These Warren Buffett stocks can keep a portfolio sailing smoothly through choppy economic waters.
Bank of America (BAC) – American banks have improved greatly in quality since 2008 and are still relatively undervalued.
Hershey (HSY) – The leading chocolate company has tremendous pricing power to fend off inflationary concerns.
VerizonCommunications (VZ) – The stable telecom operator now offers greater than 5% dividend yield.
Chevron (CVX) – Energy has entered a new bull market, and Chevron is a safe way to enjoy the ride.
Snowflake (SNOW) – One of the fastest and most dynamic software companies is now on sale.
Visa (V) – Credit card companies are winners as global travel rebounds.
StoneCo (STNE) – The Brazilian payments player is still reporting strong numbers despite stock price collapse.
a picture of warren buffett smiling.
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The stock market had an unpleasant month of April, to put it mildly.
The S&P 500 fell roughly 9%, and more aggressive investments such as tech and disruptive stocks dropped even more sharply. Investors face a difficult outlook. The economy is already on the brink of recession, with GDP growth dipping into negative territory this past quarter.
So what’s an investor to do? As Warren Buffett is fond of saying, never bet against America. Things look rough for the rest of 2022 and perhaps 2023 as well, but long-term investors will still succeed. Buffett’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) has prospered over the decades despite an unending stream of recessions and geopolitical shocks.
As It Tests Support, Bank of America Stock Provides a Trading Opportunity
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Bank of America (NYSE:BAC) is Berkshire Hathaway’s second-largest holding, making up more than 13% of the portfolio. Buffett is known as an expert in the banking industry, and he’s taken a huge swing on BAC stock.
You might want to as well. The bank is a power player, combining a strong investment banking franchise with one of the nation’s most powerful retail banks. This internal diversification gives it a robust revenue stream that tends to fare well in a variety of economic climates.
That may become necessary as economic conditions change rapidly. Regardless, the bank is well-situated for what comes next; on its last earnings call, it pointed to higher income in coming quarters as interest rates rise. Meanwhile, with shares down nearly 20% so far in 2022, BAC stock is selling for just 11x forward earnings.
The Hershey Company (HSY)
The entrance to the Hershey (HSY) factory in downtown Hershey, Pennsylvania.
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The Hershey Company (NYSE:HSY) is the only stock on the list that Berkshire doesn’t currently own. However, Berkshire has been the longtime owner of chocolate company See’s Candies. See’s Candies is often cited as one of Berkshire’s best deals overall in terms of the amount of cash flow it generates compared to Berkshire’s purchase price.
For public market investors, while we can’t buy See’s directly, Hershey may be the next big thing. Hershey is one of the three big players in the American chocolate market. As you might expect, chocolate sales tend to be nearly immune to economic shocks. People want their little luxuries regardless of how things are going overall.
In addition, Hershey has proven to be extremely resilient in the face of inflation. It has been able to hike prices more quickly than inflation, leading to a beneficial effect for the company’s profit margins. Hershey also has a history of raising its dividend every year, ensuring that long-term shareholders get a bigger share of the pie as profits increase. That’s been a sweet deal for HSY stock owners over the decades.
Verizon Communications (VZ)
Verizon (VZ) Wireless sign and trademark logo.
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Verizon (NYSE:VZ) is one of Berkshire’s largest holdings as of last quarter. It owned 159 million shares, or roughly $8 billion worth of the telecom giant.
Verizon is not a particularly exciting business. However, it’s a great income holding, as it pays a large and consistent dividend. It can do so since the cash flows from telecom tend to be so stable.
Shares dropped around 10% following recent earnings, driving VZ stock’s dividend yield back up above the 5% mark. That makes a reasonable dip-buying opportunity for income investors, especially since shares are now going for just 9x forward earnings.
Oil and gas are back, and the integrated energy companies are flying high. Analysts see Chevron’s (NYSE:CVX) earnings jumping close to 90% in 2022 to around $15.50 per share. If they hit that mark, that would put CVX stock at just 10x earnings, even after the run-up in Chevron’s share price.
So, contrary to what some analysts may say, integrated oil giants aren’t necessarily expensive even after significant gains this year. Earnings have improved to an astounding degree. And there may be more upside ahead. The geopolitical conflicts in Europe have created a major squeeze on gas supplies in that market. This could create a significant opportunity for American gas producers such as Chevron. There’s more to the story than just oil prices, though obviously those are going well for Chevron too.
As of last quarter, Berkshire now owns 38 million shares of Chevron; it added more than 9 million shares to its stake in the prior quarter. For a solid defensive dividend play, Chevron is a great pick.
Snowflake (SNOW)
Snowflake symbol and logo at the company corporate headquarters in Silicon Valley. SNOW stock.
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Snowflake (NYSE:SNOW) is one of the fastest-growing software-as-a-service (SaaS) companies out there. Berkshire invested in Snowflake just prior to SNOW stock’s initial public offering (IPO). That initially looked like a home run, as SNOW shares doubled in short order after trading began.
It’s clear why traders were so excited. Snowflake posted a greater than 100% revenue growth rate last year, going from $592 million of revenues to $1.2 billion in a single year. Going forward, analysts see 67% and then 56% revenue growth over the next two years, which is simply jaw-dropping for a company that is already as large as Snowflake.
The issue, though, was valuation. At its peak stock price, Snowflake was worth a market capitalization of nearly $125 billion, and had a price-sales ratio of around 100. It’s hard to sustain such a generous multiple, regardless of how amazing the underlying business is. Now, however, with SNOW stock down by more than half, it may be time to join Buffett in owning this leading cloud data warehousing company.
Visa (V)
several Visa (V) branded credit cards
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Visa (NYSE:V) is one of the few large-cap financial technology companies to post a solid quarterly earnings report this season. Visa shares leapt 8% following a much better-than-expected earnings report.
A huge part of profitability for the credit card companies is due to cross-border transactions. Generally, Visa takes a very low percentage of each transaction. However, it gets to earn a much bigger fee on international transactions with foreign currency. Now that Covid restrictions are lifting internationally, global travel is picking back up and it showed up dramatically for Visa this past quarter.
The reopening bump won’t last forever. However, Visa’s long-term trajectory also looks great. Plastic is still continuing to take market share from physical cash. Meanwhile, many highly-touted fintech “disruptors” have seen their share prices collapse over the past 12 months. Turns out, it was pretty hard to disrupt traditional payments companies after all. Berkshire Hathaway knows the industry well and is holding V stock. That seems like a most reasonable long-term position.
Warren Buffett Stocks: StoneCo (STNE)
Cellphone with logo of Brazilian fintech business Stone Company (StoneCo) on screen in front of website
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That being said about Visa, Berkshire does own a couple of fintech companies as well. Arguably the most interesting of this bunch is StoneCo (NASDAQ:STNE).
StoneCo shares are, incredibly enough, down by more than 90% since their all-time highs. The Brazilian payments company has been hit on all fronts. There was geopolitical uncertainty in Brazil, a massive increase in interest rates in that market, and problems on the consumer lending side.
However, StoneCo’s quarterly metrics, such as user growth, continue to post gargantuan increases. STNE stock popped close to 50% on its last earnings report as it smashed expectations and management guided to a much better outlook for the rest of 2022. However, given the ongoing selling in speculative tech stocks, STNE stock has given back most of its earnings rally. That sets up a second chance to buy the company that is already well into its turnaround.
On the date of publication, Ian Bezek held a long position in V, STNE, BRK.B and HSY stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
