Sometimes identifying the best stocks to buy can be difficult, but if you examine billionaire Warren Buffett’s moves, you can learn a thing or two.
Buffett is many things — one of the world’s most successful fund managers, legendary philanthropist and owner of over 60 companies. Now, the “Oracle of Omaha” as he is known, has revealed the third-quarter trades of his $177 billion Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) fund.
The result: a valuable glimpse into which stocks Buffett likes, and which he doesn’t. Now we can look back over 2017 and pinpoint Buffett’s best stock picks this year. These are the stocks that this hedge fund guru is most bullish on.
Bear in mind that the 13F forms filed with the U.S. Securities and Exchange Commission reveal trades made in the last quarter rather than the current quarter, so it is possible that the fund’s Q3 positions have since changed. Nonetheless, his moves are still carefully tracked by investors around the world.
Here we also include TipRanks’ stock insights from Wall Street’s best-performing analysts. Does the Street sentiment match Buffett’s stocks to buy? We look at the outlook on these stocks from the best-performing analysts on Wall Street. These are the analysts that consistently outperform the market with the highest success rate and average return.
Let’s delve in now:
Warren Buffett Stocks to Buy: Bank of America (BAC)
Buffett is now Bank of America Corp’s (NYSE:BAC) largest shareholder. Back in August, he made a snap $12 billion profit after exercising the fund’s right to acquire 700 million shares at a steep discount following the initial purchase six years ago. And it would seem Buffett hasn’t looked back since.
In the third quarter, he extended his position by 6.82% to 679 million shares valued at over $17.2 billion. BAC is now the fund’s fifth-largest position and Buffett’s favorite bank stock. “Bank of America has done a sensational job under [CEO] Brian Moynihan” he told CNBC recently, before adding that Berkshire “will be holders of Bank of America stock for a long, long, long time.”
Berkshire isn’t the only fan of this large-cap financial stock. The Street also has a ‘Strong Buy’ consensus on BAC. This breaks down into 8 buy ratings and 2 hold ratings from top analysts in the last three months. Meanwhile, the $29.20 average price target means upside of over 11% from the current share price. Earlier this month, on Nov. 14, four-star Renaissance analyst Howard Mason upped his price target on BAC. He says:
“We are raising our 12-month PT for BAC from $29 to $32 as the return-on-tangible-equity (ROTE), likely just over 11% for FY2017, increases to near 14% by 2019. Key drivers are: Operating leverage … capital return and …. a capital and credit tailwind from continued run-off of the legacy portfolio.”
Warren Buffett Stocks to Buy: Apple (AAPL)
Newcomer Apple Inc. (NASDAQ:AAPL) has fast become one of Warren Buffett’s favorite stocks. Since initiating the position in Q1 2016, Buffett loaded up on AAPL stock in every single quarter of 2017. The fund’s total AAPL holding now stands at 134 million shares, worth a whopping $20.6 billion. In Q3, he picked up 3.9 million shares, making AAPL the fund’s third-largest holding.
After missing the tech sector rally (Buffett recently admitted that he “blew it” by not investing in Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) earlier), the Oracle of Omaha has been busy plowing money into AAPL. And from Berkshire Hathaway’s recent annual meeting (according to Silver Value Partners’ Gary Mishuris) Buffett revealed just why he likes AAPL so much:
- AAPL is more of a consumer company than a tech company (Buffett famously avoids tech stocks);
- Apple’s brand and eco-system results in a loyal community of AAPL users with high switching costs. Consumers stick with AAPL products because of the ecosystem (iTunes, apps, etc.); and
- Its products are popular because of the aesthetics and ease of use rather than technological superiority.
AAPL also has the Street’s seal of approval. Apple scores a ‘Strong Buy’ top analyst consensus and in the last three months, analysts have published 23 buy ratings versus just 6 hold ratings on the stock. These analysts believe, on average, that AAPL is a great stock to buy as it can soar by a further 10.66% over the next 12 months.
Drexel Hamilton’s Brian White is the most bullish. He says: “We were the first on Wall Street to project that Apple would reach a $1 trillion market cap as reflected by a price target; our current price target of $235.00 equates to approximately a $1.2 trillion market cap.”
Warren Buffett Stocks to Buy: Synchrony Financial (SYF)
Berkshire recently initiated a large position in Synchrony Financial (NYSE:SYF), and in Q3 Buffett ramped up this holding by another 19%.
The fund’s total holding in this private-label credit card company now stands at 20.8 million shares with a value of over $645 million. Although Warren Buffett has not commented publicly about his investment in SYF, we can see that he does have big positions in other credit card companies including $1.1B in Visa Inc (NYSE:V) and $696 million in Mastercard Inc (NYSE:MA).
And it seems like Buffett’s move is paying off. A promising deal between SYF and leading digital payment company PayPal Holdings Inc (NASDAQ:PYPL) was just announced earlier this month. PayPal will now sell Synchrony $5.8 billion in receivables and another $1 billion in participation interests held by third-party companies. Crucially, PayPal also says that this deal “significantly expand[s] their strategic consumer credit relationship” with Synchrony. Following the news, SYF shares spiked 3%.
Overall, this stock has a cautiously optimistic outlook from top analysts. In the last three months, the stock has received 6 buy ratings vs. 4 hold ratings. These analysts have an average price target of $37.44, suggesting close to 6% upside potential from the current share price.
Warren Buffett Stocks to Buy: General Motors (GM)
Buffett is also a long-standing supporter of top dividend stock General Motors Company (NYSE:GM). After substantially boosting Berkshire’s GM position by 20% in Q2, the fund now holds 60 million GM shares valued at $2.4 billion. While Tesla Inc (NASDAQ:TSLA) has been hogging most of the self-driving spotlight, GM is busy making its own mark in this fast-growing space.
Guggenheim recently upgraded GM from Hold to Buy on the back of the company’s “vision for an autonomous future” as well as a “comfortable” 2018 outlook. “GM has expressed notable optimism about the status of its AVs, and seems confident it can launch a ride-hailing fleet of robo-taxis well before 2020 for geo-fenced urban areas,” says analyst Emmanuel Rosner “CEO Mary Barra has famously said and repeated that GM’s AVs are quarters away, not years.”
Top analysts appear divided on the outlook for GM. In the last three months, the stock has received four buy ratings and four hold ratings. For example, Morgan Stanley’s Adam Jonas is concerned that GM will be unable to exceed rising investor expectations.
On the flip side, Deutsche Bank’s Rod Lache calls GM his top pick in U.S. autos, and recommends buying the stock heading into 2018. Meanwhile, the average analyst price target of $49.83 suggests 14% upside from the current share price.
Warren Buffett Stocks to Buy: Southwest Airlines (LUV)
At the end of 2016, Buffett shocked the market with huge investments in four key airline stocks. Only a few years ago Buffett called the sector a “death trap for investors” However, with the industry fast consolidating, he has now changed his tune. Buffett’s partner, Charlie Munger, explains “It (the railroad industry) was a terrible business for 80 years … but they finally got down to four big railroads, and it was a better business. And something similar is happening in the airline business.”
And one of the four stocks to buy that he particularly likes is Texas-based Southwest Airlines Co (NYSE:LUV), the world’s largest low-cost airline carrier. After initiating his $2.1 billion position in LUV, Buffett continued to ramp up the stock in 2017. In Q1, Buffett ramped up the position by 10% with the purchase of 4.45 million more shares. Now the fund has a huge $2.7 billion stake in LUV.
Deutsche Bank’s five-star analyst Michael Linenberg is also confident on LUV stock. He boosted his price target from $63 to $71 at the end of October, indicating upside of over 20%. According to Linenberg, the revenue environment is improving and Southwest should also benefit from its new reservation system. Note that Linenberg boasts a very impressive 89% success rate and 41% average return across his 18 recommendations on the stock.
Over the last three months, AAL has received five analyst buy ratings and just 1 hold rating. Given that LUV is now trading at $67.50, the average analyst price target suggests upside of close to 15% from the current share price.
Warren Buffett Stocks to Buy: Monsanto (MON)
Monsanto Company (NYSE:MON) is one of the world’s top suppliers of farm pesticides and seeds. It describes itself as a modern agricultural company that uses innovation to help farmers grow food more sustainably. In the latest quarter, Buffett ramped up the fund’s MON position by 10% with 831,685 new shares. Now, the fund holds over 8.8 million shares valued at well over $1 billion.
German drugs and pesticide group Bayer AG is planning a massive $63.5 billion takeover of Monsanto. The deal was supposed to go through in 2017, but it has been delayed by an antitrust review from the European Commission (EC). The EC will now deliver its verdict in January 2018.
Bayer’s CEO Werner Baumann says the review is going into “unimaginable depths,” but he is confident that the deal will close early next year. “To illustrate the point, we have by now delivered more than 4 million pages of documents to the EU commission,” Baumann said recently. And it would seem from Buffett’s ongoing support that he is also optimistic the deal will go through.
The picture from the Street is muddied. Over the last three months, this ‘Moderate Buy’ stock has received 2 buy ratings and 3 hold ratings. Meanwhile, the average analyst price target of $127.20 stands at an 8% upside.
Warren Buffett Stocks to Buy: Bank of New York Mellon (BK)
Last but by no means least we have diversified financial services giant Bank of New York Mellon Corp (NYSE:BK). In Q1 and Q2, Buffett significantly increased this position by over 52%.
Since initiating the stock a decade ago, Berkshire now holds 50 million BK shares worth over $2.6 billion. Buffett may well be a fan of the stock’s attractive dividend payment and consistency over many years. And although the company is a bank, it makes relatively few bank-like activities. It rarely makes loans, has very little in deposits, and doesn’t need to open up customer branches.
While Buffett is no doubt looking for the long-term, the Street has a more short-term perspective. This could explain the discrepancy between Warren Buffett and the Street. Only one analyst published a buy rating on BK in the last three months vs four hold ratings. Furthermore, the average analyst price target from the analysts of $56 suggests marginal upside from the current share price of 3%.
Note too that the only analyst who published a Buy rating on the stock is Goldman Sachs’ Alexander Blostein. But even Blostein recently downgraded the stock from Conviction Buy to Buy. Blostein cited slower net interest revenue (NIR) and fee growth. He also trimmed his price target to $58 from $59.
However, the analyst nonetheless remains positive on BK’s earnings-per-share growth potential and attractive valuation.
Which stocks are top 25 hedge fund managers buying? Find out here.
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