The best Warren Buffett stocks are those that have stood the test of time, although not many people realize it.
For the past few years, upstart technology companies were consistently the market’s largest gainers. Warren Buffett and his conglomerate, Berkshire Hathaway (NYSE:BRK-B), might have seemed a little old-fashioned.
However, Buffett is back on top. The Oracle of Omaha’s portfolio enjoyed significant outperformance over the past year as investors have started to prioritize companies such as those that comprise the best Warren Buffett stocks rather than growth companies.
With Berkshire’s substantial’s alpha in 2022, the longer-term track record is looking better as well. Over the past 10 years, BRK-B stock is up 233% versus a 102% price increase for the S&P 500.
Given the substantial uncertainty in the macroeconomic picture for 2023, expect more volatility in the market going forward. That makes these Buffett stocks particularly attractive compared to the broader market.
|JNJ||Johnson & Johnson||$177.48|
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) operates across three primary segments, which include pharmaceutical drugs, medical devices and consumer wellness products.
The company’s internal diversification is one of its greatest strengths. Typically, whenever one part of J&J is struggling, another part is doing well and picks up the slack. For example, during the pandemic, medical device sales fell as hospitals delayed elective surgeries. But demand for consumer wellness products picked up at the same time.
Johnson & Johnson has grown its dividend for 60 consecutive years, making it one of the best Warren Buffett stocks to ad to your portfolio now.
The firm is a classic “sleep well at night” stock thanks to its consistent earnings and dividend growth track record. This makes it fit in perfectly in the category of Buffett stocks where companies reliably create additional shareholder value year after year, decade after decade.
Coca-Cola (NYSE:KO) is one of the best Warren Buffett stocks because it’s the longest-running public security in Berkshire’s portfolio.
Buffett started buying shares way back in 1988 in the wake of the 1987 crash, and commented at the time: “[W]hen we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
And, indeed, Berkshire continues to own a massive amount of KO stock 34 years later. While Coca-Cola has had its ups and downs over the decades, it has been an exceptionally successful investment for Berkshire.
Soft drinks remain a lucrative high profit margin market. And Coca-Cola has done a good job expanding its presence in lower-sugar sodas and other beverages to broaden its business.
Coca-Cola shares rarely seem particularly cheap, and that holds now. KO stock is at 25x forward earnings while offering a 2.8% dividend yield today. But that’s a better deal than it might seem at first glance. Coca-Cola has tremendous pricing power thanks to its worldwide brand, and is well-positioned to thrive despite the current inflationary environment.
Diageo (NYSE:DEO) makes a wide range of alcoholic beverages, including Smirnoff, Johnnie Walker and Guinness beer.
The firm’s business is exceptionally recession-proof, given that alcohol sales tend to be steady regardless of economic conditions.
Berkshire Hathaway owns DEO shares, though it is one of Buffett’s more modest positions. As of Sept. 30, Berkshire owned 227,500 shares of Diageo. Berkshire hasn’t yet invested nearly as much in Diageo as it did in Coca-Cola.
However, if there were a time for Buffett to increase his investment in DEO, it could be now. The value of the British Pound slumped in 2022 thanks to heightened economic and political uncertainty in the United Kingdom.
Because Diageo is based in Britain, its valuation has declined as economic troubles there persist. That could be an opportunity for astute, international investors. This is one of the best Warren Buffett stocks to buy when people are fearful.
Charter Communications (CHTR)
Charter Communications (NASDAQ:CHTR) used to be one of the market’s most consistent growth companies. CHTR stock rallied from just $30/share in 2010 up to a peak of more than $800 in 2021. That’s a more than 25x gain on a cable company in a decade.
How did Charter pull it off? The company uses a ton of leverage. And, with those borrowed funds, it has been an M&A machine, piling up more cable assets and developing tremendous scale benefits and synergies.
Unfortunately, the heavy use of leverage cuts both ways. Since the pandemic, demand for cable services has now sagged amid rising competition in the industry. Profits are down.
Meanwhile, interest rates are up, which is a burden for companies with heavy debt loads, such as Charter. Add it up, and CHTR stock is down more than 50% from the recent highs.
However, cable and internet still remain effectively utility-like services that consumers will pay for regardless of economic conditions.
It’s quite possible that the market is overreacting to short-term headwinds in the business. Buffett has made a fortune buying into strong companies facing temporary adversity, and Berkshire’s investment in Charter could well end up adding to that list of successful turnaround investments.
Moody’s (NYSE:MCO) is one of the best Warren Buffet stocks to buy. It features classic Buffett traits, including strong competitive advantages and high barriers to entry.
First off, there are only three major players in the ratings agency space. This gives them strong pricing power. That’s doubly true since credit ratings are absolutely indispensable. Many bonds simply aren’t marketable if they don’t have a rating from Moody’s or its competitors.
That’s because many exchange-traded funds (ETFs), pensions, and other institutional entities are prohibited by their mandates from investing in bonds unless the bonds obtain a good rating.
The ratings agencies fell on hard times for a bit after their shortcomings in the 2008 financial crisis. However, Buffett has a tremendous track record with buying financial companies going through temporary headwinds. Moody’s is now back on top of its game, and investors should look forward to many more years of strong returns from Moody’s going forward.
Ally Financial (ALLY)
Ally Financial (NYSE:ALLY) had a bad 2022. A very bad 2022, in fact. ALLY stock is down a crushing 52% year-to-date.
That’s simply a disastrous result for a lending company in a year where rising interest rates provided a tailwind for most industry participants.
However, Ally Financial is heavily involved in the auto lending market. And, after a frenetic 2021 in the used automobile market, prices turned downward in 2022. That puts the collateral of many auto loans into question.
These concerns came to a head in October when Ally reported a sharp rise in auto loan write-offs. If the economy tips into a recession in 2023, it’s possible to see further loan quality problems at Ally.
On the other hand, ALLY stock is selling at just 4x forward earnings after its declines this year. Shares are now yielding more than 5%. And, it should be noted, Buffett has a good history of investing in financial companies facing short-term challenges. Investors could be well-served following Berkshire’s lead on ALLY stock.
Warren Buffett has been an aggressive buyer of Chevron’s (NYSE:CVX) shares in 2022. The oil companies are making record profits thanks to the rise in oil and gas prices. Berkshire, apparently, still sees considerable value even after the significant rise in CVX stock over the past two years.
And that’s probably the right conclusion. Chevron in particular is in a great position going forward. Chevron has invested heavily in liquefied natural gas (LNG). LNG prices have also surged this year as European countries seek to replace their gas imports from Russia with other alternatives. It seems Russia will be removed from global markets for quite a while to come, which should give large LNG operators like Chevron an extended market opportunity.
Berkshire owns more than 169 million shares of Chevron, which gives it an 8.8% stake in the company. At today’s price, CVX stock is still selling for 9x forward earnings while paying a 3.3% dividend yield.
On the date of publication, Ian Bezek held a long position in BRK-B, DEO, JNJ stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.