It's a smart idea to consider what stocks billionaire investors are buying (or selling), and there's no better investor to follow in this regard than Warren Buffett, who has built a mountain of wealth for Berkshire Hathaway shareholders.
Three Motley Fool contributors recently combed through Berkshire's holdings to find three stocks that are screaming buys right now. Let's see why they selected Mastercard(NYSE: MA), Louisiana-Pacific(NYSE: LPX), and Coca-Cola(NYSE: KO).
A reliable growth stock
John Ballard (Mastercard): Berkshire Hathaway held a stake worth $1.7 billion in Mastercard at the end of 2023. That mid-sized position for Berkshire's equity portfolio suggests it might have been selected by one of Buffett's investing lieutenants, but it has the hallmarks of what Buffett generally looks for in a long-term investment.
Mastercard benefits as one of only a few major credit card brands. These companies generate high margins on revenue. Unlike another Berkshire holding, American Express, Mastercard doesn't issue cards and take on credit risk. Instead, it focuses on the far more lucrative business of processing payments.
The stock has climbed 85% over the last five years due to its consistent double-digit growth in revenue and earnings. The reason it's a screaming buy boils down to a basic understanding of the key drivers of Mastercard's business.
As a leading credit card brand, Mastercard will continue to grow along with the global economy. The economy has its ups and downs, but over multiple decades the trend is in an upward direction. In the near term, Mastercard could be well-positioned to benefit if wages and salaries continue to grow faster than the rate of inflation, encouraging consumers to spend more.
A favorable climate for continued growth in consumer spending explains why Wall Street is bullish on the company's prospects, with the consensus estimate calling for earnings to grow about 16% per year.
Meanwhile, the stock still trades within its historical average price-to-earnings (P/E) valuation range. Assuming the stock is still trading at its current P/E, the stock could potentially double in value within the next five years.
This housing stock keeps growing
Jeremy Bowman (Lousiana-Pacific): Buffett's Berkshire Hathway bought several housing-related stocks last year, surprising market watchers. And one of them has continued to march steadily higher since then. That's Louisiana-Pacific, the world's largest producer of oriented strand board (OSB), a plywood-like material that is a key component in home construction.
Shares of Louisiana-Pacific just touched another all-time high after the company released its earnings report last week, and the numbers help explain why. OSB sales jumped by 65% to $313 million, leading total sales up 24% to $724 million, which was well ahead of the consensus at $688.9 million.
Its margins also expanded thanks to rapid revenue growth as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped from $116 million to $182 million. Adjusted earnings per share rose from $1.19 to $1.53, well ahead of the consensus at $1.12.
Louisiana-Pacific's strong growth came even as the home construction market continues to struggle due to high interest rates. Meanwhile, renovations have gone ice cold, with existing home sales falling to their lowest point in nearly 30 years recently.
Louisiana-Pacific has forged new partnerships with Home Depot and Lennar, but the best reason to buy the stock is the eventual turnaround in the housing market.
After its run-up, Louisiana-Pacific stock might look expensive, but the company has trounced earnings estimates in the last two quarters. And if interest rates start to come down, the housing market could come back to life, lifting shares of Louisiana-Pacific.
This beverage superstar is reaching for a new record
Jennifer Saibil (Coca-Cola): The Coca-Cola of today is not the Coca-Cola of just a few years ago. If you love your Coke, you may not have noticed that sales were falling and the company was struggling to grow. But if you follow Coca-Cola stock, you're probably aware that it's been trailing the broader market.
Management made some major changes to operations when revenue was falling off a cliff at the beginning of the pandemic, and it's now in an excellent place as a lean, agile growth engine. It restructured its operating units and slashed its brand portfolio by half, and it's now focused on its core brands like Coca-Cola, Sprite, and Minute Maid. Revenue also continues to increase despite inflation, indicating its brand power and connection with consumers.
As the world's leading beverage company, it's still generating growth organically and by upping its brand portfolio with strong global contenders. In addition to brands it puts in the "leader" category, it also has "challengers" and "explorers." It has shifted into an approach that includes multiple ways to quench the world's thirst, and that informs its beverage innovation. The road ahead is clear and compelling. It's about to finally surpass its record sales from 10 years ago, reaching a new high and climbing from there.
Coca-Cola stock is trading close to its lowest P/E ratio in five years when removing the early pandemic drop to 25. It's trailing the S&P 500 this year, but the dividend is yielding 3%, more than double the S&P 500 average. Management raised the dividend for the 62nd consecutive year in February, making it a Dividend King with one of the longest streaks on the market. Coca-Cola is Warren Buffett's longest-held stock, and now might be a great time to to join him and buy in.
Should you invest $1,000 in Mastercard right now?
Before you buy stock in Mastercard, consider this:
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American Express is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil has positions in American Express. Jeremy Bowman has no position in any of the stocks mentioned. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Mastercard. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
