His legend may come from a different era of investing. But the fact is that Warren Buffett’s stock-picking approach still works. After a brief post-pandemic lull, his Berkshire Hathaway fund outperforms the broad market again.
Read between the lines: it would be wise to hijack a few of his choices.
If you have a few thousand dollars that you know you won’t need for a while, here’s a look at three Berkshire investments that belong in almost anyone’s portfolio.
1. Occidental Petroleum
If you think the advent of alternative energy poses a threat to fossil fuels in the short term, think again. The United States Energy Information Administration predicts that liquid fuels such as oil and natural gas will continue to be the world’s largest source of energy production through 2050. The growing demand for energy between now and then (mainly due to population growth) means that we will likely be burning more oil and gas in 2050 than we do now.
Connect the dots… the energy sector still offers plenty of opportunities.
That’s why Warren Buffett has hitched his wagon to one of the company’s bright but overlooked stars. That’s Occidental petroleum (NYSE: OXY)Berkshire currently holds a 123 million share/$16 billion stake in the oil giant, largely because, in Buffett’s own words, CEO Vicki Hollub “knows[s] how she can separate oil from rock, and that is an uncommon talent, valuable to her shareholders and her country.” Buffett also touts Occidental’s “vast oil and gas assets in the United States,” which were hand-picked largely based on their likely future operating costs and their efficient fit with Occidental’s existing assets.
Running a well-oiled business doesn’t always mean Occidental stock performs as well as hoped. Shares, for example, are down slightly from their April peak and haven’t turned a profit since April 2022.
But consider the bigger picture. This energy outfit is arguably one of the best-managed names in the sector (if not the best-managed), even if most investors don’t see that. Buffett does.
The kicker: Warren Buffett also praises Occidental Petroleum’s “leadership in carbon capture initiatives.” What is carbon capture? It’s (literally) the removal of carbon dioxide from the ambient air. While the technology is still in its infancy, research firm Global Market Insights reports that the global carbon capture market is expected to grow at a compound annual rate of 19% through 2032. Occidental is positioned to capture more than its fair share of that growth.
2. Kraft-Heinz
Kraft Heinz (NASDAQ: KHC) is one of Warren Buffett’s rare missteps.
As a reminder, Kraft and Heinz used to be two separate companies. But the food industry lends itself to economies of scale. That’s why Buffett, then a major shareholder in Heinz, helped orchestrate the pairing in 2015 by steering the company toward a takeover by a peer.
It turned out not to be a good fit. The desired synergies never materialized. In fact, the two companies were far too mismatched to simply merge. That’s why, after a more than 70% drop in the stock’s share price in 2017 and 2018, Buffett finally admitted in 2019 that Berkshire had “overpaid for Kraft.” The 326 million shares of Kraft Heinz that Berkshire owns have not changed in the meantime.
The funny thing is, the combined company could be stronger than ever in its existence. CEO Carlos Abrams-Rivera has proven he understands what needs to be done since taking over earlier this year. Innovation, for example, is once again a priority. The 360CRISP platform, for example, makes microwave-grilled cheese sandwiches taste and feel like pan-cooked versions of the popular snack/meal.
It’s not a growth stock by any means. However, it is becoming an increasingly reliable cash cow. It’s also a cheap stock with a strong dividend yield: Kraft Heinz shares are currently valued at less than 10 times this year’s expected earnings and have an annual dividend of almost 5% of the current price.
You should know that the company hasn’t increased its dividend since 2019, after cutting it following the post-merger regrouping. However, given all the work it’s done in the meantime, it’s possible that the dividend will grow again in the near future.
3. Visa
And finally, if you now have an extra $3,000 to spend, add your credit card company Visa (NYSE: V) to your list of Warren Buffett stocks to buy.
Berkshire’s stake in Visa isn’t huge. It owns just over 8 million shares worth about $2 billion. That’s less than 1% of the value of Berkshire’s stock holdings and less than 1% of Visa itself.
This is a position Buffett has held for a while, and for good reason. This is a business and an enterprise that will be around for a long, long time. As long as the world uses money, consumers and businesses will need a way to manage it. Market research firm Business Research Insights believes that the global card payments market is expected to grow at an annual rate of just over 13% through 2032.
Visa is ensuring that it remains a leader in the growing payments space by making sure that its cards remain the easiest and most rewarding to use in the world. The company operates several independently managed innovation centers around the world that are designed to meet the unique payment needs of each region, for example. As an example of this effort, the credit card intermediary now offers a turnkey customer loyalty/rewards program for merchants looking for ways to improve their engagement with consumers.
These initiatives are clearly working. Despite the economic headwinds currently blowing, the 9% increase in total payment volume last fiscal year has been followed by similar growth in the first half of this fiscal year. This continued growth suggests that the world is increasingly turning to cards as an alternative to cash or even cheques. Again, it is a trend that shows no signs of abating.
Should You Invest $1,000 in Kraft Heinz Now?
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Visa. The Motley Fool recommends Kraft Heinz and Occidental Petroleum. The Motley Fool has a disclosure policy.
The Best Warren Buffett Stocks to Buy Now With $3,000 was originally published by The Motley Fool
