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Warren Buffett’s success as an investor means that the stock portfolio within Berkshire Hathaway attract a lot of attention. While you should still make your own buy and sell calls, there are a few interesting stocks in Buffett’s investment vehicle worth considering today. The list includes Chevron(NYSE: CVX), Coca-Cola(NYSE:KO)And American Express(NYSE:AXP). Here are which ones are probably worth buying and which one you might want to avoid.
Chevron is one of the largest integrated groups in the world energy companies. This means that its activity covers the entire spectrum of the sector, from upstream (oil and natural gas production) to midstream (pipelines) and downstream (chemicals and refining). This helps balance the company’s financial results, since each segment of the industry behaves slightly differently.
The bottom line is that, for an energy company, Chevron’s ups and downs aren’t as extreme as they would be if it operated solely upstream. This makes it a solid choice for long-term investors looking to invest in the energy sector.
Helping things is one of the strongest balance sheets of the sector, with a very low debt-to-equity ratio of 0.17x.
The real attraction right now is the dividend. For starters, the yield is 4.3%. And this yield is supported by a dividend that has increased every year for more than three decades. That said, the average yield in the energy sector is around 3.3%, which suggests the lagging stock performance that Chevron is currently experiencing.
Part of this has to do with an acquisition not going as well as hoped. Part of it has to do with Chevron’s lackluster business results in the face of low energy prices. However, if you have a long-term investment horizon, this industry stalwart is probably worth buying today. Harvesting a yield above the industry average while waiting for better days isn’t really a terrible thing.
Coca-Cola is one of the most recognized companies in the world and its stock is generally quite expensive to buy. But a recent price pullback has brought the shares back into an attractive range, assuming you don’t mind paying a fair price for a great company.
To give some numbers, the dividend yield for this Dividend King is around 3.2%. That’s about halfway over the last decade, suggesting a reasonable price. This view is supported by more traditional valuation metrics such as price-to-sales and price-to-earnings, both of which are slightly below their five-year averages. While it wouldn’t be fair to suggest that Coca-Cola is a screaming buy, it seems reasonably priced.
The real story, however, is what you get for that price. Coca-Cola’s business boasts robust margins, a healthy balance sheet, and an unrivaled beverage brand portfolio (largely thanks to its namesake soda). Although investors may be concerned about inflationary pressures, new weight loss drugs and even increasing scrutiny of snack foods, given the long and successful history of this sector, it seems very likely that Coca-Cola will remain an industry leader . And that suggests the dividend will continue to be paid and increase over time – exactly what a conservative investor wants to see.
American Express is a payment processor focused on premium consumers. This is a strong area, given that wealthy clients tend to weather economic downturns in relative stride. This is because the fees charged by the company for processing transactions tend to be quite reliable over time.
Overall, American Express is an attractive company. But as Benjamin Graham, the man who helped train Warren Buffett, said, a great company can be a bad investment if you pay too much for it.
After nearly doubling its 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 are a more active, valuation-minded investor, you may want to take some profits here. It would be understandable if long-term investors wanted to stay, given the underlying business, but new investors should probably stay away until there is a better entry point.
Even Warren Buffett, the Oracle of Omaha, makes mistakes. We must therefore take Berkshire Hathaway’s portfolio with a grain of salt. You also need to remember that Buffett tends to buy and hold, so the items in his portfolio today may not be the items he would buy today.
But if you’re looking for investment ideas, a look at Buffett’s stock list today raises some interesting questions around Chevron, Coca-Cola, and American Express. The first two look like buys, but the last one seems a little too expensive at the moment.
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American Express is an advertising partner of Motley Fool Money. Ruben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Berkshire Hathaway and Chevron. The Mad Motley has a disclosure policy.
