Warren Buffet, the “Oracle of Omaha,” is one of the most successful investors of all time. Having bought his first stock shares in 1941 at the age of 11, Buffett, CEO of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), was already filing taxes at an early age. He currently has a fortune worth around $80 billion. Today’s article introduces seven stocks I believe Warren Buffett could consider in 2021.
For many novice investors, the world of stocks could feel like a maze, or even a jungle, full of pitfalls for the unwary. It may feel difficult to figure out how to survive and build a long-lasting portfolio of your own in that strange new world. But Buffett has two important yet seemingly simple rules:
- Rule 1: Never lose Money
- Rule 2: Never forget Rule No. 1
Buffett is a buy-and-hold value investor. On many occasions, he has purchased enough shares of a company to have a seat on its board and become one of the decision-makers. Hence he always invests in a business for the long-term. His writings, interviews and annual shareholder letters provide valuable insight to his investment approach.
After investing in a business, Buffet suggests investors who follow the companies shouldn’t worry about the short-term noise in the markets. Instead they should take a long-run approach and be ready to forget about their investments for months, if not years. Yet, as soon as the company no longer matches his initial investment criteria, Buffett typically sells the stock. Therefore keeping any eye on your investments and doing proper due diligence would be important.
With that information, let’s delve into our seven potential Warren Buffett stocks:
- Antofagasta (OTCMKTS:ANFGF)
- Beazer Homes (NYSE:BZH)
- CVS Health (NYSE:CVS)
- iShares MSCI United Kingdom ETF (NYSEARCA:EWU)
- Lemonade (NYSE:LMND)
- Stryker Corp (NYSE:SYK)
- Whirlpool (NYSE:WHR)
Warren Buffett stocks: Antofagasta (ANFGF)
52-Week Range: $7.30 – $19.75
Year-to-date (YTD) Change: 62.8%
Our first stock for the day comes from the other side of the Atlantic. It is the multinational mining giant Antofagasta, a member of the U.K.’s main index, the FTSE 100.
The group is the owner-operator of four copper mines in Chile, the largest copper producer worldwide. Thus, an investment in ANFGF shares is also a bet on the price of the metal. In early 2020, the price of the red metal saw multi-year lows. But since then, a sharp rebound has meant copper is now around $3.60 per pound, or at multi-year highs.
Similarly, Antofagasta stock is up about 60% year-to-date. Put another way, the proverbial $1,000 invested in the stock in early January would now be worth over $1,600.
China is the top importer and consumer of copper. According to a recent report from Roskill, provider of research and consulting in metals, minerals and chemical industries, “Copper’s unique end use market characteristics, and its large exposure to the dynamic rebounding Chinese economy, have limited the impact of COVID-19 on world demand.”
Roskill’s report further states, “A solid recovery in Chinese offtake will largely offset a steeper and more protracted fall in the Rest of the World … Only China and two other Asian economies, will see increased demand in 2020 while every other country will experience a decline.”
The rise in the price of copper matches the increase in Antofagasta shares. If you are bullish on copper in the new year, then the metal giant should be on your radar.
However, the stock’s forward P/E and P/S ratios are 24 and 4.1, respectively, making it reach from a valuation standpoint. I believe a potential decline toward $18.50 would make the shares more attractive.
Beazer Homes (BZH)
52-Week Range: $4.39 – $17.23
YTD % Change: 10.3%
Atlanta-headquartered Beazer Homes is a residential homebuilder. InvestorPlace.com readers would likely know of its homes sold under the Beazer, Gatherings, and Choice Plans brands. BZH shares have been listed on the Big Board (NYSE) since 1994.
In mid-November, the company announced its fourth-quarter and full fiscal 2020 metrics. For the fiscal year, net income from continuing operations was $53.3 million. A year ago, it had been $38.7 million for fiscal 2019. Homebuilding revenue of $2.1 billion was higher by 1.9% YoY. Beazer Homes saw 5,492 new home closings. The average selling price of a new home stood at $385,500, up 2.1% YoY.
CEO Allan P. Merrill, who was pleased with the results, said, “For the full year, we generated $53.3 million of net income from continuing operations, grew Adjusted EBITDA by more than 10%, produced a return on assets above 10% and brought our Debt to Adjusted EBITDA ratio below 5 times, fulfilling the financial objectives we established prior to the onset of the pandemic.”
BZH stock’s forward P/E is 2.65 and its P/S ratio is 0.21, making them cheap from a valuation approach. I also believe the company’s balance sheet is strong. The shares deserve your attention in 2021.
CVS Health (CVS)
52-Week Range: $52.04 – $76.44
YTD % Change: -9.2%
Dividend Yield: 2.9%
CVS Health is the parent company of CVS Pharmacy, the largest pharmacy services group stateside. There are currently close to 10,000 pharmacies and 1,100 Minute Clinic locations. In the coming weeks, the group is likely to start offering Covid-19 vaccines to millions of Americans. According to CEO Larry Merlo, CVS will be at the forefront of vaccine administration. In addition, CVS Health is likely to benefit from the regular flu vaccine season.
According to Q3 results announced in early November, revenue was $67.1 billion, an increase of 3.5% YoY. Growth in the Health Care Benefits and Retail/LTC segments were the catalysts behind this improvement. Yet, adjusted earnings per share came at $1.66. In Q3 2019, it had been $1.84. Net income also declined 20.3% to $1.22 billion. On the other hand, management increased the 2020 adjusted EPS guidance range to $7.35-$7.45 from $7.14-$7.27.
CVS stock’s forward P/E and P/S ratios are 9x and 0.34, respectively. I believe the company is currently trading at a low valuation. The increased foot traffic due to vaccinations will mean increased revenue for CVS. Long-term shareholders will also be entitled to dividends.
iShares MSCI United Kingdom ETF (EWU)
52-Week Range: $19.51 – $34.18
YTD Change: -13%
12-Month Dividend Yield: 3.5%
Expense Ratio: 0.5%
Our next choice is an exchange-traded fund (ETF), namely the iShares MSCI United Kingdom ETF. The fund seeks to track the investment results of an index composed of U.K. equities. It started trading in March 1996. Net assets under management are close to $2.9 billion. EWU, which has 89 holdings, tracks MSCI United Kingdom Index. 43% of the assets are concentrated in the top 10 stocks.
Leading names in the fund include consumer goods giant Unilever (NYSE:UL); AstraZeneca (NASDAQ:AZN), which recently had the Covid-19 vaccine it was working on with Oxford University approved for emergency use in the U.K.; banking group HSBC (NYSE:HSBC), which derives over 60% of revenues from corporate clients in the Asia-Pacific region; alcoholic beverage giant Diageo (NYSE:DEO), pharma group GlaxoSmithKline (NYSE:GSK), which is also working on a vaccine against the novel coronavirus; British American Tobacco (NYSE:BTI), which owns some of the leading cigarette brands worldwide; and resources and mining business Rio Tinto (NYSE:RIO).
As far as industries are concerned, funds are distributed among Consumer Goods (21.5%), Financials (18.2%), Healthcare (11.1%) and Basic Materials (11.5%) among others.
For the most part, shares of U.K.-based companies have not had an easy 2020.
In addition to Covid-19 developments, the U.K. is still negotiating a potential trade deal with the European Union (EU), which it has left in a process called “Brexit.” Those investors who are looking for value in international companies may want to consider the ETF, which invests in some of the largest multinationals across the pond.
52-Week Range: $44.11 – $137.30
YTD % Change: 84.3% (since July 2020)
Buffett likes the financial sector, especially insurance companies. For instance, Berkshire Hathaway acquired leading insurance group GEICO in 1996. Therefore, he could possibly favor our next choice for today’s discussion.
July 2020 saw a new comer into the insurance industry, i.e., Lemonade. The insurance-tech (insurtech) startup, which was founded in 2016, held its IPO in the summer.
Lemonade owns and operates an artificial intelligence-based digital platform where it markets property and casualty insurance. The company’s focus has been on renters and homeowners insurance, especially in big cities. It is also carving out a niche in health insurance for pets, which is helping boost customer acquisition for other product groups.
In November, Lemonade released Q3 results. Revenue was $17.8 million. Investors were pleased to see the company had $7.3 million in gross profits, up 83% YoY. As a result, net loss decreased to $30.9 million (or -57 cents per share), compared with a loss of $31.1 million (or -$2.78 per share) in Q3 2019. Analysts are encouraged that the insuretech group could be a step closer to profitability.
Management plans to introduce term life insurance as part of the product offering. Further international expansion may also be in the cards, continuing with France. Management said, “Our French offering has been crafted specifically for the French customer, but will also embody what’s loved by Lemonade customers elsewhere: a simple and delightful experience powered by artificial intelligence.”
In the case of a potential decline toward $95, LMND shares would offer better long-term value. They deserve further due diligence.
Stryker Corp (SYK)
52-Week Range: $124.54 – $242.75
YTD % Change: 15%
Dividend Yield: 1.1%
Portage, Michigan-based medical technology group Stryker offers orthopedic, medical and surgical, neurotechnology and spine products.
Stryker released Q3 results in late October. Consolidated net sales were $3.7 billion, up 4.2% YoY. Adjusted net earnings were $812 million, up 12%. Adjusted EPS were $2.14, also up 12%. Investors noted that reported gross profit margin and reported operating income margin were 65.9% and 23%.
CEO Kevin Lobo cited, “We are pleased to have returned to growth in the third quarter and delivered strong adjusted earnings and cash flow in a challenging environment.”
SYK stock’s forward P/E and P/S ratios are 26.3 and 6.34, respectively. The pandemic has meant delays in elective surgeries that involve orthopedics, such as knee, hip or shoulder replacements. Given the positive vaccine news, many investors have started paying more attention Stryker and its peers, such as Smith & Nephew (NYSE:SNN), Zimmer Biomet (NYSE:ZBH). 2021 could possibly bring higher share prices in SYK.
52-Week Range: $64 – $207.30
YTD Price Change: 25.2%
Dividend Yield: 2.7%
Founded over a century ago, Michigan-headquartered Whirlpool is one of the leading appliance manufacturers. The group is well-known for a range of brands, including Bauknecht, Indesit, KitchenAid and Maytag, all of which give the company a big moat.
In late October, the group released Q3 metrics. Sales were $5.29 billion, up 3.9% YoY. Diluted EPS was $6.91, an increase of 74.1%. Management highlighted the strong liquidity position of Whirlpool and that it would continue to pay down short-term debt. Investors were also pleased to see a dividend increase for the eighth consecutive year, thanks to free cash flow generation.
Margins have also been improving, in part due to corporate cost-cutting and decreased promotional investments. WHR stock’s forward P/E, and P/S ratios stand at 11.1 and 0.64, respectively. A potential drop toward $182.5 would make Whirlpool shares a good long-term buy. Many Americans could possibly be spending their second stimulus checks on big appliance purchases. As a result, Whirlpool’s peers in domestic appliances, such as General Electric (NYSE:GE) or Electrolux (OTCMKTS:ELUXY), could also benefit.
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 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. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation and publishes educational content on investing.