Warren Buffett’s success as an investor means that the portfolio of stocks within Berkshire Hathaway get a lot of attention. Although you always have to make your own buy-and-sell calls, there are a couple of interesting stocks inside Buffett’s investment vehicle worth thinking about today. The list includes Chevron(NYSE: CVX), Coca-Cola(NYSE: KO), and American Express(NYSE: AXP). Here which ones are probably worth buying, and the one that you may want to avoid.
Chevron is one of the world’s largest integrated energy companies. That means that its business spans the entire spectrum of the sector, from the upstream (oil and natural gas production) through the midstream (pipelines) and all the way to the downstream (chemicals and refining). This provides some balance to the company’s financial results, since each segment of the industry performs in a slightly different way.
The end result is that, for an energy company, Chevron’s peaks and valleys aren’t quite as extreme as they would be if it only worked in the upstream. This makes it a solid choice for long-term investors looking to invest in the energy sector.
Helping things along is one of the strongest balance sheets in the sector, with a very low debt-to-equity ratio of 0.17x.
The real attraction right now is the dividend. For starters, the yield is 4.3%. And that yield is backed by a dividend that has been increased annually for over three decades. That said, the average yield in the energy sector is around 3.3%, which hints at the laggard stock performance Chevron is experiencing right now.
Some of that is related to an acquisition that isn’t playing out as well as hoped. Some is tied to Chevron’s lackluster business results in the face of weak energy prices. However, if you have a long-term investment horizon, this industry stalwart is probably worth buying today. Collecting an above-average industry yield while you wait for better days isn’t exactly a terrible thing.
Coca-Cola is one of the world’s most recognized companies and is usually a pretty expensive stock to buy. But a recent price pullback has brought the shares into an attractive range, assuming you don’t mind paying a fair price for a great company.
To provide some numbers, this Dividend King’s dividend yield is about 3.2%. That’s roughly middle of the road over the past decade, hinting at a reasonable price. Backing up that view are more traditional valuation metrics like price-to-sales and price-to-earnings, both of which are a little below their five-year averages. While it wouldn’t be fair to suggest Coca-Cola is a screaming buy, it does look reasonably priced.
The real story, however, is what you are getting for that price. Coca-Cola’s business sports robust margins, a healthy balance sheet, and a beverage brand portfolio that is second to none (thanks largely to its namesake soda). While investors might have some concerns about inflationary pressures, new weight loss drugs, and even increasing scrutiny of snack foods, given the long and successful history here, it seems highly likely that Coca-Cola remains an industry leader. And that suggests that the dividend will keep getting paid and continue to rise over time — exactly what a conservative income investor wants to see.
American Express is a payment processor focused on high-end consumers. That’s a solid area, given that wealthy customers tend to weather economic downturns in relative stride. Indeed, the fees the company collects for processing transactions tend to be fairly reliable over time.
All in, American Express is an attractive business. But as Benjamin Graham, the man who helped to train Warren Buffett, said, a great company can be a bad investment if you pay too much for it.
After roughly doubling in price in about a year’s time, American Express is starting to look expensive. The company’s price-to-sales, price-to-earnings, price-to-cash flow, and price-to-book value ratios are all well above their five-year averages.
If you are a more active investor who cares about valuation, you might want to take some profits here. It would be understandable if long-term investors wanted to stick around, given the underlying business, but new investors should probably stay on the sidelines until there’s a better entry point.
Even Warren Buffett, the Oracle of Omaha, makes mistakes. So you have to take Berkshire Hathaway’s portfolio with a grain of salt. You also have to remember that Buffett tends to buy and hold, so things that are in his portfolio today may not be things he would buy today.
But if you are looking for some investment ideas, a look at Buffett’s stock list today brings up interesting questions around Chevron, Coca-Cola, and American Express. The first two look like buys, but the last one seems a bit too expensive right now.
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American Express is an advertising partner of Motley Fool Money. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool has a disclosure policy.
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