If you're shopping around for some new additions to your stock portfolio, borrowing a pick or two from Warren Buffett's Berkshire Hathaway isn't a bad idea. He's not called the Oracle of Omaha for nothin', after all.
On the other hand, just because Berkshire's holding a particular stock right now doesn't necessarily mean Buffett would choose to buy it at this time. Indeed, Buffett even freely admits that not every pick he and his team make end up panning out as hoped.
To this end, here's a closer look at two Buffett-owned stocks to buy sooner than later, and one Berkshire Hathaway holding you may want to steer clear of for the time being.
Buy Bank of America
It's rarely mentioned, but Bank of America(NYSE: BAC) is Berkshire's second-biggest holding, right behind Apple. The fund holds a little over 1 billion shares of BofA collectively worth $41 billion, making up 10% of Berkshire's stock portfolio.
Granted, most investors recognize this is a tough time for all banks, including Bank of America. High interest rates are causing would-be borrowers to balk, while delinquencies and defaults on existing loans are creeping higher.
BofA's provision for credit losses were lifted to $1.3 billion last quarter, in fact, up from Q4's $1.1 billion and markedly higher than Q1 2023's total loss provision of $931 million. Net income also slipped from $0.94 per share to only $0.83 during the first quarter, underscoring its and the industry's current headwind.
Lost in all the noise, however, are a couple of important (and related) details. First, none of the banking business's current challenges are anything the industry hasn't seen and survived before. And second, everything working against Bank of America and its peers at this time is reliably cyclical.
We're likely near the end of the cycle's downside, too. That's why BofA stock is knocking on the door of its 52-week-high hit just late last month -- investors seem to understand this reality. That's why they haven't been spooked by the recent wave of not-so-great quarterly numbers.
The good -- and slightly surprising -- news is that you can step into this stock while its forward-looking dividend yield is a healthy 2.4%, and while the stock's priced attractively at only about 12 times this year's projected per-share earnings. Given the likelihood of fresh economic strength taking shape in the foreseeable future, the market isn't apt to let this blue chip stock remain this cheap for very long.
Buy Occidental Petroleum
On the surface, Occidental Petroleum(NYSE: OXY) looks like just-another oil and gas company, perhaps leaving you wondering why Buffett is seemingly so obsessed with it; Berkshire just bought another 3 million shares of the stock, pushing the fund's position to well over 250 million shares. Indeed, the $15 billion position in Occidental is now not only Berkshire Hathaway's sixth-biggest stock holding, but is nearly 29% of Occidental Petroleum itself.
What gives? After all, there are plenty of other compelling energy names out there paying far bigger dividend than Oxy does.
The answer to the question is two-parted.
First and arguably foremost, Occidental isn't just another oil name. It's a (very) well-run outfit led by an industry veteran that understands the importance of owning the right cost-effective assets, and investing wisely in their development. As Buffett fawned over CEO Vicki Hollub in his most recent letter to Berkshire shareholders:
Under Vicki Hollub's leadership, Occidental is doing the right things for both its country and its owners. No one knows what oil prices will do over the next month, year, or decade. But Vicki does know how to separate oil from rock, and that's an uncommon talent, valuable to her shareholders and to her country.
The second part of the answer to the question is the other business Occidental is quietly building. As Buffett also noted of Oxy in his most recent letter to Berkshire Hathaway's investors, "We particularly like its vast oil and gas holdings in the United States, as well as its leadership in carbon-capture initiatives."
Carbon-capture is (literally) the removal of polluting carbon from atmospheric air. This technology is not only good for the environment, but can prolong the planet's use of oil despite the advent of cleaner renewable energy sources. That's a big reason market research outfit Global Market Insights believes the nascent carbon capture industry is set to grow at an annualized pace of 19% through 2032.
Given that Occidental is arguably leading the charge on the carbon capture front, it's well positioned to benefit from this market's looming growth.
Avoid Moody's
Not every current Berkshire Hathaway holding is a name Warren Buffett would -- if given the choice -- choose to buy today, however.
Take Moody's(NYSE: MCO) as an example. While Berkshire's done well with this pick, which it's held a stake in for over a couple of decades now (although it ultimately halved the position following 2008's subprime mortgage meltdown), the stock's currently overpriced by a couple of different measures.
As a refresher, Moody's is a corporate credit ratings agency. You're probably even familiar with its bond-rating system (from Aaa all the way down to C). It does other types of investment research and risk-assessment as well, but its credit-risk scoring business is its flagship profit center. It's not a bad business to be in, either. Competition is surprisingly light, and Moody's defends its moat pretty well.
But this is also a business where trouble can quickly sneak up on you, biting into the bottom line when consumers and corporations alike start looking for ways to tighten their belts and purse strings. If that kind of thinking is on the horizon in the shadow of surprisingly persistent inflation, Moody's is vulnerable.
And Moody's stock may be even more vulnerable to such trouble. Shares are not only uncomfortably expensive at nearly 40 times this year's expected per-share profits, but not even the usually optimistic analyst community is on board with the idea of more gains being in the near-term cards. Analysts' current consensus price target of $409.62 is just a bit below the stock's present price.
That's not to suggest Moody's is outright un-ownable, or that you should sell your stake if you already hold it. From a risk-versus-reward perspective, though, this is the wrong economic environment and too rich of a valuation to be taking such chances. That's especially the case when there are other, more compelling picks to choose from.
Should you invest $1,000 in Bank of America right now?
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Moody's. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
