Warren Buffett's success as an investor means that the portfolio of stocks within Berkshire Hathaway get a lot of attention. While you always have to make your own buy and sell calls, there are a few interesting stocks inside Buffett's investment vehicle that are worth thinking about today. The list includes Chevron(NYSE: CVX), Coca-cola(NYSE: KO)a American Express(NYSE: AXP). Here which ones are probably worth buying, and which ones you might want to avoid.
Chevron is one of the largest integrated in the world energy companies. That means its business spans the entire spectrum of the sector, from upstream (oil and natural gas production) to midstream (pipelines) and all the way downstream (chemicals and purification). This gives some balance to the company's financial results, as each part of the industry performs in a slightly different way.
The end result is that for an energy company, Chevron's peaks and valleys are not as extreme as they would be if it only worked 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 at the moment is the dividend. To begin with, the yield is 4.3%. And that yield is supported 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%, suggesting Chevron's laggard stock performance at the moment.
Some of that has to do with an acquisition not playing as well as expected. Some are linked to Chevron's lackluster business results in the face of weak energy prices. However, if you have a long-term investment horizon, it's probably worth buying today's industry stalwart. Collecting above average industry yields while waiting for better days is not a terrible thing.
Coca-Cola is one of the most recognized companies in the world and is usually quite an 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 around 3.2%. That's about midway over the last decade, suggesting a reasonable price. Supporting that view are more traditional valuation metrics such as price-to-sales and price-to-earnings, both of which are slightly below their five-year averages. Although it wouldn't be fair to suggest that Coca-Cola is a screaming buy, it does look reasonably priced.
The real story, however, is what you get for that price. The Coca-Cola business sports solid profits, a healthy balance sheet, and an unrivaled beverage brand portfolio (thanks in large part to its namesake soda). While investors may have some concerns about the pressures of inflation, new weight loss drugs, and even increased scrutiny of snack foods, given this long and successful history, it seems very likely that Coca-Cola continues to be an industry leader. And that implies that the dividend will continue to be 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 is a solid area, given that wealthy customers tend to weather economic downturns in relative prosperity. Indeed, the fees the company collects for processing transactions tend to be fairly reliable over time.
All in all, American Express is an attractive business. But as Benjamin Graham, the man who helped coach Warren Buffett, said, a great company can be a bad investment if you pay too much for it.
After roughly doubling the price in about a year, American Express is starting to look expensive. The company's price-to-sales, price-to-earnings, price-to-cash flow, and price-to-book ratios are all well above their five-year averages.
If you're a more active investor who cares about valuation, you might want to take some profit 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 is 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 the things in his portfolio today may not be things he would buy today.
But if you're looking for some investment ideas, a look at Buffett's stock list today raises interesting questions about Chevron, Coca-Cola, and American Express. The first two look like buys, but the last one seems a bit overpriced at the moment.
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American Express is an advertising partner of Motley Fool Money. Brewer Reuben Gregg does not have a position in any of the stocks mentioned. The Motley Fool has and recommends positions in Berkshire Hathaway and Chevron. The Motley Fool has a disclosure policy.
