Warren Buffett’s value-oriented “forever” approach to selecting stocks may not be everyone’s style. There’s no denying, however, he’s a superb stock picker. Shares of his conglomerate, Berkshire Hathaway (BRK.A) (BRK.B), have a long-term track record of growth that proves it. You’d do well to mimic a few of his picks and hold on to them for as long as he does.
Here’s a closer look at three stocks Buffett has added to the Berkshire portfolio that you might want to step into (or buy more of) before August comes to a close.
1. Mondelez International
You may be more familiar with Mondelez International (MDLZ) than you think. This is the parent to several popular food brands like Oreo cookies, Philadelphia cream cheese, Ritz crackers, and Cadbury chocolate, just to name a few. It used to be called Kraft Foods, before Kraft Foods spun off what would become Kraft Foods Group back in 2012 and simultaneously changed its name to Mondelez, acknowledging its (very) international presence.
Buffett (through Berkshire) doesn’t own a whole lot of this company any longer. Its 578,000-share/$42 million stake only makes up about 0.01% of the Berkshire Hathaway investment portfolio’s present value; Buffett sold most of the position in 2013, shortly after the spinoff.
Nevertheless, there’s a reason he’s still holding on to this relatively small sliver of Mondelez, and it’s the same reason you’ll want to own it as well. That’s its consistency.
After regrouping for several years following its split from Kraft and renewing its focus on sustained growth and a wider profit margin, the company finally started making measurable fiscal progress in 2018. It’s not looked back since. With the exception of the second quarter of 2020 (when the COVID-19 pandemic first rattled the world), Mondelez International has produced year-over-year sales growth in every quarter since the latter half of 2019. In fact, that growth is accelerating despite the recent wave of brisk inflation. Consumers like their snacks at any price. Operating income has grown nicely as well, even if more erratic than revenue.
This consistent growth supports a consistently paid — and consistently grown — dividend. Its payout’s been upped every year since Mondelez became Mondelez back in 2012, growing from $0.54 per share then to a yearly payout of $2.22 now. That translates into a dividend yield of 2.4%.
2. Capital One
Buffett is a big fan of credit card company stocks, owning stakes in Visa as well as Mastercard. Berkshire isn’t limiting its exposure to this market just to those two big names in the business, though. He’s also holding nearly 12.5 million shares of Capital One Financial (COF), adding another 2.5 million just last quarter to the 9.9 million shares acquired a quarter earlier. The $1.4 billion position now accounts for nearly 0.4% of Berkshire’s total portfolio, which is actually a lot, given the fund’s top-heavy makeup.
It’s a somewhat surprising addition. Aside from already holding two other credit card companies, Capital One is also a full-blown bank at a time when being a bank could be tricky. It didn’t exactly ace its most recent stress test administered by the Federal Reserve, being forced to raise its minimum amount of “stress capital” in case the economy continues to struggle.
Buffett and Berkshire’s managers, however, may be seeing the same thing that Gabelli Global Financial Services Fund’s portfolio manager Ian Lapey sees. Lapey explained in a recent interview with the Motley Fool:
Capital One’s seemingly poor stress test results were mostly driven by assumption in the Severely Adverse Scenario that the unemployment rate would increase to 10%. … A 10% unemployment rate would negatively impact Capital One more than most other banks because its loan portfolio has a larger percentage of credit card loans, which are very sensitive to levels of unemployment. However, if unemployment did start to increase significantly, Capital One would probably tighten its underwriting standards as it did in the early stages of the COVID-19 pandemic and during other recessions. Prudent credit risk management has enabled the company to be profitable every year since going public in 1994.
In other words, this stock’s recent weakness underestimates its resiliency. That translates into a buying opportunity Berkshire’s already acted on.
3. Occidental Petroleum
Last but not least, add energy outfit Occidental Petroleum (OXY) to your list of Buffett stocks to buy (or buy more of) in August.
This is a trade Berkshire has been slowly but steadily adding to since early last year after dumping the entirety of its stake in the company in Q2 2020. In retrospect, the decision to sell the stock was an ill-advised, knee-jerk reaction to what ended up being a short-lived tumble in oil prices. The stake isn’t insignificant either. Now at 224 million shares, the Occidental position’s value of $13 billion makes it not only Berkshire’s sixth-biggest holding (at 3.8% of Berkshire’s total portfolio value), but also roughly one-fourth of Occidental Petroleum itself.
It’s also one of only two major oil and gas positions within Berkshire’s portfolio. The other is Chevron, which is a slightly bigger trade, but one that the fund reduced in size last quarter as it was adding more Occidental Petroleum shares.
What’s the attraction? Berkshire Hathaway just likes Occidental’s technology-led oil and gas business, and Buffett loves how well Occidental Petroleum CEO Vicki Hollub leads it. At Berkshire’s annual meeting held in May, Buffett plainly stated: “Hollub is an extraordinary manager at Occidental. We love having Vicki run it.” Given that crude oil and natural gas are commodities found and extracted the same way all over the world, a superior leader leveraging superior tools gives that company a serious edge over its competitors.
Meanwhile, although the world continues to develop alternative forms of energy, the consumption of oil as well as its price remains firm. A recent estimate from OPEC indicates that demand will grow 23% between now and 2045, boding well for a cost-effectively managed name like Occidental Petroleum.
— James Brumley
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Source: The Motley Fool