Warren Buffett’s success as an investor means that the stock portfolio is within reach Berkshire Hathaway receive a lot of attention. While you should always make your own buying and selling calls, there are some interesting stocks in Buffett’s investment vehicle that are worth thinking about today. The list contains Chevron(NYSE: CVX), Coca-cola(NYSE: KO)And American Express(NYSE:AXP). Here are which ones are probably worth buying, and the ones you might want to avoid.
Chevron is one of the largest integrated energy companies in the world. This means that its activities cover the entire spectrum of the sector, from upstream (oil and natural gas production) through midstream (pipelines) and all the way to downstream (chemicals and refining). This provides some balance to the company’s financial results, as each segment of the industry performs in a slightly different way.
The end result is that for an energy company, Chevron’s peaks and valleys are not as extreme as if it were operating only upstream. This makes it a solid choice for long-term investors looking to invest in the energy sector.
That helps with one of the strongest balance sheets in the industry, with a very low debt-to-equity ratio of 0.17x.
The real attraction right now is the dividend. To start with, the return is 4.3%. And that return is supported by a dividend that has been increased annually for more than thirty years. That said, the average return in the energy sector is around 3.3%, indicative of the lagging stock performance Chevron is currently experiencing.
Some of that is related to a takeover that isn’t going as well as hoped. Some relate to Chevron’s lackluster operating results in the face of weak energy prices. However, if you have a long-term investment horizon, this robust sector is probably worth buying today. Collecting above-average industry returns while waiting for better days to come isn’t exactly a terrible thing.
Coca-Cola is one of the most recognized companies in the world and it is usually a pretty expensive stock to buy. But a recent share price drop has put the stock in an attractive range, assuming you don’t mind paying a fair price for a great company.
To give some numbers, the dividend yield of this Dividend King is approximately 3.2%. That’s about the middle of the last decade, which suggests a reasonable price. This view is supported by more traditional valuation measures, such as price-to-sales and price-to-earnings ratios, both of which are slightly below their five-year averages. While it wouldn’t be fair to suggest that Coca-Cola is a screaming buy, it does look reasonably priced.
The real story, however, is what you get for that price. Coca-Cola’s business has robust margins, a healthy balance sheet and a portfolio of beverage brands that is second to none (thanks in large part to its namesake soft drink). While investors may have some concerns about inflationary pressures, new weight loss drugs and even the increasing focus on snack foods, given its long and successful history here, it seems highly likely that Coca-Cola will remain the market leader. And that suggests the dividend will continue to be paid and continue to rise over time – exactly what a conservative income investor wants to see.
American Express is a payment processor aimed at high-end consumers. That’s solid territory, considering that wealthy customers tend to weather economic downturns relatively well. The fees the company collects for processing transactions are usually quite reliable over time.
All in all, American Express is an attractive company. But as Benjamin Graham, the man who helped educate Warren Buffett, said, a great company can be a bad investment if you pay too much for it.
After doubling its price in about a year, American Express is starting to look expensive. The company’s price-to-sales, price-to-earnings, price-to-cash flow, and price-to-book ratios are all well above their five-year averages.
If you’re a more active investor who cares about appreciation, you might want to take some profits here. It would be understandable if long-term investors wanted to stay given the underlying business, but new investors should probably stay on the sidelines until there is a better entry point.
Even Warren Buffett, the Oracle of Omaha, makes mistakes. So you have to take Berkshire Hathaway’s portfolio with a grain of salt. You also have to remember that Buffett tends to buy and hold, so things he has in his portfolio today may not be things he would buy today.
But if you’re looking for investment ideas, a look at today’s Buffett stock list raises interesting questions about Chevron, Coca-Cola and American Express. The first two seem like buys, but the last one seems a bit overpriced at the moment.
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American Express is an advertising partner of Motley Fool Money. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has and recommends positions in Berkshire Hathaway and Chevron. The Motley Fool has a disclosure policy.
2 Warren Buffett Stocks to Buy Hand Over Fist and 1 to Avoid was originally published by The Motley Fool
