- Buy these seven Warren Buffett Stocks after its $40B investments.
- Apple (AAPL) – Strong services revenue and pent-up demand for iPhones will sustain growth.
- Activision Blizzard (ATVI) – Investors get $95, the Microsoft buyout price.
- Chevron (CVX) – Berkshire is hedging inflation and energy prices with this firm.
- HP (HPQ) – The gaming unit will increase HP’s profitability and revenue.
- Coca-Cola (KO) – Strong branding and pricing power.
- Occidental Petroleum (OXY) – Berkshire is hedging from energy inflation and believes Occidental has good prospects
- Verizon Communications (VZ) – High yield holding the stock while growth from 5G approaches.
Berkshire Hathaway’s (NYSE:BRK-B) (NYSE:BRK-A) $40 billion spending spree in three weeks in the first quarter is a revelation. Investors who admire Berkshire’s multi-decade record of phenomenal returns should benefit from studying Chief Executive Officer Warren Buffet’s investments. For the first three weeks starting Feb. 21, 2022, Berkshire pared its cash levels from $143.9 billion to $102.7 billion by March 31, 2022.
At its annual meeting, Buffett discussed the role of the government’s fiscal support during the pandemic contributing to inflation. Although he supported the action, Buffett put some of the cash on hand to invest in stocks in the quarter.
Quant scores for Buffett Stocks by quality, value, and growth are green, which indicates strength.
In the quantitative score shown, Occidental has the lowest quality score. By comparison, Activision, Apple, and Coca-Cola score better. Still, OXY stock has a relatively good value score. Its growth score will rise as Occidental realizes higher profits from rising oil prices.
Buffett’s most notable increase is Berkshire’s 14% stake in Occidental Petroleum. He took advantage of the market acting as a combination of a casino and a trading marketplace. Buffett read the annual report over the weekend after the company hosted an analyst presentation. His bet on Occidental is probably more than the company’s strong prospects. Energy prices will likely rise further in 2022.
Berkshire needs to hedge against sharply higher oil prices by holding OXY stock. Below are seven Warren Buffett Stocks to buy:
| AAPL | Apple | $148.67 |
| ATVI | Activision Blizzard | $78.20 |
| CVX | Chevron | $175.07 |
| HPQ | HP | $39.67 |
| KO | Coca Cola | $65.43 |
| OXY | Occidental Petroleum | $68.36 |
| VZ | Verizon Communication | $49.11 |
Warren Buffett Stocks: Apple (AAPL)
Apple (NASDAQ:AAPL) pulled back after peaking $182.94. In the second quarter, the company reasserted its dominance in the smartphone market by posting record revenue.
Apple posted revenue of $97.3 billion, up 9% year over year. It earned $1.52 a share. Service revenue was $19.82 billion. The company raised its dividend by a negligible 5%, or 23 cents a share. Income investors may shun its low yield. But Apple is returning shareholder value by increasing its share buyback by $90 billion. Buffet would characterize this as getting $90 billion worth of stock without investing more into the company.
Investors benefit from a tax-free accumulation of the stock with a buyback. If investors hold shares outside of a retirement account, they must pay a tax on the dividend distribution.
China’s lockdown of Shanghai for the entire month of May might disrupt the supply chain. Apple will not benefit from sales. Assuming customers wait for iPhone availability, Apple only delayed its revenue realization. It did not lose the business to a competitor.
Activision Blizzard (ATVI)
Although Microsoft (NASDAQ:MSFT) will acquire Activision Blizzard (NASDAQ:ATVI). Berkshire thinks the stock has more upside. It bought more Activision shares as part of the $40 billion in purchases in Q1.
Activision probably would have drifted lower had Microsoft not offered to buy it. Videogame sales fell by 15% in March. Fortunately, investors may count on the pending buyout to realize $95 a share. On April 28, 98% of stockholders approved Microsoft’s takeover proposal. ATVI stockholders do not need to worry about the slowdown in its previously hot titles. That includes World of Warcraft. With a new owner, Activision could improve the Call of Duty franchise.
Activision is trading below the $95 takeover price because of one more hurdle. The government is reviewing the deal. If it has a concern, it could threaten the deal. The market is pricing those small risks. Chances are low that the government will disapprove of the deal. Microsoft will not have a monopoly in the massively multiplayer online role-playing games by owning Activision. It does not have any MMORPG titles which, when combined with Activision, would account for much of the market.
Warren Buffett Stocks: Chevron (CVX)
Chevron (NYSE:CVX) posted strong cash generation in the last quarter. The company benefited from Angola LNG returning $500 million in capital. The unit produced strong cash by operating an LNG (liquefied natural gas) facility and selling it into the European gas markets.
Chevron’s cash on hand is growing. Fortunately for investors, it plans to buy back $5 billion to $10 billion worth of shares. It already bought back $5 billion in stock in the first quarter. If the energy market remains strong, the company may increase its repurchase plan. Europe’s need for natural gas from new sources is a tailwind for Chevron. The company is looking at ways to increase LNG production. This is its priority. It evaluated several commercial options for growing its fleet of floating LNG and accessing more LNG facilities.
Oil inventory remains tight. Chevron will monitor the supply constraints carefully since they differed from 2020. Back then, the industry experienced a contraction never seen before. Prices collapsed. Now, the industry has limited access to oil storage. Conversely, China and other parts of the world are in various stages of a lockdown due to Covid-19. Chevron will carefully manage any increase in energy production.
HP (HPQ)
HP (NYSE:HPQ) is a leading supplier of personal computers and notebooks. The company benefited from the stay-at-home lockdown in 2020. In the last several months, sales of computers decelerated. HP might disappoint investors with weaker unit sales.
Berkshire revealed a nearly 112 million HPQ stock purchase worth $4.2 billion on April 6, 2022. It is unlikely to bet that computer sales will re-accelerate. Instead, Berkshire probably sees a deep discount in the stock. HP’s price-to-earnings ratio is in the high single digits. It produces a strong free cash flow yield, too.
The gaming industry will pivot into augmented and virtual reality. HP’s Omen line of PCs will increase its revenue growth and operating margins. The computers, along with the Omen laptops, earn strong praise from critics. HP also sells budget gaming computers, called Victus. If consumers are financially constrained as a recession approaches next year, HP will sustain strong sales.
Warren Buffett Stocks: Coca-Cola (KO)
In the first quarter, Coca-Cola (NYSE:KO) posted net sales growing by 11%. It posted income from operations of $131 million, up 39% from last year. The company expects it will generate around $10.5 billion in cash flow from operations. It will spend around $1.5 billion on capital expenditures.
Inflation lifted Coca-Cola’s revenue. But volume rose by 8% in the quarter, which demonstrates it benefited from strong branding and a diversified product portfolio. The company kept its full-year guidance. It has the pricing power for its business.
The value of its brand is increasing because of marketing and innovation efforts. Furthermore, it is executing packaging options. These activities protect Coca-Cola’s margin structure. As commodity and other costs rise, they may pass them to customers.
The company will support its dividend and share repurchase activities by growing the business. This includes seeking acquisition opportunities. For now, Coca-Cola will benefit from its very low price elasticity. But looking ahead, it may face inelasticity. For example, inflation will hurt consumers. The company already passed higher commodity costs to them. It will likely sustain its profit margins without needing another price hike.
Occidental Petroleum (OXY)
Berkshire added 5.9 million more shares of Occidental Petroleum (NYSE:OXY). The company took advantage of the higher oil prices by aggressively cutting its debt levels.
In the last year, Occidental reduced its debt by $6.7 billion. It paid only a 1.5% premium to do so. The timing of the stronger energy prices benefits the firm. Ahead of the Federal Reserve lifting interest rates, Occidental may cut its interest rate costs. The company’s ultimate goal is to bring its debt down to $15 billion or less. By doing so, it will get to investment grade levels. Furthermore, it allows the company to consider strategic acquisitions again.
In the fourth quarter, Occidental posted revenue growing by 139.1% Y/Y to $8.01 billion. It earned $1.48 a share (non-GAAP). Its pre-tax earnings of $574 million should give the company the option to repurchase shares. Before that happens, it will prioritize cutting its debt. CEO Vicki Hollub said favorable energy prices enabled Occidental to further improve its balance sheet and liquidity position.
Warren Buffett Stocks: Verizon Communications (VZ)
Verizon Communications (NYSE:VZ) fell sharply from $55 after posting quarterly results. It posted revenue growing by 2.1% to $33.6 billion. It earned $1.35 a share (non-GAAP). Investors sold the stock because they did not like its outlook.
Verizon guided 2022 earnings at the lower end of its range. It expects an EPS of $5.40 to $5.55. For the full-year guidance, Verizon expects wireless service revenue to grow at the lower end of the 9% to 10% range it previously provided. Markets over-reacted. The stock pays a generous dividend that grows regularly.
The company has a one-time increase in costs in the quarter ahead. To promote its C-Band launch, new pricing plans, and the launch of fixed wireless on C-Band, it will spend on marketing efforts. This should result in a more normal rate of growth. Wireless additions slowed in the last quarter, due to some slowdown in the business and from the higher competition. Verizon is entering the second phase of the 5G era. Customers will embrace 5G, which gives the company good traction from here.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
