Forget the Apple share price, I’m watching Warren Buffett’s newest purchase

Keeping an eye on the Apple share price has always been key, but with investing great Warren Buffett selling half his stake, I’ve got my eyes on another.

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While much attention has been focused on the Apple share price after Berkshire Hathaway trimmed its massive stake, I’m far more focused on the Oracle of Omaha’s newest addition to his portfolio: Ulta Beauty (NASDAQ:ULTA). So what made this beauty giant an attractive investment for the world’s most famous value investor? Let’s take a closer look.

A new position

In a recent regulatory filing, it was revealed that Berkshire Hathaway purchased about 690,000 shares of Ulta Beauty in the second quarter, valued at approximately $266m as of 30 June. This new position immediately caught the market’s attention, with the shares surging 14% in after-hours trading following the announcement.

The company operates as a speciality beauty retailer in the US, offering a wide range of cosmetics, fragrances, skincare, haircare and salon services. With over 1,300 stores across 50 states, it has established itself as a one-stop shop for beauty enthusiasts, carrying both prestige and mass-market brands.

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This is one of the firm’s key strengths with a broad product assortment across various price points. The diverse offering allows the company to cater to a wide range of consumers, from price-conscious shoppers to those seeking high-end luxury names. This strategy has helped it become a preferred destination for prestige beauty products, perhaps giving it a competitive edge in a very crowded market.

Solid numbers

Overall, recent financial performance has been solid, with the company reporting $11.3bn in revenue for the trailing 12 months. Despite facing challenges from the rapid expansion of competitors like LVMH‘s Sephora both as standalones and in Kohl’s stores, the business has maintained a pretty strong market position.

I suspect the company’s valuation may have also attracted Buffett’s attention. The shares currently trade at a price-to-earnings (P/E) ratio of around 16 times, which is lower than its historical average. This relatively attractive level, combined with the company’s growing market position and potential, aligns well with Buffett’s value investing philosophy.

Looking ahead, management has set out several initiatives to drive growth. The company is focusing on expanding its assortment, enhancing its digital capabilities, and strengthening its loyalty programme. These efforts are expected to contribute to an acceleration in comparable sales growth in the second half of 2024.

Risks ahead

However, it’s important to note that the company faces some challenges. Management recently updated its fiscal 2024 forecast, lowering its comparable sales growth projection to 2%-3% from the previous 4%-5%. Additionally, increased promotional activity has been putting serious pressure on merchandise margins.

Despite these challenges, I’d suggest Buffett’s investment signals confidence in its long-term prospects. As always, Buffett’s approach is to invest in businesses with strong fundamentals and competitive advantages, rather than trying to time short-term market movements.

For investors considering following Buffett’s lead, I think it’s worth noting that the shares have seen some significant volatility in recent years. They reached an all-time high of $574.76 in 2023 before pulling back to current levels around $365. This volatility underscores the importance of adopting a long-term perspective when investing, much like Buffett himself.

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So, while Apple remains Berkshire Hathaway’s most valuable holding, I’d say Buffett’s new purchase deserves attention. When the world’s most successful investor makes a move, it’s certainly worth taking notice, so I’ll be adding the company to my watchlist for now.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Gordon Best has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

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