Key Points

Berkshire Hathaway sold all its Amazon shares, which is not surprising upon closer review.
The conglomerate invested in a well-known retailer whose prospects are improving.
10 stocks we like better than Macy's

Greg Abel took over from Warren Buffett as CEO of Berkshire Hathaway at the start of the year. His first quarter leading the firm proved busy. Abel and his team closed several positions while purchasing shares in new companies. Some selections were expected. For instance, Apple stays Berkshire Hathaway's largest holding, as anticipated. Another move that may appear unusual at first but holds logic is the decision to exit Amazon (NASDAQ: AMZN).

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Why Berkshire Hathaway exited Amazon

Amazon leads in e-commerce and cloud computing. It offers exposure to multiple markets. The company's revenue and earnings grow steadily, and it holds promising long-term potential across its competitive areas. Further, Amazon enjoys a wide moat from its brand, network effects, and switching costs. All of these elements (and more) arguably position the stock as an attractive long-term investment that aligns somewhat with Buffett-style criteria.

However, Amazon represented a small slice of Berkshire Hathaway's portfolio. The conglomerate held roughly 2.3 million shares as of the fourth quarter. That made up a minor part of Berkshire's large $263 billion portfolio. Further, Abel and his team sold many stocks (including Amazon) overseen by Todd Combs, who departed the company in December to join JPMorgan. Thus, it was not a shocking action. Now consider one choice Abel made in the first quarter that seems more puzzling.

Berkshire purchases a position in a legacy retailer

Berkshire Hathaway acquired about three million shares of Macy's (NYSE: M). At first glance, this appears questionable. Macy's has encountered major challenges in recent years. In fact, the past decade has been difficult for the retailer. The move to e-commerce and reduced mall and department store traffic have produced weak financial outcomes. Meanwhile, Macy's has met rising competition from many sources beyond online sellers. The company has struggled to expand revenue meaningfully for years, and the best top-line gain recently occurred after the pandemic, when customers who had been confined at home could venture out once more.

M Revenue (Quarterly YoY Growth) data by YCharts

In fairness, Macy's has achieved some gains. More recent financial results have strengthened amid efforts to improve. The company notably reduced its retail space by closing unprofitable stores and selling real estate assets while advancing its e-commerce efforts.

It is also notable that Macy's has endured this long, especially since other legacy retailers failed and closed. However, can Macy's generate strong returns going forward? Or is there another factor behind Abel and his team's interest? Perhaps Berkshire Hathaway is drawn to Macy's real estate assets because they may exceed the value the market assigns the company. It is in this way that the retail giant may be "undervalued."

We could also examine standard valuation measures. Macy's trades at 10.2x forward earnings, below the consumer discretionary average of 26.2. Macy's also looks undervalued by this measure, at least initially. It is also worth noting that in the first quarter of its fiscal year 2026, ending on May 2, Macy's net sales rose by 1.8% year over year to $4.7 billion, while comparable sales grew 3% year over year. The company's adjusted earnings per share rose to $0.13, up 18% from the prior-year period.

The company surpassed Wall Street estimates on both top and bottom lines. Macy's raised its guidance for the full fiscal year 2026 as well. Macy's is advancing positively. Significant risks remain, which likely explains why Berkshire Hathaway did not purchase enough shares to rank it among top holdings. Still, at present prices, Macy's could merit another look from contrarian value investors.

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JPMorgan Chase is an advertising partner of Motley Fool Money. Prosper Junior Bakiny has positions in Amazon and Berkshire Hathaway. The Motley Fool has positions in and recommends Amazon, Apple, Berkshire Hathaway, and JPMorgan Chase. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.