On Wall Street, few investors are more respected than him. Berkshire Hathaway CEO Warren Buffett. The reason for this can be seen in the “Oracle of Omaha’s” returns since taking power in the mid-1960s.
broad based S&P 500 Index Until last year, the cumulative total return, including dividends, had reached 30,000%. However, since Buffett became CEO of Berkshire Hathaway, the “Oracle of Omaha” company’s Class A shares (BRK.A) have generated a total return of more than 4,700,000% in less than 60 years. time (as of the close of business on January 26, 2024).The return is You will definitely draw the following From professional and everyday investors.
The great thing about Warren Buffett and the $371 billion portfolio he oversees at Berkshire Hathaway is the transparency involved. Investors can effectively reflect Buffett’s trading activity over decades thanks to Form 13F filed quarterly with the SEC.
Another noteworthy aspect of Berkshire Hathaway’s $371 billion portfolio is that it’s filled with profitable, time-tested companies. In other words, it is the breeding ground for first-rate investment ideas.
As we enter the shortest month of the year, three Warren Buffett stocks stand out as screaming buys.
The first stock Buffett looked to buy in February was satellite radio operator SiriusXM Holdings (NASDAQ: SIRI)Berkshire Hathaway’s portfolio added more Sirius XM shares in the third quarter, after the stock disappeared for about two years.
Broadcasters’ primary concern is the health of the advertising market. Advertising spending is highly cyclical, and businesses aren’t shy about cutting advertising budgets when the first signs of trouble become apparent. With some forecasts and money in hand – this year could be challenging, according to indicators that sound ominous warnings for the U.S. economy.
Sirius XM Holdings, on the other hand, is built differently than terrestrial and online broadcast operators, giving the company a number of unique competitive advantages in virtually any economic environment. First, the most obvious difference is that Sirius XM is the only legally authorized satellite-radio operator. While that doesn’t mean it’s immune to competition, it gives the company superior pricing power through its subscription service.
I think the most important difference between Sirius XM and traditional players is how they generate revenue. Terrestrial and online broadcasters rely heavily on advertising revenue. Sirius XM, meanwhile, generated just 19.2% of its net sales through advertising in the first nine months of 2023 — almost all of which can be traced back to its February 2019 acquisition of Pandora. Subscriptions account for the majority of its net sales (77.2%).
As mentioned earlier, businesses are quick to cut advertising budgets at the first sign of economic disruption. But that’s not the case for Sirius XM subscribers, who are far less likely to cancel their service than advertisers are to cut their budgets. Sirius XM will be in much better shape than its peers during a downturn.
Another important point is that some of Sirius XM’s fees are highly predictable. While royalties and talent acquisition costs vary from quarter to quarter, transmission and equipment costs are actually stable. The company can continue to add users without increasing these core expenses.
Finally, Sirius XM Forward price-to-earnings ratio (P/E) 17 is at a decade low and about 20% below the five-year average.
Bank of America
Warren Buffett’s Second Stock Is a Banking Giant Worth Buying in February (and Beyond) Bank of America (NYSE: BAC)Bank of America, as the bank is better known, is Berkshire Hathaway’s second-largest holding by market capitalization.
The knock on bank stocks is that they are cyclical. They will rise and fall with the health of the U.S. economy. If predictions of a 2024 recession prove accurate, bank stocks like Bank of America are expected to experience growing loan losses and credit defaults.
If I can offer any solace, it’s that boom-bust cycles are disproportionate. While recessions are a normal and inevitable part of the economic cycle, they do not last.
Of the 12 recessions since the end of World War II, only three lasted at least 12 months, and none of the remaining three lasted longer than 18 months. By comparison, two economic expansions in the past 78 years have reached the ten-year mark. , bank stocks are well-positioned to expand their loan and leasing portfolios.
One of the standout reasons Bank of America is such a great investment is its interest rate sensitivity. No U.S. money center bank’s net interest income is more sensitive to changes in monetary policy than Bank of America. As the Federal Reserve takes its most aggressive steps in a four-decade cycle of rate hikes, U.S. banks have benefited in the form of higher net interest margins and billions of dollars more in net interest income every quarter.
When most investors think of Bank of America, they probably don’t associate it with technological advancements. However, in the fourth quarter of 2023, 75% of consumer households used digital banking (online or through mobile apps). Additionally, just under half of all loan sales are completed through digital channels.
Online and mobile app-based transaction costs are a fraction of face-to-face interactions at banks. As the share of digital users climbs, Bank of America could choose to consolidate some of its branches and reduce expenses.
Bank of America’s valuation also makes sense for long-term, value-oriented investors. It’s possible to buy a stock for less than 10 times expected earnings and just shy of its book value. Buying stocks of well-run banks at or below book value has historically been a smart move for investors.
Warren Buffett’s third stock, the beverage giant, became a screaming buy in February (and likely for many years to come), well ahead of its peers Coca Cola (NYSE:KO).
Every public company faces headwinds, and Coca-Cola is no exception. The biggest challenge facing the 138-year-old business is dealing with higher-than-average inflation. As labor, transportation and even ingredient costs rise, it’s possible Coca-Cola’s operating margins could take a hit.
The good news is that Coca-Cola also has exceptionally strong pricing power. According to the “Brand Footprint” report released annually by Kantar, Coca-Cola has been the most popular brand on retail shelves for 10 consecutive years (as of 2022). Its pricing has no trouble beating current inflation rates.
One of the not-so-subtle secrets of Coca-Cola’s success is its nearly unparalleled geographic diversity. It has operations in all but three countries (North Korea, Cuba and Russia) and has more than two dozen brands in its portfolio with annual sales exceeding $1 billion. This means it delivers predictable cash flows from developed markets while also enjoying an organic growth boost from fast-growing emerging markets.
Additionally, the company believes its addressable market has doubled from $650 billion in 2017 and is expected to reach $1.3 trillion by 2022. With the exception of established categories such as sparkling soft drinks, which will grow at a mid-single-digit compound annual growth rate (CAGR) by 2026, energy drinks and ready-to-drink alcoholic beverages can achieve high-single-digit growth over the same period. compound annual growth rate.
Don’t overlook Coca-Cola’s top-notch marketing, either. The company invests more than half of its advertising budget in digital channels and relies on artificial intelligence (AI) to tailor ads to younger audiences. Anonymous, it can rely on its former holiday lineup and well-known brand ambassadors to connect with mature consumers. Marketing is an important reason why Coca-Cola has become the most valuable consumer product brand.
Which leads me to my next point: Consumer staples stocks offer predictable operating cash flow. Food and beverages are basic necessities, which means Coca-Cola can deliver in any setting.
Coca-Cola stock is currently being purchased at 21 times forward earnings, which is the lowest in six years and slightly below the five-year average.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams Holds positions with Bank of America and Sirius XM. The Motley Fool holds positions at and recommends Bank of America and Berkshire Hathaway. Motley Fool owned disclosure policy.
3 stocks Warren Buffett is buying to buy in February (and beyond) Originally published by The Motley Fool