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Warren Buffett's Berkshire Hathaway is betting on private tech, stands to profit from Biden's $1 trillion infrastructure plan, and could be eyeing Chinese stocks. Veteran investor Darren Pollock explains why.

warren buffettDennis Van Tine/AP

Summary List Placement

Warren Buffett would love to invest up to $80 billion of Berkshire Hathaway's ballooning cash reserves. However, the famed investor is struggling to find compelling bargains with stocks at record highs, SPACs and private equity firms driving up the prices of acquisitions, and airlines and other industries facing fresh challenges.

The Berkshire CEO, his right-hand man Charlie Munger, and their portfolio managers, Todd Combs and Ted Weschler, have been casting a wider net as a result. Buffett's company also stands to gain from President Biden's $1 trillion infrastructure plan, and could capitalize on the recent sell-off in Chinese stocks, longtime Berkshire shareholder Darren Pollock told Insider in a recent interview.

Pushing the boat out

Buffett and his team, armed with plenty of cash but lacking in opportunities, have ventured out of their comfort zone recently.

The Berkshire chief famously invests in well-known, profitable, dominant US companies in relatively staid industries. Four of his largest holdings are Coca-Cola, Bank of America, American Express, and Kraft Heinz. Even his biggest holding, Apple, has a powerful consumer brand, generates massive profits, and commands significant market share.

Yet Berkshire struck a deal to invest about $570 million in Snowflake when the cloud-data platform went public last year, and invested $500 million in Brazilian fintech Nubank's latest funding round. It also built stakes worth a combined $6 billion in five Japanese trading houses last year, and invested in a basket of pharmaceutical companies including Pfizer and Merck in the third quarter of 2020.

Pollock, a portfolio manager at Cheviot Value Management, counts Berkshire as his firm's top holding with a $66 million stake at the end of June. He welcomed the private-tech bets.

"It's logical to increase Berkshire's opportunity set," he told Insider. "Todd and Ted, just like Warren and Charlie, seek value wherever they can find it."

However, Pollock emphasized that Berkshire's adventurous wagers were tiny relative to its size, and acquisitions would move the needle a lot more. "It's like dipping a toe in the water," he said. "We're still hoping to see the company buy businesses in their entirety."

Planes, trains, and candy

President Biden is getting closer to signing a $1 trillion infrastructure bill into law, paving the way for massive government investments in transportation, energy, homebuilding, manufacturing, and other parts of the US economy.

Berkshire's businesses includes the BNSF Railway, Precision Castparts, MidAmerican Energy, Clayton Homes, Berkshire Hathaway Home Services, Forest River, Acme Brick, and Nebraska Furniture Mart. As a result, the conglomerate is poised to be a major beneficiary of an infrastructure boom.

Pollock highlighted the direct benefit to Berkshire of greater demand for production and transportation of manufactured goods and industrial products. He also underscored the indirect impact of major fiscal stimulus.

"Widespread increased economic activity in the US can only help Berkshire," he said. "A stronger US economy means more discretionary dollars are available for things like Brooks Shoes, jewelry at Borsheims, and chocolates from See's Candies."

Swooping on Chinese stocks

Buffett loves a deal, his Japanese holdings show he's open to investing in Asia, and top investors including Munger, Ray Dalio, and Bill Miller have built stakes in Alibaba. The Berkshire chief might see the recent sell-off in Chinese stocks such as Alibaba and Tencent, sparked by fears of a regulatory crackdown, as his chance to buy in cheaply.

"Buffett was willing to take large stakes in several Japanese conglomerates a year ago, so it will be interesting to see if he does something similar with currently beaten down Chinese shares," Pollock said.

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