A new year brings fresh promise and fresh uncertainty. With new leadership in the White House, investors are also expecting a change in policies as well. However, if you want to play it safe, you should invest in Warren Buffett stocks.
The Oracle of Omaha consistently ranks highly on Forbes‘ list of billionaires. He has a meticulous strategy for evaluating value stocks and investing. That’s why you cannot go wrong if you track Warren Buffett stocks.
However, what can potentially throw a monkey wrench in the works is the Biden administration. The new president has a clear vision for the country and the economy. Hence, not every company in the Berkshire portfolio will do well under the new regime. Buffett is a pretty nimble investor, so don’t expect him to miss a trick here. He remains bullish on his investments and the role of the U.S. as the growth engine of the world.
But it goes without saying that certain Warren Buffett stocks will do better than others during the new administration.
Here are five such picks:
- Coca-Cola (NYSE:KO)
- General Motors (NYSE:GM)
- Johnson & Johnson (NYSE:JNJ)
- T-Mobile US (NASDAQ:TMUS)
- Moody’s Corp. (NYSE:MCO)
Warren Buffett Stocks: Coca-Cola (KO)
We start our list with the largest and most valuable soda brand in the world. Buffett spent $1.3 billion to buy 400 million shares of Coca-Cola in 1988 and has held the position ever since.
Like most stocks, the soda giant tumbled as a result of the mid-March market sell-off. However, since then, shares have made up lost ground and are now trading at 80% of their 52‑week high.
It’s not surprising. Coca-Cola is an iconic global brand that has operations spread out across the world. Interestingly, the multinational generates the majority of its revenues outside America. Brands include Diet Coke, Coca-Cola Zero Sugar, Minute Maid, Georgia Coffee and Glaceau. Over the past 12 quarters, it has reported positive earnings surprises four times in the last six quarters.
The latest earnings report affirmed Coca-Cola’s strong performance across the board. Earnings per share came in at 55 cents versus analyst estimates of 46 cents. Revenue was $8.65 billion, topping estimates of $8.36 billion.
Away-from-home sales greatly helped in this performance. The novel coronavirus pandemic has severely dented in-person purchases at movie theaters, restaurants, and office buildings. CEO James Quincey has said Coke’s away-from-home business is bigger than that of its competitor PepsiCo (NASDAQ:PEP).
“We have been winning share in at-home channels, and that’s going to set us up for emerging stronger and being in a stronger position, even though mechanically in the short term, we lose share,” he remarked.
Coca-Cola has always had a positive relationship with President Joe Biden. Last year, Biden’s niece Missy Owens served as Coca-Cola’s director of federal and diplomatic government relations. And the multinational contributed a total of $110,000 in cash and products to the former vice president’s inaugural committee. Although it’s a token donation, the gesture certainly doesn’t hurt.
General Motors (GM)
When President Barack Obama assumed office, he was facing several tough decisions. But few were as difficult as bailing out General Motors, and Fiat Chrysler Automobiles NV (NYSE:FCAU) through the U.S. Treasury tapped Troubled Asset Relief Program (TARP) funds.
At the time, members from both sides of the aisle and free marketers criticized the move. However, Obama, with Biden at his side, went ahead and made the decision.
Years later, and GM is stock is doing great. Shares are up 44% in three months and have bounced back nicely from their 52-week low of $14.33 at the height of the pandemic. General Motors is one of the world’s largest automakers, with $135.3 billion in sales expected this year. It’s also a very consistent performer. In the last 12 quarters, it has reported earnings beats an astounding 11 times.
Don’t get me wrong. There are genuine challenges that GM will have to address moving forward. Companies like Tesla (NASDAQ:TSLA) are becoming self-driving car leaders. They are also looking to play towards an increasing base of environmentally conscious investors that take climate change seriously.
But the good thing is that GM understands this. The Detroit-based automaker will bring 30 new global electric vehicles to the market by 2025. Meanwhile, Cruise, a majority-owned subsidiary of General Motors, has begun testing self-driving vehicles without driver monitors in San Francisco.
It’s hard to say if we will ever see GM face a crisis like the Great Recession. However, it will be comforting to know that one of the auto bailout’s chief architects is in the White House. Out of all the Warren Buffett stocks, I believe this company holds a special place in Biden’s heart.
Johnson & Johnson (JNJ)
Johnson & Johnson is one of the most diversified conglomerates out there. It develops medical devices, pharmaceutical, and consumer packaged goods and even has a Covid-19 vaccine in its armory. It’s a high-quality institutional name with a respectable dividend yield of 2.6%.
In the last six quarters, it reported positive earnings surprises five times. However, most of the recent buzz surrounding the company is reserved for Johnson & Johnson’s vaccine arm, Janssen, working on its experimental candidate, Ad26.COV2.S. Early-stage trials show it generated an immune response in nearly all volunteers after a single dose, with minimal side-effects.
So far, the Food and Drug Administration has given emergency use authorization to two coronavirus vaccines. Pfizer made one with its partner BioNTech (NASDAQ:BNTX), and another by Moderna (NASDAQ:MRNA). However, both these vaccines had an efficacy of 95% in preventing symptomatic disease in their Phase 3 trials.
In a statement, Johnson & Johnson said it “anticipates announcing topline Phase 3 data for its single-dose Janssen COVID-19 vaccine candidate in late January 2021.” The multinational is contracted to deliver 100 million doses to the U.S. government if it wins emergency use authorization from the FDA.
Biden’s first order of business will be dealing with Covid-19. It’s imperative to the success of his first 100 days in office. Expect him to support any initiative that will help resolve the crisis. That’s a net positive for JNJ stock, which is trading at 18.1x forward P/E.
T-Mobile US (TMUS)
Our next entry may confuse some readers. Biden has denounced the “overwhelming arrogance” of some tech leaders. It sets the stage for the 46th president to take a much stronger stance than Obama on antitrust legislation against Big Tech.
But the reason to remain bullish on TMUS stock is that 5G is the future. And the mobile communications giant is a key player in the space. It recently signed five-year, multi-billion-dollar agreements with Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC) and Nokia (NYSE:NOK) to continue growing its 5G network nationwide. And last year, the company signed a 15-year master lease agreement (MLA) with American Tower (NYSE:AMT). It will increase momentum in 5G, adding coverage and enhancing speed for its customers.
Speaking of which, T-Mobile ended 2020 with 102.1 million total customers. The company added 1.6 million postpaid subscribers in the fourth quarter, while analysts expected approximately 1.5 million, on average. Meanwhile, Wall Street forecasts AT&T (NYSE:T) and Verizon Communications (NYSE:VZ) to report a combined 1.3 million postpaid-subscriber additions last quarter.
And let’s push the competition to the side for a moment. T-Mobile is one of the most consistent performers in its own right. Out of the last 12 quarters, it has beat analyst expectations every time. Particularly impressive were the last two quarters. EPS figures for the second and third quarters beat estimates by a whopping 454.5% and 129.4%, respectively. Given its outstanding performance, it’s no surprise that TMUS has outperformed the S&P 500 by 43.2% and its sector by 35.6% in the past year.
Unlike the other Warren Buffett stocks on this list, TMUS is less of an income-paying stock. You buy this one because of the price appreciation potential.
Our final pick is an industry leader in financial services. Moody’s is basically two separate business lines. There’s Moody’s Investors Service, the rating agency, and Moody’s Analytics, providing financial intelligence and analytical tools.
Most people know about the rating business in which Moody’s is a leader, alongside competitors S&P Global (NYSE:SPGI) and Fitch Ratings. You’ve heard the adage, the house always wins. The U.S. credit rating market is essentially a “dual monopoly” between S&P and Moody’s, with Fitch controlling a minority share.
Moody’s Investors Service plays a pivotal role in global capital markets. It operates as an additional credit analysis provider for banks and other financial institutions in evaluating credit risk. In the third quarter of 2020, Moody’s Investors Service revenue grew 11% to $825 million.
You might be wondering why that is so. That should come as no surprise. In the words of CEO Raymond McDaniel, “Moody’s Investors Service benefitted from a third consecutive record issuance quarter as fixed-rate issuers took advantage of historically low borrowing costs to refinance existing debt and strengthen liquidity positions.”
All things considered, this is the money-spinner segment of the business. Moody’s Analytics, on the other hand, is far more risky and exciting. Revenue for Q3 was $531 million, up 7% from the prior-year period. Understandably, this segment isn’t growing as fast as the rating one. Although it’s an asset-light business, Covid-19 is not helping in driving up subscriptions. Nevertheless, 7% is not bad, considering the virus has wrecked the economy. Hopefully, as things get back to normal, we will see higher growth rates for this segment.
Now let’s talk about the dividend, one of my favorite aspects of MCO stock. The bond credit rating business has hiked its distributions for ten years consecutively. A five-year dividend growth rate of 10.5% is nothing to scoff out. What makes it even more impressive? A payout ratio of 22.5%, meaning the company’s earnings well and truly cover it.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.