If you’ve ever wondered why Wall Street and retail investors pay so much attention to billionaire Warren Buffett, it’s because he has an impeccable money-making track record.
Since taking office as CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) in 1965, the Oracle of Omaha oversaw the creation of nearly $ 600 billion in market value for shareholders and generated an average annual return of 20% for the company’s Class A shares. Including the gains since the start of the year, we are talking about an increase of approximately 3,300,000%! Riding Buffett’s ponytails has long been a profitable business.
As we move into the fourth quarter, five Warren Buffett stocks look particularly attractive and can be bought with confidence by investors.
One of the best deals that long-term investors are going to find in Berkshire Hathaway’s portfolio right now is auto stock. General Motors (NYSE: GM).
Like most automakers, GM has faced two big hurdles in the past 18 months. First, the pandemic has caused consumers to cut back on major purchases, which has reduced short-term auto sales at the dealer level. And second, supply chain issues in the wake of the pandemic have caused GM and other automakers to cut or stop production of some models. While these concerns are tangible, they are not a long-term concern. This means that any short-term pain General Motors is experiencing is an opportunity for patient investors to pounce on.
The real excitement for GM has to do with the electrification of consumer and corporate auto fleets. In an effort to tackle climate change, we’re likely to see a decades-long vehicle replacement cycle that focuses almost exclusively on electric vehicles. For its part, General Motors is investing $ 35 billion in research into electric vehicles (EVs), autonomous vehicles and batteries through 2025. By the middle of the decade, the company plans to have launched 30 new electric vehicles in the world.
While General Motors has long been a key player in its home market, the United States, it is no slouch in the world’s largest auto market, either. GM is set to sell around 3 million vehicles in China this year (based on sales in the first six months), and has the pockets and infrastructure to gobble up EV market share in the world’s second-largest economy in terms of gross domestic product. .
In short, a forward price-to-earnings (P / E) ratio of 8 no longer makes sense for a company whose growth rate could accelerate sustainably for decades.
Bristol Myers Squibb
Value stocks have always been a big topic for Warren Buffett, and that’s exactly what investors are going to get with pharmaceutical stocks. Bristol Myers Squibb (NYSE: BMY).
Like most health stocks, Bristol Myers products are very defensive. That is, a decline in the stock market or even an economic contraction will not negatively affect the demand for its pharmaceuticals. Since we don’t have a choice of when we get sick or what disease (s) we develop, drugmakers like Bristol Myers typically offer very predictable cash flow.
One of the company-specific reasons why investors can buy this Warren Buffett share for the fourth quarter is its opportunity for organic growth. Eliquis, which was developed with Pfizer, has become the world’s most popular oral anticoagulant and is expected to bring in over $ 10 billion in sales for Bristol Myers Squibb this year. There is also the cancer immunotherapy Opdivo, which I think offers even more long-term opportunities. Although Opdivo embarked on advanced lung cancer trials a few years ago, it is under review in dozens of clinical trials and has a very good chance of generating billions in additional annual revenue. thanks to label expansion opportunities.
Bristol Myers’ acquisition of cancer and immunology drug maker Celgene in late 2019 also gets high marks. The purchase of Celgene brought multiple myeloma drug Revlimid into Bristol’s portfolio. Revlimid achieved over $ 12 billion in sales last year and has a reputation for maintaining double-digit annual sales growth. This key therapy is immune to an onslaught of generic competition until the end of January 2026.
There aren’t many better stocks right now than Bristol Myers Squibb below 8 times Wall Street’s annual profit forecast.
Teva Pharmaceutical Industries
In terms of valuation, no Warren Buffett stock is cheaper than a brand and generic company Teva Pharmaceutical Industries (NYSE: TEVA). The company’s shares can be picked up by investors now for less than 4 times the expected earnings per share in 2021.
How can a profitable business in a defensive sector be pushed to such a low multiple? The truth is, Teva has had a lot of problems over the past five years. He overpaid for the generics company Actavis, which inflated its debt, and he has found himself in the crosshairs of litigation on more than one occasion. In fact, most states in the US are suing Teva over its role in the opioid crisis. The uncertainty surrounding these cases is primarily responsible for controlling Teva’s assessment.
Fortunately, Teva has a secret weapon: CEO Kare Schultz. Schultz was hired in late 2017 as a turnaround specialist, and for nearly four years with the company he has done wonders. Billions of annual operating expenses were lost, and the company’s net debt fell from over $ 34 billion when it took over to less than $ 24 billion. At the current trajectory, Teva could have around $ 15 billion in net debt by the end of 2023.
Additionally, Schultz has a keen eye for finding solutions to Teva’s remaining legal issues. Given Teva’s indebtedness, Schultz plans to offer free or discounted products, rather than paying cash. With most of the other drugmakers settling their opioid lawsuits, it seems it’s only a matter of time before that gray cloud clears up and Teva returns to a fair valuation multiple.
Visa and Mastercard
Warren Buffett’s latest two stocks to buy hand-in-hand for Q4 are bundled together for good reason: They are the main competitors and two of the most dominant companies in the payment processing landscape, Visa (NYSE: V) and MasterCard (NYSE: MA).
The reason Visa and Mastercard have performed so well for so long is that they are cyclically related companies. While economic contractions and recessions are inevitable, they usually only last a few months to a few quarters. In comparison, the periods of economic expansion of recent years. Visa and Mastercard payment processors are simply taking advantage of these disproportionately longer expansion periods.
This dynamic duo also outperforms as they stick strictly to payment processing and are not direct lenders. While it can be argued that they forgo the opportunity to generate interest income and fees during these long drawn out expansions, they are also protected against an increase in credit defaults during economic contractions and recessions. . Not having to set aside capital to cover bad credit loans is one of the main reasons their profit margins remain so consistently high.
There is also a long track of organic expansion with the two companies. Most global transactions are still done in cash and a number of regions remain underbanked (eg Southeast Asia, Middle East and Africa). Deploying their payment infrastructure in these regions should allow Visa and Mastercard to maintain high single-digit sales growth for a long time.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.