There are some good values in Berkshire Hathaway’s stock portfolio, but these two are standouts.
Berkshire Hathaway (BRK.A 0.60%) (BRK.B 1.16%) owns about 40 stocks in its closely watched stock portfolio, many of which were hand-selected by legendary investor Warren Buffett himself. Some of them, such as Visa (V -1.47%) and Mastercard (MA -0.67%), are within striking distance of their all-time highs, while others, such as SiriusXM (SIRI 0.72%), have struggled.
To be fair, there’s a solid buy case to be made for most of Berkshire’s stocks. After all, Buffett typically buys stocks because of an attractive valuation, durable competitive advantage, leading market position, or some combination of appealing features. However, there are some that look like complete no-brainers for long-term investors right now, and these are the two I’d be most confident in buying.
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An incredible financial powerhouse
American Express (AXP -0.65%) has perhaps the best combination of growth and asset quality in the financial industry. Its 2% net charge-off rate is about one third of what Capital One (COF 0.57%) and other peers report, and the 30-day delinquency rate is less than half of the industry average.
Recent momentum has been strong, with revenue up by 9% year over year in the most recent quarter and adjusted EPS up by 17%. International growth was impressive, as was the fact that nearly two-thirds of new accounts are from the extremely important millennial and Gen-Z generations. Card fee income (annual fees, mostly) was up by 20% year over year, thanks to the success of some of the company’s higher-end card products. The company continues to grow its ecosystem, and the recently announced Coinbase (COIN -6.35%) (COIN -6.35%) One Card is just one example of a big co-branding win.
Even though American Express has been a strong performer with shares up nearly 30% over the past year, the stock still looks attractive at about 18.5 times forward earnings. If the pending refreshes of several key products — including the flagship, highly lucrative Platinum Card — are successful, AmEx’s fee income growth could get even better.
The best “Buffett stock” of all
You might not need to dig into Berkshire’s portfolio to find the best “Buffett stock” to buy. I’d argue that perhaps the best Buffett stock of all to buy right now is Berkshire Hathaway itself.
Here’s why. Since Warren Buffett announced his planned retirement from the CEO position at the company’s May annual meeting, Berkshire’s stock price has fallen by about 14%. And this is despite strong operating earnings, a massive cash stockpile, and generally strong performance in the stock portfolio. Just to name a few of the largest positions, during the same period where Berkshire fell 14%, AmEx has risen by 11%, Bank of America (BAC -0.65%) is up by 14%, and Chevron (CVX 1.19%) is also up by double digits. In fact, every single one of Berkshire’s 10 largest stock positions have outperformed the conglomerate’s stock price since Buffett made his announcement.
Now, the valuation case for investing in Berkshire has become even more compelling. Berkshire’s market cap is about $985 billion, while the value of its stock portfolio is $283 billion and it has $344 billion in cash. This indicates that the market is valuing Berkshire’s operating businesses at $358 billion. Excluding investment income, Berkshire has generated $31.4 billion in operating earnings over the past four quarters, indicating a low P/E valuation of just 11.4 for its businesses.
Buy for the long term
I own both stocks in my portfolio and have owned then for more than a decade. And I think they look attractive now because of how I feel they could perform over the next decade, not over the coming weeks or months. There’s a lot that could cause short-term volatility in both stocks, but I’m confident that investors who buy today and hold for the long term will be glad they did.
American Express is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Matt Frankel has positions in American Express, Bank of America, Berkshire Hathaway, Capital One Financial, and Sirius XM. The Motley Fool has positions in and recommends Berkshire Hathaway, Chevron, Mastercard, and Visa. The Motley Fool recommends Capital One Financial and Coinbase Global. The Motley Fool has a disclosure policy.
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