Berkshire Hathaway’s new stock pick Ulta Beauty is a classic value play after a 30% sell-off – CNBC

Warren Buffett’s Berkshire Hathaway’s New Stake in Ulta Beauty

Warren Buffett’s Berkshire Hathaway recently debuted a new stake in beauty retailer Ulta Beauty, a deep value bet that validated a belief that the stock was significantly oversold. The Omaha-based conglomerate unveiled a $266 million bet on Ulta Beauty in a regulatory filing late Wednesday, prompting the shares to climb 11% the next day. Many view the purchase as a classic value buy after the beauty supply chain’s stock suffered a big sell-off this year amid slowing demand and increased competition.

“We view this development as a vote of confidence for the company’s longer-term prospects and a further validation of ULTA’s significantly discounted valuation,” Oppenheimer analyst Rupesh Parikh said in a note.

ULTA YTD mountain Ulta Beauty shares in 2024. Before Buffett’s purchase boosted the stock, Ulta had tumbled 32% in 2024, trading at just 12 times forward earnings, according to FactSet. After falling 26% in the second quarter alone, the stock shed another 15% since the end of June as the retailer warned of cooling demand in the beauty category. Meanwhile, other retailers, including Macy’s and Kohl’s, have been trying to drive sales growth by expanding their focus on beauty products.

“I can’t believe how cheap Ulta has gotten,” Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors said on CNBC’s “Squawk Box” Thursday. “This is a company that’s growing revenues in the 20% range… it’s just had a bit of a stumble.”

Given Ulta’s relatively small size, it’s widely speculated on Wall Street that one of Buffett’s lieutenants, Ted Weschler and Todd Combs, was responsible for buying Ulta. The two managers, who share the same value investment philosophy as Buffett, each oversee about $15 billion of Berkshire’s equity portfolio, now worth well over $300 billion. Berkshire has successfully invested in consumer-focused companies for decades, including longtime holdings Coca-Cola and Kraft Heinz, as well as more recent purchases Kroger and Floor & Decor.

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