What Buffett’s Latest Win Can Teach Us About Finding Takeover Targets…

Last week, I wrote about one of my favorite topics: Warren Buffett.

It couldn’t have been better timing. You see, Buffett is having another nice moment in the sun. As many high-growth tech names have fallen back to earth, his investing approach has once again been vindicated.

Will we ever learn?

We all know that Buffett is known for his long-term approach. In fact, in that piece, I specifically touched on what we can learn from Berkshire’s insurance operations – and how investors would be wise to add a nimble insurance name or two to their portfolio.

But every once in a while, the Oracle of Omaha scores a big short-term win, and that’s exactly what happened recently.

Buffett’s Latest Big Win

On February 14, Berkshire Hathaway (NYSE: BRK/B) released its 13F filings for the fourth quarter of 2021 with the Securities and Exchange Commission. And since this is publicly available info, we got a chance to take a peek at what Buffett & Co have been up to over the past three months…

We may dive into more of Buffett’s moves later, but one nugget in particular stood out. It turns out that he picked up close to $1 billion worth of video game company Activision Blizzard (Nasdaq: ATVI) during the quarter.

Then, as you may have read, Microsoft (Nasdaq: MSFT) came calling in January with a takeover offer.

Now, before I go any further, I want to address something I found a little frustrating. If you spend any time on Twitter following the financial news like I do, you may have seen a few people raising their eyebrows due to Buffett’s friendship with Microsoft co-founder Bill Gates.

I wouldn’t pay any mind to those for one second. Gates has been out of Microsoft for years – he’s not even close to the day-to-day operations. Besides, why now, at the age of 91, would Buffett do anything untoward with such a paltry position in a $331 billion portfolio?

As the Oracle himself one famously said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

Anyway, Activision has been plagued by a number of delays with some tentpole video game titles, not to mention a nasty lawsuit alleging gender discrimination and a toxic work culture. That was enough to send ATVI shares down to the mid-$50s after reaching as high as $103 in January 2021.

But as we’ve pointed out before in these pages, video games are big business. Bigger than Hollywood, in fact. And it’s only going to get bigger…

Berkshire saw value here – or to be more precise, it’s likely that one of Buffett’s lieutenants, Ted Weschler or Todd Combs, saw the value.

ATVI brought in sales of $8.8 billion in 2021, a 10% improvement on a previously record-setting 2021. Operating margins for 2021 were 37%. That means for every dollar of sales, the company made $0.37.

Just what Buffett and his team like to see — a business that prints money, trading at an extremely reasonable price.

So did Microsoft, especially when it came to bolstering the X-box console and its video game publishing efforts. According to the offer terms, MSFT will pay $95 per share, an all-cash deal valued at $68.7 billion.

Microsoft’s entire gaming division reported $15.4 billion in revenue in 2021. And there’s no quicker way to grow your revenue base by more than 50% than by simply buying it…

Action To Take

Shares of ATVI have popped to about $81 as I write this – giving Buffett a quick gain of roughly 22%. But that also means there’s still some meat left on the bone as investors wait for the deal to be consummated.

The point is, if you find yourself in the position of owning shares of a company that gets a takeover offer, big gains can happen — practically overnight.

And while it may seem like it takes a crystal ball to identify takeover targets, the truth is that you don’t need one…

Contrary to what some might think, Buffett doesn’t have one either. But by taking a Buffett-like approach to finding underappreciated companies in growing industries, you can put yourself in a pretty good position.

That’s exactly what my colleague Nathan Slaughter does over at his premium service, Takeover Trader.

In fact, Nathan just released a report about the massive wave of big-time energy deals we’re likely to see in the coming months, revealing his top target…

This small company is sitting on top of one of the largest finds he’s ever seen… Thanks to rising oil prices, the stock is already starting to make a run. But by getting in now before the rumor mill picks up, investors have the chance to pocket triple-digit gains, practically overnight.

Go here now to learn more…