Buffett’s Cash Hoard Signals Market Caution, Value Plays Emerge

Key Points

• Warren Buffett's cash pile has grown to levels not seen since the last great market selloffs, a sign that he could be expecting lower prices ahead.
• If Buffett is right again, investors may want to have these three companies in their watchlists ready to go.
• Wall Street likes them, and so do institutional investors as inevitable long-term winners.

Warren Buffett, the legendary value investor, always says investors should never attempt to time the market but rather accumulate time in it so that the long-term effects of economic growth in the United States can affect businesses and their valuations moving forward.

However, that’s his recommendation to the masses, not necessarily how he operates.

While he is a long-only investor, meaning he cannot bet against companies or indexes, there is a way to measure how bullish or bearish the legendary investor is at any given time. Investors can follow this measure by tracking how much cash (as a percentage of total assets) he holds in his investment company, Berkshire Hathaway Inc. NYSE: BRK.A.

Today’s cash level has not been seen since the last major economic event.

This is a potential signal that he is waiting for better deals to come (meaning lower stock prices), which is why examples like 1999, before the dot com bubble burst, or 2008, during the great financial crisis, show Buffett holding so much cash as a percentage of assets.

That pattern suggests he may again be waiting for better entry points. For investors today, this backdrop highlights the importance of focusing on high-quality, resilient businesses. Companies like PepsiCo Inc. NASDAQ: PEP, Waste Management Inc. NYSE: WM, and Costco Wholesale Corp. NASDAQ: COST fit that bill, making them a compelling watchlist in a potentially overvalued market.

Pepsi’s Discount Is Still Alive

One of the stocks that will require a little less waiting is Pepsi, considering that (despite trading at new 52-week highs) its valuation multiples are still hovering near the lower end of the historical spectrum. The stock’s forward price-to-earnings (P/E) ratio can be a key gauge for investors to watch.

Today’s multiple of 18.1x would still provide a discount compared to the historical average of closer to 23.0x, meaning that even before those better deals come about, Pepsi could justify a slow and steady buy scheme known as dollar cost average (DCA).

Being part of the consumer staples sector gives Pepsi investors an advantage in this name, considering that demand doesn’t fluctuate that much and that future consumption of the company’s products is relatively stable over time. The company's products are convenient in terms of price and ease of access across many establishments in the United States and overseas.

Another benefit of stable finances is rewarding shareholders through items like dividends. Even if Pepsi takes longer to revert to its normal valuation multiples, investors can still lock in a current $5.69 per share payout for an annualized dividend yield of 3.8%. At the same time, they wait for that fair value to come back into the scene.

Wall Street Likes Waste Management Stock

Technology and innovation will come in and out of style, but what probably never will is the need for garbage and waste disposal. This makes Waste Management a company investors should want to own at the first sign of a decline. This “boring” business has delivered long-term returns almost like clockwork due to its unique business model.

This performance is only going to continue into the future, something that Wall Street analysts know and have become very accustomed to. In fact, as of late July 2025, Scotiabank analyst Konark Gupta decided to place a Sector Outperform rating on the stock with a price target of $275 per share.

This view stands above the consensus Moderate Buy rating and $254 price target, which call for a 23% upside from the stock's current price. A call above consensus is always a sign of conviction and confidence in a stock’s future potential, which Waste Management has an excess of, as it has shown through its many years of operation.

Even with the hyper-growth markets that other industries and areas of the economy have enjoyed, some institutions still see this company as a worthy buy. Those from Ameriprise Financial just boosted their holdings by 1.4% in August 2025, bringing their net position to a high of $1.2 billion today, another sign of high conviction for the future.

Costco Is the Premium Stock

Like Waste Management’s continued success is a certainty, Costco is also one. It will continue to deliver value to its consumer base and investors who invest in the company’s future. For this reason, the company will be a great value addition to any watchlist in the coming years.

This is especially the case if Buffett is right to sit on the sidelines waiting for these discounts to come about, and the market already has its sights on Costco, for that matter. By trading at a P/E ratio 55.5x today, Costco commands a premium above the retail sector’s average 26.5x P/E multiple today.

While some investors may view this as expensive, savvy ones will argue that the market is always willing to overpay for companies that remain resilient during a decline and recover quickly from any sign of volatility, making Costco the perfect go-to for investors.