If we’re going to get right down to it, banking on the best Warren Buffett stocks comes down to leveraging decades of experience. Unlike, say, financial luminaries on YouTube, the Oracle of Omaha has seen it all – bull markets, bear markets and whatever the heck we’re currently in. When Buffett speaks, you listen.
Of course, Buffett has a wide range of names within the holdings of his conglomerate Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B). As one of my colleagues at InvestorPlace stated, there’s no way you’re going to buy every single idea that’s proposed. Therefore, we’ve got to narrow the list down to the best Warren Buffett stocks. Naturally, this begs the question: just how do we define what’s the best?
To be sure, the word is subjective. However, I’m going to do something different to add value by targeting Oracle-approved securities that benefit from a combination of analyst endorsement and favorable options dynamics. Please refer to this article for a rundown on the basic concepts I’ll be using.
And with that, below are the best Warren Buffett stocks to buy now.
Occidental Petroleum (OXY)
Based in Houston, Texas, Occidental Petroleum (NYSE:OXY) specializes in hydrocarbon exploration (upstream) in the U.S. and the Middle East. In addition, the company manufactures petrochemicals in the U.S., Canada and China. Since the start of the year, OXY gained nearly 6% of equity value. On Thursday, shares closed at $64.57.
Presently, OXY represents 4.1% of Berkshire’s portfolio. As such, it’s one of the largest ideas under the context of the best Warren Buffett stocks. Turning to the options market, OXY’s volatility smile – or the implied volatility (IV) plotted at various strike prices – possibly demonstrates a mix of bullish speculation as well as mitigation for tail risk.
Specifically, IV rises from its low of 0.23 at the $68 strike price and increases to 0.47 at the $85 strike. Thus, options premiums have increased as the price moved out of the money (OTM), assuming from a call holder’s perspective. Still, IV also jumped to 0.7 at the $40 strike, suggesting mitigation for a black swan-like event.
Still, analysts peg OXY as a moderate buy with a $68.87 price target, implying nearly 7% upside.
Johnson & Johnson (JNJ)
One of the biggest names in the healthcare industry, Johnson & Johnson (NYSE:JNJ) is now focused on developing and producing pharmaceutical drugs and medical device technologies. Despite exceptional, longstanding relevancies, JNJ incurred a rough outing in 2023 thus far. Since the January opener, shares stumbled more than 10%. On Thursday, JNJ closed at $160.03.
Looking at the options arena, its volatility smile may endorse shares as one of the best Warren Buffett stocks to buy now. From an IV low of 0.15 at the $165 strike price, the metric soars to 0.57 at the $245 strike. Moving in the deep in the money ( ) direction (i.e. to the left), IV hits a peak of 0.47. Put another way, while risk mitigation exists, it appears traders are leaning more toward a bullish outcome.
Further, with IV rising distinctly in the OTM direction, this framework incentivizes traders to sell options to collect rich premiums. Indeed, options flow data – which filters for big block trades likely made by institutions – reveals just that: institutional firms appear to be selling puts, which have bullish implications.
To top it off, analysts peg JNJ a moderate buy with a $180.18 price target, implying almost 13% growth.
Based in Reston, Virginia, Verisign (NASDAQ:VRSN) operates a diverse array of network infrastructure. Since the beginning of the year, VRSN gained almost 3%, which isn’t that impressive. However, it could be one of the under-appreciated best Warren Buffett stocks to buy now. On Thursday, shares closed at $207.75.
Turning to the options arena, VRSN presents a risk-mitigated opportunity. At the $195 strike price, IV sits at its low point of 0.15. From there, in the OTM direction (right), IV rises to 1.02 at the $320 strike. On the other side of the equation, IV rises to 1.61 at the $105 strike when moving in the deep ITM direction.
Primarily, traders are leery of tail risks to the downside. At the same time, they recognize the Verisign’s upside potential. At the moment, VRSN represents 0.8% of Berkshire’s portfolio.
To sway the decision, analysts peg VRSN as a moderate buy. Their average price target comes in at $239.50, implying over 15% upside potential.
Globe Life (GL)
Headquartered in McKinney, Texas, Globe Life (NYSE:GL) is a financial services holding company. Through its wholly owned subsidiaries, Globe Life provides life insurance, annuity and supplemental health insurance products. Although boring, it’s a relevant enterprise, making it one of the best Warren Buffett stocks. Since the January opener, GL slipped 9%, closing recently at $108.64.
Focusing on GL’s volatility smile, astute investors may appreciate the possible opportunity here. At the $110 strike price, IV drops to a low of 0.16. From there, it largely swings consistently higher to an IV of 1.36 at the $170 strike. However, moving in the deep ITM direction, IV only rises to 0.85 at the peak. Comparatively speaking, then, it’s possible that traders mostly anticipate upside from here on out.
However, one point to bring up is that GL is only about 0.1% of Berkshire’s portfolio.
Still, analysts seem to like Globe Life, pegging it a moderate buy. Their average price target lands at $126, implying nearly 16% upside potential. For a reliable play during ambiguous times, GL ranks among the best Warren Buffett stocks.
A soft-drink behemoth, Coca-Cola (NYSE:KO) also doubles as a symbol of American capitalism. Plus, given the Oracle’s sweet tooth, KO is a perfect ambassador for the best Warren Buffett stocks to buy now. Unfortunately, 2023 hasn’t been particularly kind to Coca-Cola, with shares tumbling more than 7%. On Thursday, KO closed at $58.33.
Shifting gears to its volatility smile, traders appear to be anticipating a broad rise in the share price. At the $61 strike, IV sits at a low point of 0.12. Moving in the far OTM direction, IV soars to 0.59 at the $75 strike. On the other side of the equation, IV peaks at 0.39 at $47 for the deep ITM direction.
As mentioned earlier, a higher IV incentivizes traders to sell options to collect premiums and that’s exactly what’s happening. Based on Fintel’s options flow screener, institutional traders appear to be selling puts at various expiration dates in 2024 and 2025. Usually, sold puts represent a bullish tactic.
For confirmation, analysts peg KO a consensus strong buy with a $71.82 price target, implying 23% upside potential.
Headquartered in Nashville, Tennessee, Louisiana-Pacific (NYSE:LPX) is a building materials manufacturer. Per its public profile, the enterprise is well known for its engineered wood building products. If you take the Oracle’s message of not betting against America to heart, LPX could be one of the best Warren Buffett stocks. Since the January opener, LPX gained nearly 2% to close at $60.41 recently.
Turning to the volatility smile, LPX presents an unusual backdrop. At the $62.50 strike price, IV drops to a low of 0.28. Moving in the far OTM direction, IV rises to 1.93 at the $115 strike. This indicates anticipation of strong activity at the OTM prices, possibly suggesting long-term optimism.
On the other hand, IV skyrockets from 0.36 at the $42.50 strike to 1.94 at $32.50. To me, this dynamic could reflect mitigation of a tail risk (i.e. black swan event). However, because IV is stable between $42.50 to $70, traders may not see the tail risk as a likely event.
Also, analysts peg LPX a moderate buy with a $76.57 price target, implying nearly 27% growth.
Nu Holdings (NU)
One of the riskiest names among the best Warren Buffett stocks to buy now, Nu Holdings (NYSE:NU) is a financial technology (fintech) specialist based in Sao Paulo, Brazil. Per its public profile, the company has become one of the largest independent digital banks in the world. Plus, Wall Street loves it, with shares skyrocketing to a nearly 92% return since the beginning of January.
Looking at its volatility smile, NU presents on enticing backdrop. On Thursday, shares closed at $6.83. At the $7.50 strike price, IV sits at a low of 0.42. Moving toward the far OTM direction, IV flies to a peak value of 2.01. This framework suggests intense anticipation of activity further up the OTM price scale, possibly indicating strong optimism.
On the flipside, IV only rises to 1.13 at the $3.50 strike, which may imply limited anticipation of downside risk. Given the rich premiums involved with the high IV at far OTM prices, it’s no surprise that institutional traders have sold many puts with 2024 expiration dates.
Finally, analysts peg NU a moderate buy with a $9.27 price target, implying nearly 36% upside potential.
On the date of publication, Josh Enomoto 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.