What Stocks Is Buffett Buying Now? With the stock market experiencing high levels of volatility this year, Warren Buffett has found opportunities to buy stocks he considers undervalued.
While we won’t know what stocks Buffett is buying in Q4 until Berkshire Hathaway files its required quarterly forms, there are a few that stand out as very strong possibilities. Here are four stocks that Warren Buffett may be buying now.
First and foremost on Buffett’s list of probable buys is Berkshire Hathaway (NYSE:BRK.A) itself.
Following a board decision made in 2018, Berkshire has been able to buy back over $62 billion worth of its own stock.
This kind of buyback enables the company to reward shareholders with higher stock prices and larger ownership stakes.
As such, it’s one of Buffett’s well-known favorite plays for some of his company’s excess cash stockpile.
Buying Berkshire Hathaway shares also gives Buffett the opportunity to capitalize on his own investing acumen.
Share repurchases at Berkshire are, in effect, a bet on Buffett’s own system for selecting stocks and companies to buy.
If this approach continues to outperform the market, share repurchases will likely be a high-return use of Berkshire’s capital.
Oil major Chevron (NYSE:CVX) has been one of Buffett’s favorite buys this year. By Q2, Berkshire had built a $25 billion stake in the oil company, suggesting that Buffett was planning on long-term high oil prices.
In large part, the decision to bet on oil was likely driven by Russia’s invasion of Ukraine and the accompanying high energy prices that have become a feature of the global economic landscape.
Chevron also fits several other criteria that Buffett typically applies to major stock purchases. To begin with, the company’s management has demonstrated a strong commitment to rewarding shareholders. The stock yields 3.16 percent and has been raising its dividend at a steady rate for the last several years.
Chevron has also been quite aggressive in managing its debts. Today, the company’s debt-to-equity ratio stands at just 0.15. This fact is especially important in a rising interest rate environment, as companies can expect to incur higher costs on borrowed money.
While there’s no guarantee Buffett will continue to invest in Chevron in Q4, there are some reasons to suspect his buying streak could continue. To begin with, the company still trades at just 9.7 times forward earnings. As a value investor, Buffett could see this as an indication to continue buying a company he clearly believes in.
In addition to Chevron’s value, Buffett could be encouraged to keep buying by OPEC+’s recent move to draw down oil production in an attempt to keep prices high.
With higher energy prices remaining a factor, there’s a good chance that Chevron’s earnings will continue to grow and drive share prices gradually higher.
Much like Chevron, Occidental Petroleum (NYSE:OXY) stands to benefit from higher energy prices and OPEC+’s recent moves. The oil company is already a Buffett favorite, and it seems likely that further buying activity from Berkshire Hathaway is ahead for this stock.
Occidental is perhaps the surest Buffett buy outside of Berkshire itself in Q4. This is because Buffett has standing regulatory approval to purchase up to 50 percent of the company, more than double his current holdings.
Clearly, the investing legend has set his sights on a large stake in Occidental and wants to have the option of buying up as much of the company as possible.
Like Chevron, Occidental also still appears to be trading at a solid value. The stock trades at 7.1 times forward earnings and less than twice its sales. Perhaps most encouraging is the stock’s price-to-earnings-growth ratio, which stands at just 0.51. This places Occidental as a solidly undervalued company based on its future growth prospects.
Beyond its possible growth, Occidental could also be in an great position to return cash to Berkshire in the form of dividends.
The company was forced to cut its dividend during the pandemic, but it has resumed a $0.52 per share distribution. While this only translates to a 0.72 percent yield, Occidental’s payout ratio is minuscule at just 5.13 percent.
As such, the company has an enormous amount of room to raise its distribution in the coming years. By holding its stake long enough, Berkshire could eventually see an excellent yield on cost from its Occidental shares.
Occidental also enjoys a breakeven point of just $40 per barrel, giving it the ability to post profits even if oil prices decline. Given that Buffett clearly sees higher oil prices being a long-term factor in the energy industry, Occidental could remain far above this breakeven point for the foreseeable future.
A final possibility in Buffett’s Q4 buying is tech giant Apple (NASDAQ:AAPL). Already Berkshire’s largest holding, the tech company could continue to add value to Buffett’s portfolio by putting more of his company’s cash to work.
Apple isn’t a definite buy for Buffett in Q4, but there’s at least a chance that Berkshire will expand its stake. In Q1, Buffett bought over $600 million during a temporary price decline, stopping the spree when the price rebounded.
At the time, however, he said he would have purchased more if the share prices remained low. A brief pullback in October brought the stock below $140 per share, a level that may have encouraged buying from Berkshire.
Another argument in favor of further Apple purchases in Q4 is the fact that Apple’s P/E ratio is beginning to normalize. In the chaos of 2020 and 2021, the stock traded at up to 35 times its earnings. The ratio is still high today at about 25, but the slump may present a good opportunity for long-term investors to buy the rapidly growing company.
Will Buffett Continue to Hold Cash?
While the stocks listed above have a high chance of showing up on Berkshire’s quarterly filings, it’s almost certain that Warren Buffett will continue to hold a large cash reserve back for future purchases.
As of the end of Q2, Berkshire still had over $70 billion of cash on hand. This stockpile enables Buffett and his investment team to rapidly deploy capital when they see discounted stocks, making it a key part of Berkshire’s investment business.
According to Goldman Sachs analysts, the S&P 500 could fall another 25 percent by next year in response to the Federal Reserve’s monetary tightening. If that occurs, value investors like Buffett will likely see a large number of buying opportunities.
While Buffett famously makes no attempt to predict macroeconomic conditions, there’s a good chance that further declines in share prices will create more attractive entry points for Berkshire and allow him to deploy more of the company’s massive cash stockpile.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.