It’s a smart idea to think about which stocks billionaire investors are buying (or selling), and there’s no better investor to follow in this regard than Warren Buffett, who has built a mountain of wealth for Berkshire Hathaway shareholders.
Three Motley Fool contributors recently scoured Berkshire stock to find three stocks that are screaming for a bargain right now. Let’s see why they chose MasterCard (NYSE:MA), Louisiana Pacific (NYSE: LPX)And Coca-Cola (NYSE: KO).
A reliable growth share
Johannes Ballard (MasterCard): Berkshire Hathaway had a $1.7 billion stake in Mastercard at the end of 2023. That mid-size position in Berkshire’s stock portfolio suggests it may have been selected by one of Buffett’s investing lieutenants, but it has the hallmarks of what Buffett typically looks for. a long-term investment.
Mastercard benefits as one of the few major credit card brands. These companies generate high margins on sales. Unlike another Berkshire holding company, American ExpressMastercard does not issue cards and takes credit risk. Instead, it focuses on the much more lucrative activity of processing payments.
The stock is up 85% over the past five years thanks to consistent double-digit growth in sales and profits. The reason it’s a screaming buy comes down to a basic understanding of the key drivers of Mastercard’s business.
As a leading credit card brand, Mastercard will continue to grow along with the global economy. The economy has ups and downs, but the trend has been upward for decades. In the short term, Mastercard could be well positioned to benefit if wages and salaries continue to grow faster than inflation, pushing consumers to spend more.
A favorable environment for continued consumer spending growth explains why Wall Street is optimistic about the company’s prospects, with the consensus estimate calling for earnings growth of about 16% per year.
Meanwhile, the stock is still trading within its historical average price-to-earnings (P/E) valuation range. Assuming the stock continues to trade at its current price-to-earnings ratio, the stock could potentially double in value within the next five years.
This housing stock continues to grow
Jeremy Bowman (Lousiana Pacific): Buffett’s Berkshire Hathway bought several home-related stocks last year, surprising market watchers. And one of them has continued to climb higher ever since. That’s Louisiana-Pacific, the world’s largest producer of OSB (Oriented Strand Board), a plywood-like material that is a key component in home construction.
Shares of Louisiana-Pacific just hit another all-time high after the company released its earnings report last week, and the numbers help explain why. OSB sales rose 65% to $313 million, pushing total revenue up 24% to $724 million, well above the consensus of $688.9 million.
Margins also rose thanks to rapid revenue growth, with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rising from $116 million to $182 million. Adjusted earnings per share rose from $1.19 to $1.53, well above the $1.12 consensus.
Louisiana-Pacific’s strong growth came at a time when the housing market continues to struggle due to high interest rates. Meanwhile, renovation work has gone icy, with sales of existing homes recently falling to their lowest point in almost 30 years.
Louisiana-Pacific has forged new partnerships with DIY store And Lennarbut the best reason to buy the shares is the eventual turnaround in the housing market.
After the run-up, Louisiana-Pacific shares may seem expensive, but the company has lowered earnings estimates over the past two quarters. And if interest rates start to fall, the housing market could come back to life, sending Louisiana-Pacific shares higher.
This drinks superstar is aiming for a new record
Jennifer Saibil (Coca-Cola): The Coca-Cola of today is not the Coca-Cola of a few years ago. If you like Coke, you may not have noticed that sales were down and the company was struggling to grow. But if you follow Coca-Cola shares, you probably know that they track the broader market.
Management made some major changes to its business as sales fell off a cliff early in the pandemic, and it is now in a prime spot as a lean, flexible growth engine. It has restructured its operating units and halved its brand portfolio, now focusing on its core brands such as Coca-Cola, Sprite and Minute Maid. Sales also continue to rise despite inflation, demonstrating the strength of the brand and its connection with consumers.
As the world’s largest beverage company, it continues to generate growth organically and by expanding its brand portfolio with strong global competitors. In addition to brands it places in the ‘leader’ category, it also has ‘challengers’ and ‘explorers’. It has shifted to a multi-way approach to quenching the world’s thirst, which is the foundation for beverage innovation. The road ahead is clear and compelling. It’s about to finally surpass its record sales of 10 years ago, hit a new high and soar from there.
Coca-Cola shares are trading near their lowest price-to-earnings ratio in five years, if we strip out the pandemic’s early decline to 25. S&P500 this year, but the dividend yields 3%, more than double the S&P 500 average. Management raised the dividend in February for the 62nd consecutive year, making it a Dividend King with one of the longest streaks in the market. Coca-Cola is Warren Buffett’s longest-held stock, and this could be a good time to join him and buy.
Should You Invest $1,000 in Mastercard Now?
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American Express is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil holds positions at American Express. Jeremy Bowman has no position in any of the stocks mentioned. John Ballard has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway and Mastercard. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
3 Warren Buffett Stocks That Are Screaming Buys Right Now was originally published by The Motley Fool
