On the list of the greatest investors of all time, Berkshire Hathaway CEO Warren Buffett is right at the top. Buffett’s focus on buying and investing in companies with durable competitive advantages, and paying reasonable prices, has turned Berkshire into the mammoth company it is today.
Many people claim to follow Buffett’s approach, but there’s only one Warren Buffett. Still, if you’re looking to invest in stocks that are up Buffett’s alley, three of our Foolish investors have some ideas. Here’s why Buffett fans should consider Amazon.com (NASDAQ: AMZN), The Kraft Heinz Company (NASDAQ: KHC), and Phillips 66 (NYSE: PSX).
An investment in everything, everywhere
Rich Duprey (Amazon.com): There was a time when Warren Buffett wouldn’t have invested in a tech stock, because, as he said, he didn’t understand them. But that was a long time ago, and today he owns several. Indeed, Apple is now his single biggest holding — which is why Amazon.com would make an excellent addition to Buffett’s portfolio.
First, because Amazon’s Jeff Bezos now owns The Washington Post, Buffett has had ample opportunity to know and understand the man behind the e-commerce giant. Second, Buffett is also working with Bezos and JPMorgan Chase on a healthcare initiative. There’s no reason to not own his stock, as Buffett’s financial dealings are increasingly intertwined with Bezos and Amazon.
Buffett used to own Walmart stock until unloading his shares last year. Undoubtedly he purchased the investment because of the retail king’s impact on the economy. Well, Amazon.com is now having the same effect on retail and the economy, and as more shopping moves online, Amazon is becoming the de facto retail source. That the shopping is done over a computer shouldn’t deter Buffett from owning it.
But more importantly, Amazon’s growth prospects are forever stretching outward. From e-commerce and groceries to Amazon Web Services and soon its own trucking and logistics business, Amazon has its feelers everywhere. There are also the streaming movies and music services, where it’s getting into content creation, and the aforementioned healthcare initiative.
Because there is hardly an area of your daily life where you might not come into contact with Amazon.com, it almost makes for a mini-portfolio in a single stock. Warren Buffett likes companies that have broad reach into a consumer’s life. Amazon.com offers that in spades.
Buffett’s bet on food
Tim Green (The Kraft Heinz Company): One of Berkshire Hathaway’s biggest positions is its $22 billion stake in food giant Kraft Heinz, which formed from the merger of Kraft and Heinz in 2015. Buffett’s love of strong brands is evident here. The company owns a stable of brands, including Oscar Mayer, Philadelphia, Planters, Maxwell House, and many more.
It’s those very brands that have the market concerned. Shares of Kraft Heinz are hovering near their 52-week low, down nearly 30% over the past year. Most of Kraft Heinz’s brands are not appealing to those looking for natural, organic, or premium options, and upstart brands are winning share as a result. In the ketchup market, for example, Unilever‘s Sir Kensington’s brand is gaining ground. And Kraft Heinz lost the barbecue-sauce crown to Sweet Baby Ray’s long ago.
Still, Kraft Heinz’s stable of brands shouldn’t be ignored. This is a company with $26 billion of annual revenue and operating margin in the ballpark of 25%. Kraft Heinz is supremely profitable, and it can make acquisitions and launch new brands to bolster its portfolio. The stock also yields about 3.7%, giving patient investors a nice quarterly payday as they wait for the company to return to meaningful growth.
Kraft Heinz has some work to do as it battles upstart brands, but Buffett’s massive stake should give investors some confidence in the company.
Despite the recent sale, Buffett still loves this refining stock
Matt DiLallo (Phillips 66): Last month, oil refining giant Phillips 66 announced that it had agreed to buy back $3.3 billion of its stock. The seller was none other than Warren Buffett’s Berkshire Hathaway.
While some might think this sale suggests he no longer believes in the company’s future, that’s not the case at all. Instead, Buffett said that “this transaction was solely motivated by our desire to eliminate the regulatory requirements that come with ownership levels above 10%” and added, “We remain one of Phillips 66’s largest shareholders and plan to continue to hold the stock for the long term.” In fact, Berkshire currently holds 9.8% of Phillips 66’s outstanding shares, making it a top-10 holding. http://investor.phillips66.com/financial-information/news-releases/news-release-details/2018/Phillips-66-and-Berkshire-Hathaway-Announce-Share-Repurchase-Agreement/default.aspx and https://www.cnbc.com/berkshire-hathaway-portfolio/
The reason Buffett plans to continue holding for the long term is that “Phillips 66 is a great company with a diversified downstream portfolio and a strong management team.” That diversification sets the company apart from its refining peers because, in addition to operating a leading refining business, Phillips 66 holds a stake in a large chemicals joint venture and controls a fast-growing energy midstream business. These entities enhance the stability of the company’s cash flow, giving it the money to invest in growth projects and return billions of dollars to investors each year through share repurchases and a growing dividend. That shareholder-focused strategy has paid off for Phillips 66, which has generated a total return of nearly 250% since going public in 2012, versus just 125% from the S&P 500. Given the large stake he still holds, Buffett believes Phillips 66 can continue outperforming, which is what makes it an excellent stock for his fans.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Matthew DiLallo owns shares of Amazon, Apple, Berkshire Hathaway (B shares), and Phillips 66 and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. Rich Duprey has no position in any of the stocks mentioned. Timothy Green owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Amazon, Apple, and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.