The past couple of months have been quite turbulent in the stock market, and even some of the most rock-solid stocks are now trading for significantly less than they were just a few months ago. Even Warren Buffett wasn’t able to escape the volatility, as several of Berkshire Hathaway‘s (NYSE:BRK-A) (NYSE:BRK-B) key stock positions took quite a beating.
Having said that, keep in mind that one of Buffett’s favorite things to do is to buy great businesses when they go on sale, and now is a good time to do exactly that. Here’s why tech giant Apple (NASDAQ:AAPL), investment banking giant Goldman Sachs (NYSE:GS), and Synchrony Financial (NYSE:SYF) could be great stocks to load up on at a discount as we begin the final month of the year.
Should investors be concerned about Apple’s recent earnings?
Apple is Berkshire Hathaway’s largest stock position, and by a significant margin. The position was initially opened by one of Buffett’s stock pickers, but after closer examination, Buffett saw what a great business Apple has, and the investment has grown several times.
The company recently plunged into bear market territory following its third-quarter earnings. While Apple reported a great quarter, the stock proceeded to sell off on a combination of fears about weak iPhone sales and the fact that the company is no longer planning to report product-level sales figures to investors.
While I’m not even convinced that the new iPhone models will sell poorly, let’s say for the sake of argument that they do. Apple still makes great products, and the people who use them for the most part couldn’t fathom switching to another brand. As my Motley Fool colleague Dan Kline recently wrote, the iPhone is still the standard to which all other smartphones are compared, and this isn’t likely to change anytime soon.
The bottom line is that the reasons Buffett loves Apple still apply. The tech giant retains a fiercely loyal customer base and continues to add to its ecosystem of products. Warren Buffett doesn’t care about one quarter’s worth of iPhone sales, and neither should you.
Goldman has some legal uncertainty, but it’s still a bargain
I’ve written several times recently about how Goldman Sachs could be one of the best values in the banking sector.
Recent weakness in the bank’s trading revenue has caused Goldman to significantly underperform the rest of the financial sector. At the same time, its investment banking business, particularly equity/IPO underwriting and mergers-and-acquisitions advisory, is extremely strong, as is the company’s wealth management business. Plus, there could be massive untapped potential in Goldman’s new, rapidly growing consumer banking business.
Now, the stock has become even cheaper. To be clear, it’s cheaper for a reason. Malaysia is demanding to recoup $600 million in investment fees related to a failed bond fund, and this situation creates a great deal of legal uncertainty beyond this amount. And we all know markets hate uncertainty.
While there could certainly be some short-term volatility, for long-term investors, Goldman has simply become too cheap to ignore. The bank actually trades for a 10% discount to its book value — its lowest valuation in more than two years. Buffett seems to agree about Goldman’s long-term potential. The Oracle of Omaha added to several of Berkshire’s bank investments during the third quarter, including a 38% increase in the Goldman Sachs stake.
It’s like the Amex-Costco situation all over again
Synchrony Financial is one of the lesser-known financial stocks in Berkshire’s portfolio, but it is also one of the most interesting businesses. Synchrony issues store credit cards in partnership with national retailers, and operates a high-yield deposit platform.
Why does Buffett own the stock? Simply put, Synchrony Financial has a great business. Even with higher-than-average delinquency rates, its portfolio of store credit cards is highly profitable. And this profitability will only continue to improve as the company’s deposit base continues to grow.
So far in 2018, Synchrony’s stock has fallen by over 35%. The main reason is the loss of its Walmart (NYSE: WMT) co-branding partnership, and the subsequent lawsuit by the retail giant alleging that Synchrony used lax underwriting standards that resulted in lower-than-expected profitability.
I look at this situation as being similar to when fellow Buffett stock American Express (NYSE: AXP) lost its co-branding partnership with Costco (NASDAQ: COST) a few years back. In the years since, Amex has rebounded and more. Similarly, Synchrony claims that it should be able to fully replace its lost Walmart revenue in a short time. With several new innovative products and double-digit growth rates, I have no reason to doubt that it will do just that.
Matthew Frankel, CFP owns shares of American Express, Apple, and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends 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 recommends Costco Wholesale. The Motley Fool has a disclosure policy.