Given the long-term value created by Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B), investors continue to look for Warren Buffett stocks. The mere announcement of a Berkshire position can move a stock price.
It’s easy to see why. As Laura Gonzalez, Ph.D., associate professor of Finance at California State University, wrote in an email to InvestorPlace:
Warren Buffett lives frugally. He warns young people especially about borrowing through credit cards. He started reading about firms when he was young, had an advantage of years of fundamental analysis by the time he studied Value Investing with the greatest in Columbia University. Warren Buffett emphasizes the need to do your research, ask many questions, before making a decision and keeping the securities for a long period of time. This is really the only option for retail investors given the high frequency trading environment.
Now, it is worth remembering that Buffett and his partner Charlie Munger no longer are the only ones in charge of Berkshire’s portfolio.
After all, Buffett is weeks from celebrating his 90th birthday. Munger is 96. As a result, lieutenants Ted Weschler and Todd Combs have done more of the stock-picking in recent years. Their increasing stature likely explains some of Berkshire’s move into tech and away from the kinds of names that traditionally were considered Warren Buffett stocks.
That move includes holdings in tech titans including Amazon (NASDAQ:AMZN). It also includes a disastrous foray into airlines, an industry Buffett long criticized before reversing field in 2017. Berkshire wound up selling positions in Southwest Airlines (NYSE:LUV), American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), and United Airlines (NASDAQ:UAL) near the lows.
Some of those missteps have contributed to the underperformance of Berkshire stock since the financial crisis. (An industrial-heavy portfolio of wholly-owned companies hasn’t helped of late, either.) Still, the “Oracle of Omaha” and his team merit well-deserved respect from investors, particularly those with a long-term bent.
Still, there are winners in Berkshire’s portfolio, including one holding that has been literally among the greatest of all time. There are other Warren Buffett stocks that look attractive going forward as well. For investors who, as they should, remain fans of perhaps the greatest investor in history, here are eight of the top stocks in his current portfolio:
- Apple (NASDAQ:AAPL)
- Globe Life (NYSE:GL)
- Visa (NYSE:V)
- Kroger (NYSE:KR)
- General Motors (NYSE:GM)
- JPMorgan Chase (NYSE:JPM)
- Biogen (NASDAQ:BIIB)
- Costco Wholesale (NASDAQ:COST)
8 Warren Buffett Stocks: Apple
Berkshire has been criticized for missing out on tech stocks in recent years. Buffett himself has admitted that he whiffed on Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and, in his words, was “too dumb” to see the upside in Amazon. (Berkshire, according to CNBC’s useful portfolio tracker, now does have a relatively small stake in AMZN.) Meanwhile, Berkshire lost good money on IBM (NYSE:IBM) before exiting that position in 2018.
But Buffett and Berkshire made up for at least some of that disappointment with a historic trade in Apple. Berkshire built its stake at an estimated $141 per share. AAPL trades more than 200% higher.
That in turn suggests that Berkshire has made more than $70 billion off Apple alone. That’s almost 15% of Berkshire’s current market capitalization.
To be honest, I’m personally a bit skeptical toward AAPL at this point. I can’t help but wonder if Buffett is as well. A stock that once was cheap now looks expensive. I liked AAPL coming into the year, but saw reasons for modest concern ahead of the pandemic. At this valuation, investors may be looking past those concerns, even with a blowout earnings report last week.
Of course, it’s hard to argue with performance. Both Apple and Berkshire, at least on this trade, have performed spectacularly.
Globe Life might be the least well-known of the current crop of Warren Buffett stocks. GL is the only insurance stock in the Berkshire portfolio, no surprise given that Berkshire itself is an insurance company. Its GEICO, property and casualty, and reinsurance businesses create a “float” of premiums, some of which back the equity investments.
But Globe is an intriguing choice. Amid the pandemic, GL stock unsurprisingly has taken a hit. It’s not just higher near-term mortality, but lower long-term interest rate expectations. Those lower rates can limit the returns on Globe’s own float — hurting long-term profits.
At the lower price, however, there’s an intriguing value case. Globe trades at just 1.3x book value and less than 11x next year’s estimated earnings.
Before the crisis, Globe had been a well-managed winner. It likely will be so again at some point.
Visa fits nicely within the universe of Warren Buffett stocks. The company has an enormous moat, with its interchange business limiting competition. Operating margins are enormous. And Visa has plenty of opportunities to reinvest earnings and drive more growth going forward, most notably via a massive opportunity overseas.
So it’s not a surprise that Berkshire owns $2 billion worth of Visa. If anything, what might be a surprise is that the stock accounts for less than 1% of Berkshire’s total portfolio.
The huge growth in Apple — which incredibly now accounts for half of that portfolio — admittedly is a factor. So is Buffett’s long-running fondness for American Express (NYSE:AXP), of which Berkshire owns nearly 19%. Berkshire also has a $1.5 billion stake in rival Mastercard (NYSE:MA).
But of the three, V stock looks like the best pick. American Express is the cheapest, but continues to hemorrhage market share. As Buffett himself said, “It’s far better to own a wonderful company at a fair price than a fair company at a wonderful price.” That advice certainly seems to support a larger position in Visa stock.
Berkshire certainly had excellent timing in Kroger stock. The buy was made in February, just before the coronavirus began to spread in the U.S. Within weeks, the grocer was posting phenomenal same-store sales figures, and KR stock now is threatening to hit a four-year high.
There’s a case that a steady rally over the past few months should continue. Kroger stock remains reasonably valued, at less than 14x forward earnings. Fears that Amazon would run over the industry with its acquisition of Whole Foods Market appear overblown.
Even before the pandemic, the deflation in key categories that had pressured profit margins abated. It’s possible an expanding Federal Reserve balance sheet will finally drive inflation, a modest amount of which would be beneficial for Kroger and other supermarkets. Investors later to KR stock than Buffett still have the opportunity to gain satisfactory returns.
One of the concerns with recent Berkshire stocks and other names often pegged as Warren Buffett stocks, is that they tend to include a fair amount of value traps. The airline portfolio certainly qualified. American Express and Coca-Cola (NYSE:KO) have underperformed in recent years. Kraft Heinz (NASDAQ:KHC) has been a disaster.
GM stock runs the risk of being another Buffett misstep. Berkshire has been buying GM stock since 2012, and the investment paid off initially, as shares rallied from the $20s into the $30s. But years of sideways trading followed, and the pandemic sent GM plunging to its lowest level since emerging from bankruptcy in 2011.
Risks persist. A leveraged balance sheet and rising competition from Tesla (NASDAQ:TSLA) and other electric vehicle manufacturers give GM the characteristics of a potential value trap.
But there is a high-risk case for GM, even with a bounce off March lows. The company is aggressively moving into electric vehicles itself. The EV market should be large enough for more than one winner. And a 6x multiple to depressed 2021 earnings per share estimates prices in at least some of those risks. It’s possible Buffett’s long-running bet on GM still could pay off.
Buffett long has been a big investor in financial stocks: Berkshire’s stake in American Express dates back to 1963. Buffett infamously invested in Salomon Brothers in 1987, only to see the firm nearly blow up a few years later.
In contrast, his company’s stake in JPMorgan Chase is just $5.5 billion. That’s smaller than the $8 billion-plus holding in Wells Fargo (NYSE:WFC), another recent disappointment. (And a surprise, given Buffett’s famous proclamation about reputation, first given to Salomon Brothers employees in 1991.)
But, from here, JPM stock looks like the best of the bunch. Wells remains mired in scandals. Smaller holdings like U.S. Bancorp (NYSE:USB) and Bank of New York Mellon (NYSE:BK) lack the trading profits that boosted big bank earnings in Q2.
Those profits suggest more potential upside for JPMorgan Chase in an environment with ultra-low interest rates but likely more volatility. JPM stock admittedly is more expensive than peers, but it seems worth the premium.
It’s likely that neither Buffett nor Munger chose Biogen, as the biotech is far outside the normal parameters of Warren Buffett stocks. And at $177 million, BIIB is one of the company’s smallest equity stakes.
But Buffett no doubt at least signed off on the purchase — and it makes some sense. Biogen stock admittedly has disappointed in recent years, as investors await a new blockbuster. Patience could be rewarded, however. A diversified portfolio supports near-term earnings, and a broad-ranging pipeline suggests a new hit should arrive at some point.
Meanwhile, BIIB stock is cheap at less than 9x forward earnings. To some investors, that valuation makes sense given near-term challenges. But at this price, it’s worth betting on one of the world’s great innovators.
Berkshire originally bought Costco stock on the dip back in 2000, after it plunged 37% after an earnings miss. Unfortunately for shareholders, Berkshire has sold off a chunk of the stake over time.
Still, Berkshire owns about $1.4 billion in Costco. Munger himself reportedly owns about $50 million of the company, having served as a director for over two decades. And the holding makes perfect sense.
Costco fits Buffett’s “wonderful company” argument to a tee. Like Coca-Cola, See’s Candies, and Dairy Queen, (the latter two of which are wholly owned by Berkshire), Costco is a defensive, attractive consumer play.
The logic of Costco as a Buffett stock is so compelling that a Bloomberg columnist suggested in June that Buffett buy more. She’s right. Perhaps Costco might be the “elephant” for which Buffett long has been searching.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.