Warren Buffett’s success as an investor means that a stock portfolio within Berkshire Hathaway get a lot of attention. While you always have to do your own buying and selling, there are a few interesting stocks within Buffett’s investment vehicle worth considering today. The list includes Chevron(NYSE: CVX), Coca-Cola(NYSE: KO)and American Express(NYSE: AXP). Here’s which ones are probably worth buying, and which ones you should avoid.
Chevron is one of the largest integrated companies in the world energy companies. This means that its operations cover the entire spectrum of sectors, from upstream (oil and natural gas production) through midstream (pipelines) to downstream (chemicals and refining). This gives some balance to the company’s financial results, as each segment of the industry operates in a slightly different way.
The end result is that, for an energy company, Chevron’s peaks and valleys are not as extreme as they would be if it operated only upstream. This makes it a good choice for long-term investors looking to invest in the energy sector.
Helping things is one of the strongest balance sheets in the sector, with a very low debt-to-equity ratio of 0.17x.
The real attraction right now is the dividend. For starters, the yield is 4.3%. And that yield is supported by a dividend that has been increasing every year for more than three decades. However, the average yield in the energy sector is around 3.3%, indicating the poor performance of the stock that Chevron is currently experiencing.
Some of that has to do with the acquisition not going as well as hoped. Some are related to Chevron’s poor business performance in the context of low energy prices. However, if you have a long-term investment horizon, this industry creator is probably worth buying today. Collecting above industry average returns while waiting for better days is not a terrible thing.
Coca-Cola is one of the world’s most recognized companies and is usually a fairly expensive stock to buy. But the recent price pullback has put the stock in an attractive range, assuming you don’t mind paying a fair price for a great company.
For some numbers, this Dividend King’s dividend yield is around 3.2%. That’s roughly the middle of the road over the past decade, indicating a reasonable price. That view is supported by more traditional valuation metrics such as price-to-sales and price-to-earnings, both of which are slightly below their five-year averages. Although it wouldn’t be fair to say that Coca-Cola is a very popular buy, it seems to be reasonably priced.
However, the real story is what you get for the price. Coca-Cola’s business has strong margins, a healthy balance sheet and an unrivaled portfolio of beverage brands (thanks in large part to its namesake soda). While investors may be concerned about inflationary pressures, new weight-loss drugs, and even increased scrutiny of snacks, given the long and successful history here, it seems highly likely that Coca-Cola remains the industry leader. And that suggests the dividend will continue to be paid and continue to grow over time — exactly what a conservative income investor wants to see.
American Express is a payment processor aimed at high-end customers. That’s a solid area, given that wealthy buyers endure economic downturns relatively quickly. Indeed, the fees a company collects for processing transactions tend to be fairly reliable over time.
All in all, American Express is an attractive business. But as Benjamin Graham, the man who helped train Warren Buffett, said, a great company can be a bad investment if you pay too much for it.
After roughly doubling in price in about a year, American Express is starting to look expensive. The company’s price-to-sales, price-to-earnings, price-to-cash flow, and price-to-book ratios are well above their five-year averages.
If you are a more active investor who cares about valuation, you might want to take some profit here. It would be understandable for long-term investors to want to stay, given the underlying business, but new investors should probably stay away until a better entry point is found.
Even Warren Buffett, the Oracle of Omaha, makes mistakes. So you have to take the Berkshire Hathaway portfolio with a grain of salt. You also have to remember that Buffett tends to buy and hold, so the things that are in his portfolio today may not be the things that he would buy today.
But if you’re looking for some investment ideas, a look at Buffett’s list of stocks today raises interesting questions about Chevron, Coca-Cola and American Express. The first two look like buys, but this last one seems a little too expensive for me right now.
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American Express is an advertising partner of Motley Fool Money. Reuben Gregg Brewer has no position in any of the listed stocks. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool has a disclosure policy.
