Are you looking for some new picks for your portfolio? Don't make it difficult. Just borrow a few of the ideas already held by one of the world's most successful long-term investors. That's Warren Buffett, of course, and he's not called the Oracle of Omaha for nothin'.
Here's a closer look at three of your three best bets currently owned by Buffett's Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B). Each one is a bit off the beaten path, but that's not an accident. Most of Berkshire's biggest and/or best-known holdings are currently overvalued as well as overbought. But three of his more off-the-radar picks are currently priced at compelling levels.
1. American Express
For being Berkshire Hathaway's third-biggest position, it's strange how infrequently American Express(NYSE: AXP) is highlighted as a Buffett pick. But, the reason the 151.6 million-share position in the company has been in place for a couple of decades now is still intact.
American Express is of course a credit card company often grouped with rivals Visa and Mastercard (both of which are also owned by Berkshire, by the way). American Express is unique though. It's arguably first and foremost a manager of rewards programs that encourage the usage of its plastic. Some of the perks for its cards even with the lowest annual fees include rewards for dining at particular restaurants, credit toward ride-hailing services, and discounts on select hotel stays. Higher-priced tiers of its fee-based cards offer all of these benefits plus credit toward the purchase of streaming services as well as at a variety of retail stores. Visa and Mastercard offer similar perk programs, but none of them hold a candle to what American Express cards bring to the table.
And numbers confirm the claim. Despite the current economic turbulence, this company's top line is expected to grow nearly 10% this year before improving another 8%-plus next year. Earnings are projected to grow at an even faster clip. The encouraging thing is that this progress is merely in line with the company's historical revenue and profit growth.
The kicker: While this stock's forward-looking dividend yield of 1.2% isn't exactly thrilling, what it lacks in current yield it more than makes up for in dividend growth. Over the course of the past 30 years, American Express raised its quarterly dividend payment from $0.07 per share to its current quarterly payout of $0.70 per share. That's an annualized growth rate of 8% that isn't apt to slow down anytime soon.
2. VeriSign
Whereas American Express is a rarely discussed Buffett pick, most investors probably don't even realize Berkshire's also a long-term stakeholder in VeriSign(NASDAQ: VRSN). Indeed, some investors may have never even heard of VeriSign.
In simplest terms, Verisign oversees website name registrations. More specifically, it manages a domain name system (or DNS) that prevents different parties from registering for the same website URL. These registrations must be updated on a regular basis, bearing revenue each time it happens.
It's not a high-growth business. While new websites are always being created, the World Wide Web in place today is no longer rapidly expanding due to the addition of more sites. Most of the internet's current expansion instead stems from the addition of more content to existing websites.
It's still a reliable high-margin business, however, that's clearly never going away. More than half of last year's $1.5 billion worth of revenue was turned into net income, roughly matching the prior fiscal year's profit margin rates. Its top and bottom lines also both extended their already lengthy growth streaks.
Although VeriSign's consistency is typical of Buffett's stock picks, it's an atypical holding in at least one way. It lacks a dividend! It has never had one, and it's not a stretch to guess that it never will. Rather, the company adds immediate shareholder value by buying shares back in a big way. Its outstanding share count has been more than halved over the course of the past couple of decades. That's one of the key reasons this stock's gained on the order of 800% during this span, in step with its per-share earnings growth. That makes it one of Buffett's best-performing picks for the time frame in question.
Look for these trends to carry on into the foreseeable future, too.
Berkshire's stake in VeriSign isn't a particularly big one; it's only holding about 12.8 million shares worth a total of $2.2 billion. That's less than 1% of the value of Berkshire Hathaway's stock portfolio. But, it's still telling that Berkshire owns roughly 12% of VeriSign itself.
3. Chevron
Finally, add Chevron(NYSE: CVX) to your list of Buffett's picks that would likely be at home in your portfolio as well.
Berkshire's owned energy stocks in the past, so it's not completely shocking that it holds a $19 billion stake (making it Berkshire's fifth-biggest stock position) in the oil and gas giant now. Given the advent of alternative energy though, Buffett would seemingly recognize that this industry's days are numbered.
Or maybe Warren Buffett realizes that the rumors of fossil fuels' impending death are greatly exaggerated.
That's the word from Goldman Sachs anyway. The investment bank's research arm says the world's daily consumption of crude oil is apt to continue growing all the way through 2034. Separately, the U.S. Energy Information Administration reports that as far down the road as 2050 oil will still be the world's single-biggest source of energy ... when we'll also be using more natural gas than we are right now.
There's still lots of money to be made in this sliver of the energy business.
Chevron obviously isn't the only way to capitalize on this opportunity. But, there's a reason Buffett specifically selected Chevron as one of only two oil and gas names Berkshire currently holds (the other one is Occidental Petroleum, by the way). That's most likely Chevron's sheer size and proven operations, supporting the stock's reliable dividend that's been raised every year for the past 37 years. Newcomers will be plugging into Chevron stock while it's yielding a healthy 4.2%.
Sure, the stock's been a lackluster performer since mid-2022, when many investors began fearing oil prices were set to weaken. That never happened though, and isn't likely to now. The Energy Information Administration predicts that Brent crude's average price though 2025 will be $85 per barrel, in line with where it is now. That's more than a profitable price level for Chevron.
Should you invest $1,000 in Chevron right now?
Before you buy stock in Chevron, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Chevron wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $771,034!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 2, 2024
American Express 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 Berkshire Hathaway, Chevron, Goldman Sachs Group, Mastercard, VeriSign, and Visa. The Motley Fool recommends Occidental Petroleum and 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.
