3 Strong Warren Buffett Stocks for a Volatile Market

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Warren Buffett is well known as one of the greatest global investors of all time. He made his fortune as a value investor – someone looking to buy stocks when they’re cheap and profit as they recover. As the recent downtrend in the market reminds us, this is often easier said than done, as falling stocks tend to make your money feel like it’s evaporating with each down day.

Yet if Buffett’s success shows us anything, it’s that a strong company that survives a bear market can often emerge on the other side in a much better position to deliver strong long-term returns to its shareholders. . With that in mind, we asked three successful investors to pick some solid Warren Buffett stocks that are worth considering in today’s volatile market. They have chosen Coca Cola (KO 0.07% ), Visa (V -0.64% )and Berkshire Hathaway ( BRK.A 0.41% )( BRK.B 0.40% ). Read on to find out why and decide for yourself if these companies deserve a place in your portfolio.

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Volatility is better with coke

Barbara Eisner Bayer (Coca-Cola): If anyone knows how to make money in any market, including volatile markets, it’s Buffett, the famous nonagenarian who has an approximate net worth of $114 billion. And one of the Oracle of Omaha’s favorite stocks is his oldest stock position, which he started buying 34 years ago – The Coca-Cola Company.

Buffett is so enamored with the company that he’s been known to down five cans of Coke every day. He even joked Fortune magazine in 2015 that her body is “a quarter of a Coca-Cola.” It’s no surprise, then, that Berkshire Hathaway owns about $22 billion of its stock, or 10% of the company.

It’s great that Buffett loves Coke so much, but that in itself doesn’t make it a great buy for a volatile market. So let’s look at what does.

First, Coca-Cola’s products are consumed around the world and encompass more than its namesake fizzy drink. Its beverage portfolio has expanded to include changing and healthier tastes and, according to the company, includes “200 brands and thousands of beverages worldwide, from soft drinks and waters to coffee and tea.” You’ve probably heard of them: Dasani, Fairlife, Fanta, Fuze Tea, Schweppes, Powerade, Smart Water and Minute Maid. Because these drinks are staples around the world, people won’t stop drinking them when the stock market goes into overdrive.

The company has survived extreme volatility in the past. In October 2018, during an extremely turbulent period, Coca-Cola was up 2% as the S&P500 was down 9%. This happened because the company was and continues to be a huge, stable conglomerate with a strong dividend and continued growth prospects.

As the company struggled during the coronavirus pandemic, it finally returned to growth. In its recent fourth quarter 2021 earnings report, Coca-Cola said net revenue was up 10% year over year and earnings per share (EPS) was up 65% year over year. action. And management sees better days ahead: Revenue growth of 7.5% in 2022 and EPS growth of 9% are numbers investors can look forward to for such a stable company.

But the icing on top of these reasons why Coca-Cola is a great Buffett stock to own during volatile times is its dividend, which currently offers investors a 3% dividend yield. Coca-Cola is also a dividend aristocrat and has increased its payouts for 59 consecutive years. If stocks start to fall, investors will continue to earn income from the dividend, which is vital when all you see is red every day in your portfolio.

If Buffett put down his Coke bottle and spoke directly to you, he might simply say that Coca-Cola – with its stable business, continued growth prospects and excellent dividend – may be the perfect stock to survive and even thrive through volatile times. .

A person standing against a red background holding up a credit card.

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The power of plastic

Eric Volkman (Visa): One of Buffett’s favorite sectors – otherwise the favorite – is finance. Witness to Berkshire’s huge holdings in banks Wells Fargo and Bank of Americafor example.

Among this crowd, one company that should continue to thrive, regardless of global volatility, is one of many Berkshire financial sector holdings, Visa. The payment card processor has a globally ubiquitous brand and a business model that continually produces outsized profits.

To understand why, we must first distinguish between open-loop card processors and their closed-loop counterparts. visa and MasterCard fall into the first category, which essentially means that they are payment network operators only, not card issuers (i.e. the entities such as banks that actually extend credit on a card credit or withdraw funds from an existing account in the case of a debit card).

This contrasts with closed circuit card companies, mainly American Express (a longtime Buffett favorite, by the way). These entities act as both transmitter and network operator.

There are pros and cons to both business models, but I tend to favor open loops. By sticking to facilitating transactions only, a company like Visa is essentially a huge middleman, collecting a small portion of every purchase made through its network. It assumes no credit risk in doing so; it’s up to the sender to worry about that.

Like any efficient middleman, Visa’s profitability is sustainably and consistently high (recently posting net margins of over 50%).

And as the world continues to move away from cash towards plastic and digital payment methods, the company’s growth engine continues to hum. The card giant’s first quarter was typical of its recent performance – net income jumped 24% year-over-year to $7.1 billion, while non-GAAP net income (adjusted) increased 25% to $3.9 billion.

No matter how jittery the global economy gets, people will still need to buy things. One of the most popular instruments for doing this, in this increasingly cashless environment in which we shop, is a Visa card. This business will continue to thrive; You can bet on that.

An insurance policy with glasses and a magnifying glass.

Image source: Getty Images.

Why not buy Buffett’s company?

Chuck Saletta (Berkshire Hathaway): Imagine a business that was built from the ground up to be exactly the fortress type investment that Warren Buffett likes to own. Now imagine that with just one purchase, you could not only buy stock in a company like that, but also hire Buffett and his hand-picked successors to run it for you.

Believe it or not, that’s exactly what you can do by investing in Berkshire Hathaway shares. Berkshire Hathaway is Buffett’s insurance and investment conglomerate. Between strong insurance businesses, wholly owned subsidiaries and substantial stakes in strong public companies, it is built like a fortress to withstand tough times.

In addition to the large collection of companies and the world-class investment management team at the helm, you can buy your shares at a reasonable price. Berkshire Hathaway shares recently traded at less than nine times earnings and only about 1 1/2 times book value. This means that Buffett’s company can be bought for a reasonable price, making it the kind of thing Buffett himself would be interested in owning.

Of course, even with a great company led by one of the greatest investors of all time, there are risks. In particular, Berkshire Hathaway is trading at what looks like a cheap valuation in part because of what is known as the conglomerate discount. Essentially, large diversified companies are seen as less focused and agile than smaller ones. As a result, the market does not often place a rich valuation on structured companies like Berkshire Hathaway.

Still, it’s a small price to pay for the chance to own an incredibly strong company at a reasonable valuation in incredibly volatile times.

Big business in troubled times

Whether Coca-Cola, Visa or Berkshire Hathaway enter your portfolio, they are certainly solid companies that are built to survive a tough market and emerge stronger on the other side. This makes them worth considering as investments to help you navigate these volatile times. And with the seal of approval of no less an investor than Warren Buffett, they certainly deserve all that consideration.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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