His approach to stock selection can be simple and boring. However, Warren Buffett’s results speak for themselves. Given enough time, Berkshire Hathaway reliably beats the market. Therefore, it would be wise to poach a few of his picks for yourself.
Buying every share of Berkshire is obviously not a viable option for most investors. And even if it were, you wouldn’t necessarily want to use all of these names at once. Look, even Warren Buffett is waiting for the right price. You’ll also want to remain patient and look around. That’s especially true in light of how well Berkshire Hathaway has performed lately.
That said, there are currently three great picks from Buffett that are somewhat discounted from their recent highs, but they remain in Berkshire’s portfolio for good reasons. You may just want to go ahead and collect one (or all) of these names for yourself.
1. Western petroleum
Contrary to popular belief, despite the rise of alternative energy, the need for crude oil will not disappear. It doesn’t even shrink. Standard & Poor’s expects global consumption to continue to grow from just over 100 million barrels per day now to 109.3 million barrels per day in 2030. Consumption should then decline, but only slightly. S&P says that even in 2050 the world will still need just over 100 million barrels of oil every day. In the meantime, we will of course use up much of its known supply, making it scarcer and therefore driving up its price.
Given these prospects, Buffett decided to open a large position in the oil and gas industry in 2022 Western petroleum (NYSE:OXY) suddenly very sensible. However, the Oracle of Omaha did not just pick Occidental out of the hat. As Buffett noted in his 2023 letter to Berkshire shareholders, “We mostly like it [Occidental’s] vast oil and gas reserves in the United States, as well as its leadership on carbon capture initiatives.” He adds: ‘[CEO] Vicki [Hollub] knows how to separate oil from stone, and that is an unusual talent, valuable to her shareholders and to her country.”
This knowledge, combined with Hollub’s insight into oil supply and demand dynamics, could soon pay big dividends for Oxy shareholders as well. Although she warned anyone who would listen in January that the sector’s underinvestment in supply would lead to shortages as early as 2025, few heeded the warning at the time. Now, just five months later, Goldman Sachs predicts a “significant” supply shortage this summer, which will cause oil prices (and therefore also gasoline prices) to rise sharply. And Goldman isn’t the only one concerned.
If it’s a glimpse of what’s to come — and it is — Occidental Petroleum’s recent decisions to ensure the company is ready to produce are nothing short of brilliant.
The stock is down 13% from its April high. That’s not much, but it could be the discount you get here.
2. Kraft Heinz
The Kraft Heinz Company (NASDAQ: KHC) is a rare failure by Warren Buffett.
This food giant is the result of the 2015 merger of Kraft and Heinz, a combination orchestrated in part by Buffett when Berkshire had a large stake in HJ Heinz. The assumption was that the two comparable companies could pool their resources, apply leverage, cut costs and find quality synergies.
However, none of that ever happened to any meaningful degree. Instead, the merger of the two companies was a fiasco from the start. Shares of the new stock peaked in 2017 before falling 70% in mid-2019. Then Buffett finally admitted that he paid too much for Kraft. The stock hasn’t moved much since then, suggesting little has changed in the prospects of the combined companies.
But in reality, a lot has changed for the better.
Take the new CEO as an example. Carlos Abrams-Rivera took over late last year and although he was hired internally, he brings something new to the proverbial table. He also brought five executives to help lead the company, which is placing a new priority on innovation. For example, 360CRISP’s debut last year offers microwavable sandwiches that taste and feel like they were cooked in a pan.
It’s still just food, so it’s not a fast-growing market. There is significant growth and value here; however, this is not reflected in the share price. The stock price is only about twelve times earnings per share and roughly eleven times expected earnings. The stock’s rolling dividend yield also stands at a healthy 4.7%, and while this quarterly payment hasn’t grown in years, it’s still reliable income. An increase in the dividend at some point in the near future is also not excluded.
3. Visa
Last but not least, add Visa (NYSE:V) to your list of no-brainer Warren Buffett stocks to buy now.
Unlike Kraft Heinz and Occidental, Berkshire Hathaway does not own a large share of the credit card intermediary. The 8.3 million shares of Visa that the company owns actually represent only about 0.6% of Berkshire’s total stock holdings, and make up just 0.4% of Visa itself.
However, it’s a company that Buffett has had a stake in dating back to 2011. That’s saying something, given how easily he could have shed this stock without impacting Berkshire’s performance. Don’t be entirely surprised if Buffett starts adding to his position again now that Visa shares are down about 7% from their March high. As with Occidental Petroleum, that’s probably about all the discount you’ll get.
The positive story here is not a difficult one: people buy goods and services and crave convenience. Visa facilitates the former and offers the latter. Every time a cardholder swipes away their plastic, Visa puts a few cents in their pocket. That’s why (with the exception of 2020, when the COVID-19 pandemic was in full swing) sales haven’t grown in any quarter in more than a decade.
Of course, being the world’s largest card payment intermediary doesn’t exactly hurt the company’s ability to attract more cardholders and encourage more use of these cards. There is even an entire branch of the company dedicated to this. A handful of innovation centers around the world are independently finding and developing ways to better meet the payment needs of their specific markets. For example, earlier this year Visa unveiled engagement-focused technology that merchants can use to drive loyalty, which in turn drives more revenue for that company.
Of course, this technology also generates more swipe fees for Visa itself, whether on credit or debit cards.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway, Goldman Sachs Group and Visa. The Motley Fool recommends Kraft Heinz and Occidental Petroleum. The Motley Fool has a disclosure policy.
3 No-Brainer Warren Buffett Stocks to Buy Now was originally published by The Motley Fool
