let’s look at some of the Buffett buys that haven’t worked out as well — at least in the short run.
A tough time for Berkshire stock-picking
To be clear, Buffett likely isn’t the only one adding stocks to the portfolio at Berkshire Hathaway (BRK.A -2.63%) (BRK.B -2.74%). Younger team members like Greg Abel and Ajit Jain are also responsible for making investing decisions, and they’re likely the ones behind some of the stock picks that end up among Berkshire’s holdings.
Nevertheless, considering Berkshire’s moves on the whole, you’ll find that Buffett and his team have been early buying shares of many new stocks. Consider the following:
- Nu Holdings (NU -1.00%) attracted Berkshire’s attention even before its IPO. Yet the Brazilian fintech stock has performed poorly, losing half its value from its IPO price and likely seeing substantial declines even from what Buffett paid.
- Hardwood flooring specialist Floor & Decor Holdings (FND -5.06%) made its way into the Buffett portfolio in the third quarter of 2021. Even after nearly a 50% rebound recently, the stock is still markedly down from where it traded last year from July to September.
- Plays on financial institutions haven’t really paid off yet. New purchases of Citigroup (C -4.38%) and Ally Financial (ALLY -4.23%) have suffered from a volatile interest rate environment that doesn’t guarantee higher immediate profits for banks.
Obviously, Buffett won’t be concerned with any of these short-term results. The Berkshire CEO prefers to make long-term investments and can’t be bothered to consider share-price changes that happen in weeks or even months.
Nevertheless, it is good to note that at least one of Berkshire’s recent additions has done well. Let’s take a closer look at this healthcare company to see why it’s doing so well.
A nice boost from McKesson
McKesson (MCK -2.75%) joined the Berkshire portfolio in the first quarter of 2022. Already, it has done extremely well, building on gains from 2021 to rise nearly 50% year to date.
McKesson’s business is deceptively simple. The company’s drug distribution business ensures that both brand-name and generic drugs get to where they need to go, and it also serves medical and surgical professionals with various supply distribution and logistics needs. McKesson’s business is global, with its international segment serving Canada and 13 countries in Europe.
With solid profits, McKesson makes a natural pick for Buffett. After having built up an initial position, Berkshire incrementally added to its stake in McKesson in the second quarter. However, the holding is still a small one for both companies, with Buffett’s roughly $1 billion investment representing just a quarter-percent of Berkshire’s stock portfolio and just over 2% of McKesson’s outstanding shares.
What the future will bring
McKesson looks attractive in large part because of its insensitivity to economic conditions. People don’t stop needing prescription drugs, and the drug distributor can therefore count on constant demand. McKesson also isn’t reliant on a pipeline or the ups and downs of clinical research while still giving Buffett healthcare sector exposure.
Buffett has a long history of strong stock picking, so it’s not surprising to see him find promising companies even in a downturn. In the long run, McKesson might well turn out to be one of the Oracle of Omaha’s best choices in 2022.
Ally is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Dan Caplinger has positions in Berkshire Hathaway (B shares). The Motley Fool has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool recommends McKesson and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), 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.