Warren Buffett and his firm Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) are widely-followed by investors worldwide. Mr. Buffett, a value investor, is highly regarded as one of the greatest investors of all time. Therefore today’s article looks at seven of the best Warren Buffett value stocks.
As a holdings company, Berkshire Hathaway invests in a range of industries. Seasoned investors realize that Warren Buffett typically loves consumer stocks with wide economic moats, large bargaining powers, and that preferably also pay dividends. His investments are always for the long-term. Market participants can easily keep an eye on his stocks through Berkshire Hathaway’s 13-F filings.
His investing style and success have even been analyzed as part of advanced-level doctoral studies at U.S. universities. A recent Ph.D. thesis by Christian Koch of University of South Florida highlights:
In the world of investing, Warren Buffett remains an iconic figure due to his prolific, sustained financial success and investment portfolio within Berkshire Hathaway… He provides an understanding of investments, finance concepts, and markets that can improve academic finance and financial literacy… Through his annual shareholder meetings, Warren Buffett has permanently contributed to the field of investment management by explaining finance concepts in a manner that is understood by the individual investor.
The Street knows that his favorite consumer business is Apple (NASDAQ:AAPL), a poster child for his holdings. In addition to individual stocks, Warren Buffett is a fan of keeping it simple and buying an S&P 500 index fund, such as the iShares Core S&P 500 ETF (NYSEARCA:IVV) or the Vanguard S&P 500 ETF (NYSEARCA:VOO).
When Mr. Buffett invests in a particular businesses, retail investors are likely to benefit from understanding why he has backed that firm as opposed to others. As we get ready to wrap up 2020, the near-term direction the pandemic may take globally still remains uncertain. Although the Street would like to see another stimulus package, the size and the timing of it are far from certain.
Therefore, further volatility in the price of shares favored even by Mr. Buffett are likely to be choppy in the short-term. However, patient buy-and-hold investors are likely to be rewarded well.
With that said, here are the seven Warren Buffett stocks to consider in December:
Warren Buffett Stocks: American Express (AXP)
52-Week range: $67 – $138.13
Dividend yield: 1.43%
American Express, a global services group, is our first stock for today. Its credit card products and travel-related services are used by individuals and businesses around the world.
The company released its Q3 report in early November. Revenues net of interest expense came at $8.8 billion, down 20% from $11 billion a year ago.
Analysts were not surprised that the heavy decline in travel and entertainment spending has been hurting the metrics. Net income declined to $1.1 billion, or $1.30 per share. A year ago, they had been $1.8 billion, or $2.08 per share.
CEO Stephen J. Squeri said, “… our third quarter results have increased our confidence that our strategy for managing through the current environment is the right one… Since the lows of mid-April, we have seen a steady recovery in our overall spending volumes … We’re also expanding our largest ever Shop Small campaign to support small merchants in 18 countries and territories. “
AMEX’s forward P/E ratio is 30.2x. Spending over the holiday season could help support the share price.
52-Week range: $36.27 – $60.13
Dividend yield: 3.15%
Based in Atlanta, Georgia, Coca Cola offers hundreds of brands worldwide. InvestorPlace.com readers will be well familiar with several of the iconic brands, including Coca-Cola, Diet Coke, Fanta, and Sprite. In addition to sparkling soft drinks, several other non-alcoholic beverages include water, sports drinks, plant-based beverages, tea, coffee and energy drinks.
In late October, the group released Q3 results. Net revenues came at $8.7 billion, a decline of 9%. Similarly, operating income and EPS declined 8% and 33%, respectively.
Investors will notice that KO shares have not rebounded as robustly as many other companies from the trough seen in early spring. The beverage giant’s metrics are dependent on the “away-from-home market,” i.e., restaurants, hotels, cinemas, and other leisure venues. And the numbers are not yet as strong as they typically would be.
In recent quarters, the company has been working on a restructuring strategy. The objective is put the focus on stronger and profitable brands and improve marketing efficiency.
CEO James Quincey said, “We are accelerating our transformation that was already underway, shaping our company to recover faster than the broader economic recovery.”
KO stock’s forward P/E ratio is 27.03x. We would look to buy especially if the shares fall below $50.
52-Week range: $26.25 – $37.22
Dividend yield: 2.23%
Cincinnati, Ohio-based based grocer Kroger operates a range of stores and brands, including Dillons, Ralphs, Fry’s, Smith’s, King Soopers, QFC, Pay Less, Metro Market, Mariano’s, and Fred Meyer. In addition to groceries, a number of the stores also sell fuel. The company has been putting emphasis on e-commerce, too.
In the initial phases of the pandemic, grocery stores and food chains have greatly benefited from increased sales, both in-store and online, which have meant higher cash generation and profit margins. Kroger’s metrics and the strength of the balance sheet have also improved.
The company released Q2 results in early September. Sales were $30.5 billion, compared to $28.2 billion for Q2 2019. Identical sales without fuel increased by 14.6% YoY. Investors were also pleased to see digital sales went up by 127% compared to same period last year.
Adjusted net income was $581 million versus $357 million a year ago. Adjusted EPS was 73 cents, up 66% YoY.
CFO Gary Millerchip commented, “For the full year 2020, we expect total identical sales without fuel to exceed 13% and we expect to achieve adjusted EPS growth of approximately 45% to 50%.”
KR stock’s forward P/E ratio is 9.87x. Value investors could consider buying this highly recession-proof gem among grocers.
52-Week range: $199.99 – $367.25
Dividend yield: 0.47%
Mastercard operates in the global payments industry. Its technology enables users to utilize electronic forms of payment instead of cash or checks. The company is one of the leaders that are benefiting from cashless consumption.
In late October, Mastercard released Q3 results. Revenue was $3.84 billion, down 14% YoY. Adjusted net income of $1.6 billion and adjusted diluted EPS was $1.60 meant declines of 26% and 25% YoY.
Despite the challenges, Ajay Banga, CEO, sounded hopeful for the future and cited, “We are seeing encouraging progress in the trajectory of domestic spending, while travel spending remains a challenge. Meanwhile, we are winning new business in core payments and are making real progress with our digital solutions, differentiated service offerings and multi-rail capabilities.”
Forward P/E ratio is 51.6x. A short-term decline toward $300 would improve the margin of safety for long-term investors.
Contractions, even recessions, are part of the economic cycle. Covid-19 has meant economic and health consequences, and Mastercard has been one of the companies adversely affected. Yet, the pandemic is not going to last forever and shares in the digital payments leader are likely to reach new highs in 2021.
Mondelez International (MDLZ)
52-Week range: $41.19 – $59.96
Dividend yield: 2.17%
Chicago, Illinois-based Mondelez International is another food and beverage company that Warren Buffett owns. The group manufactures packaged food products, such as snacks, beverages, cheese and convenient meals. Like many other established food businesses, it is less prone to the ebbs and flows of economic cycles. 2019 net revenues were around $26 billion.
Many households, both in the U.S. and worldwide, would have a number of its iconic brands, including Oreo, belVita, Cadbury Dairy Milk, Milka, Toblerone, Halls mints and Trident gum. in their kitchen cupboards.
Mondelez announced Q3 results in early November. Net revenue of $6.67 billion, represented a 4.9% YoY. Analysts were impressed to see revenue growth across all major geographic segments on the back of stronger volume and price. Profit metrics also benefited from mark-to-market gains in currency and commodity derivatives.
Adjusted EPS was 63 cents, “flat on a constant-currency basis, primarily driven by operating gains offset by unfavorable taxes” in some locations.
CEO Dirk Van de Put said, “Our third quarter performance was strong across all key metrics, with broad-based revenue growth as demand remained elevated in Developed Markets and sequentially improved in Emerging Markets. “
MDLZ stock’s forward P/E ratio is 26.87x. Short-term profit-taking could pressure the shares toward $52.50, a level that would offer a better margin of safety.
52-Week range: $73.14 – $448.31
Dividend yield: N/A
California-based RH is a home furnishings retailer. Its product range includes indoor and outdoor furniture, decor, lighting, and furnishings. In addition to retail outlets, the group operates a number of e-commerce sites.
RH reported Q2 results in early September. In recent quarters, the company has been positioning itself as “as a luxury brand generating luxury margins,” a strategy that has been proving right. Demand for its products offerings has been strong.
However the pandemic also meant supply chain disruptions. Net revenue hit $709.7 million, up from $706.5 million a year ago. Nonetheless, adjusted net income was $123 million, an increase of 72% from $71.4 million in Q2 2019.
Adjusted diluted EPS was $4.90, an increase of 53% YoY. Analysts were pleased to see free cash flow doubled to $218 million versus $109 million a year ago.
CEO Gary Friedman said, “Inclusive of the above negative impacts year over year, total Company demand accelerated from -1% in May, to +23% in June, +26% in July, and +38% in August. Our September to date trend is +37%.”
RH stock’s forward P/E ratio is 54x. A short-term decline toward $425 would offer a better entry point for long-term investors. The future looks bright for the company as it also eyes international expansion.
T-Mobile US (TMUS)
52-Week range: $63.50 – $132.33
Dividend yield: N/A
Last on this list of Warren Buffett stocks is Bellevue, Washington-based T-Mobile, a business-to-consumer (B2C) wireless communications service provider. It sells wireless devices, such as smartphones, wearables, tablets and other devices. It also operates a range of flagship brands, T-Mobile, Metro by T-Mobile and Sprint. T-Mobile US is one of the domestic carriers at the forefront of the 5G network rollout.
Amidst the pandemic, in April, the group finalized its merger with Sprint, a move that is likely to translate into continuing market share gains and increased revenue in he coming quarters. In general, investor reaction to the merger has been positive as they see value in the synergistic benefits.
T-Mobile’s results for Q3 were released on Nov. 5. Revenue of $19.3 billion meant an increase of 74.2% YoY. year-over-year. Net income was $1.3 billion and increased 44%. Diluted earnings per share was $1.00, decreased 1% YoY. Analysts were pleased with the “record-high 2,035,000 total net additions, best in industry,” in terms of customer growth.
CEO Mike Sievert further highlighted, “Now, with over 100 million wireless customers and America’s largest 5G network, there is no doubt that we’re the growth leader in wireless.”
TMUS stock’s forward P/E ratio is 43.5x. Long-term investors may consider initiating a position around $115.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil Ph.D. has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination.