2 Warren Buffett Stocks Analysts Expect to Rally 18% or More

Warren Buffett, the legendary investor who serves as CEO and chairman of Berkshire Hathaway (BRK.B), has a track record of generating impressive returns via his widely followed equity portfolio. His buy-and-hold philosophy, coupled with his focus on consumer-facing companies, has resulted in an annualized return of nearly 20% dating back to the mid-1960s - roughly doubling the performance of the S&P 500 Index ($SPX) over the long haul.

With the broad-market benchmarks hitting new highs in 2024, it's a challenging environment for Buffett-style value investors, as premiums on many stocks are looking a bit stretched. However, a couple of Buffett's stock picks look promising at current levels for both income and growth investors, based on their healthy dividend yields and optimistic price-target forecasts from analysts. 

Here's a closer look at two top-quality Buffett stocks that could deliver serious returns in 2024, according to Wall Street.

Buffett Stock #1: Chevron Corporation

Chevron Corporation (CVX), a heavyweight in the energy sector, has been on a volatile ride alongside oil prices over the past year. CVX has shed 20% of its value over the past year, and hit a new 52-week low of $139.62 as recently as Jan. 18. 

Since touching that low point, Chevron stock has gained 3.2% in just under a week.

Along with lower overall energy prices and operational snags, Chevron was pressured in the fourth quarter of 2023 as investors weighed the cost of its Hess (HES) acquisition - an all-stock deal worth $60 billion, including debt. Since that announcement, Chevron has announced its intention to find a buyer for itsDuvernay shale assets in Alberta, Canada, as part of a broader plan to offload $15 billion in assets by 2028.

The oil major missed bottom-line estimates in its Q3 report, with earnings per share (EPS) of $3.05 falling short of the $3.68 forecast. However, revenue of $54.08 billion topped expectations. 

The market will gain more insight into Chevron's performance when it releases its next quarterly earnings report on Feb. 2. Analysts are targeting EPS of $3.34, on average, down from $4.09 in the year-ago period. Looking ahead to fiscal year 2024, Wall Street expects Chevron to return to EPS growth, with forecasts calling for an increase of 7.1% to $13.91.

Income investors should note that Chevron offers a dividend yield of 4.25%, backed by steady cash flow. The stock is a Dividend Aristocrat with over three decades of consecutive dividend hikes, and the payout ratio of 43% suggests there's plenty of room for continued growth.

On balance, analysts rate Chevron stock as a “Moderate Buy.” Out of 19 analysts, 12 give it a “Strong Buy,” 2 rate it a “Moderate Buy,” and 5 suggest “Hold.” Plus, the average price target of $179.17 indicates a potential 24.5% upside from current levels. 

Buffett Stock #2: Jefferies Financial Group

Jefferies Financial Group (JEF) is a financial services specialist, perhaps best known on Wall Street as an investment bank - though it's also engaged in asset management, real estate, and merchant banking, among other services.

Valued at $8.5 billion by market cap, Jefferies stock is lagging the broader market with a 6.8% gain over the past 52 weeks. However, JEF is trading near its newly set 52-week high of $41.82, and its return over the past year is right on pace with the S&P 500 Financial Sector SPDR (XLF).

Earlier this month, Jefferies reported fiscal Q4 earnings and revenue that beat expectations. Adjusted EPS arrived at $0.30, while revenue fell 16.7% year-over-year to $1.2 billion. Management noted, "We are hopeful that 2023's results will represent a trough year."

JEF offers shareholders income through its $0.30 quarterly dividend, which translates to a forward yield of right around 3%. Additionally, the board just increased its share buyback authorization to a total of $250 million.

A key development that could drive future growth at JEF is its partnership with Sumitomo Mitsui Financial Group, Inc. (SMFG), Sumitomo Mitsui Banking Corporation (SMBC), and other SMBC group entities. This agreement looks to expand their existing global partnership to cover more joint corporate and investment activities across Europe, the Middle East, and Africa (EMEA). By leveraging SMBC’s scale and reach, Jefferies can accelerate regional growth.

Overall, analysts rate JEF as a “Moderate Buy.” Among 3 analysts, 2 give it a “Strong Buy” rating, and 1 suggests “Hold.” The consensus $48.50 price target implies approximately 18% upside from current levels. 

In conclusion, both of these Warren Buffett stocks - Chevron (CVX) and Jefferies Financial (JEF) - offer the potential for passive income and capital appreciation at current levels. For investors who like a little growth with their dividend stocks, both of these Berkshire picks are worth considering right now.