Steve Symington, George Budwell, and John Bromels, The Motley Fool
Updated
As the longtime CEO of Berkshire Hathaway(NYSE: BRK-A)(NYSE: BRK-B), one of the world's richest people, and arguably the greatest investor of all time, Warren Buffett has no shortage of fans. And it's no surprise that millions listen closely to what Buffett has to say, particularly as it pertains to what he looks for in an investment.
To that end, we asked three top Motley Fool investors to each pick a stock that they believe Warren Buffett fans can appreciate. Read on to learn why they chose Disney(NYSE: DIS), Sanofi(NYSE: SNY), and Kinder Morgan(NYSE: KMI).
Close shot of Warren Buffet wearing grey suit and blue tie
Image source: The Motley Fool.
The world's undisputed entertainment leader
Steve Symington (Disney): If Disney wasn't already the world's most successful entertainment conglomerate, it will be when it closes on its pending acquisition of most of Twenty-First Century Fox's assets around the middle of 2018.
Assuming the mammoth $52.4 billion all-stock deal passes regulatory muster -- a fair concern among investors given its sheer size -- Disney will take ownership of cinematic properties such as Avatar, X-Men, Fantastic Four, and Deadpool. The company will also acquire TV titles like This Is Us, Modern Family, and The Simpsons, as well as channels including FX Networks, National Geographic, and Fox Sports Regional Networks. Disney will also own Star in India, a 39% stake in European satellite TV provider Sky, and a controlling stake in Hulu. Of course, that's in addition to its namesake TV channels and movie studios and its existing ownership of Pixar, Marvel, Lucasfilm, ABC, 50% of A&E Networks, and 80% of ESPN.
If that wasn't enough, keep in mind Disney aims to return at least 20% of the cash it generates to shareholders through dividends and stock repurchases.
In the end, the combination should create an enviable business with a moat that you can be sure Warren Buffett -- and his fans -- would love.
A top dividend in biopharma
George Budwell (Sanofi): The French drugmaker Sanofi has now been part of Berkshire Hathaway's portfolio for over eleven years. In fact, Sanofi is only one of three healthcare stocks that has even made its way into Berkshire's long-term holdings.
Healthcare stocks, after all, tend to have narrow economic moats due to their reliance on patents with a limited shelf life to ward off competitors. Buffett, by contrast, is well-known to favor companies with wide economic moats that can generate sustainable profits over exceptionally long periods of time.
So why does Sanofi get a pass from the Oracle from Omaha? The most likely reason is simple enough: Sanofi has consistently paid one of the richest dividends in the entire healthcare sector -- underscored by the fact that the company is presently heading into its 24th consecutive year of dividend growth.
In many ways, Sanofi's top notch dividend, which sports an attractive yield of 3.68% at current levels, has been its saving grace. Because of the loss of exclusivity for its megablockbuster diabetes drug Lantus, Sanofi's stock has lagged well behind the high-flying biopharma industry for most of the past decade. Even so, the company's juicy dividend has kept investors in the black during this exceedingly difficult period of product turnover.
What's next? Sanofi is currently searching for its next set of star drugs to drive growth. As part of this process, the drugmaker recently bought Biogen's hemophilia spin-off Bioverativ, and it's reportedly on the hunt for even more bolt-on acquisitions in the wake of this sizable $11.6 billion deal. Although biopharma acquisitions do tend to come at a sky-high premium that eats up lots of cash, Sanofi undoubtedly needs to restock the cupboard in order to push past Lantus' patent expiration -- implying that this acquisition frenzy is a necessary evil.
The good news is that Sanofi does have the financial flexibility to support both its M&A activity and its top-tier dividend program moving forward. As such, income investors shouldn't worry too much about a possible reduction to the company's rich dividend program anytime soon.
A left-behind infrastructure giant
John Bromels (Kinder Morgan): Buffett has already shown willingness to buy into companies with lots of physical assets -- think Berkshire's purchase of Burlington Northern Santa Fe or its 16% stake in Phillips 66. That's why I think a stake in gas pipeline operator Kinder Morgan might be right up his alley.
Kinder Morgan is the world's largest pipeline owner, and its "toll booth" model for charging for gas traveling through its pipelines means that, like Phillips 66, it's somewhat insulated from fluctuations in gas prices. But neither that industry-leading position nor that business model helped the company's stock in recent years. The market hammered Kinder Morgan shares in 2015 after it announced a quarterly dividend cut from $0.51/share to $0.125/share, where it still sits today. Then, in 2017, the company's share price managed to lag its peers even as it delivered on its strategic plans. That's gotten the company's share price down to levels that might even make Buffett himself take note.
Things may finally be looking up for Kinder Morgan: The company is planning to up its dividend 60% in 2018, with further increases in future years. It's continuing to develop new infrastructure to maintain its industry-leading position. Also, with North American gas production at record levels, the company should have plenty of market for its services well into the future. All that makes Kinder Morgan a great pick for Buffett fans.
The bottom line
Of course, there's no way to guarantee that these three businesses will deliver the market-beating returns that made Warren Buffett a household name. But when we consider the addition of Fox's assets to Disney's already huge base, the fact that Sanofi is one of few healthcare stocks that Buffett actually owns, and Kinder Morgan's industry leadership -- as well as generous capital returns policies from all three companies -- we like their chances of doing just that.
George Budwell has no position in any of the stocks mentioned. John Bromels owns shares of Berkshire Hathaway (B shares), Kinder Morgan, and Walt Disney. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Kinder Morgan, and Walt Disney. The Motley Fool has a disclosure policy.
