Three of investing icon Warren Buffett’s favorite stocks just so happen to be “on sale” right now as the volatile stock market continues to plunge.
“However, keep in mind that all of the stocks in Berkshire Hathaway's portfolio were selected for their durable competitive advantages, strong financial position, and competent managers,” Matthew Frankel writes for the
Motely Fool.
“The bottom line is that any Buffett stock at an attractive price could be a smart addition to your portfolio, so keep an eye out for more bargains, especially if the market declines even more.”
The three current bargains:
Wells Fargo (NYSE:WFC)
Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) owns an 8.6% stake in the bank, which is currently worth more than $22 billion.
“Wells Fargo is consistently the most profitable of the big four banks, thanks to a history of smart risk management and efficiently run operations. Wells Fargo is trading at a price-to-book valuation not seen since 2013. The weakness in the stock market, and in the financial sector in particular, makes it an excellent time to get in to this long-term winner,” the Fool said.
International Business Machines (NYSE:IBM)
IBM “is in the middle of a rather lengthy turnaround, and it appears that investors are growing impatient. Shares have lost more than 40% of their value since their 2013 highs, and got smacked down again after the company's 2016 guidance failed to impress,” the Fool reported. “However, there are still some good reasons to own IBM. It trades at just nine times earnings and pays a 4.2% dividend yield, both of which should offer some degree of downside protection.” Berkshire now owns 8.2% of the company, and could see major profits if IBM's transition is a success.
General Motors (NYSE:GM)
GM is Buffett's smallest holding of the three
— Berkshire's 3% stake represents an investment of "only" $1.4 billion. GM produced record earnings and margins in 2015, thanks to strong sales in trucks and SUVs, two high-profit types of vehicles. “The company's financial position is typical of a Buffett stock — lots of cash, not a lot of debt. GM ended 2015 with $20.3 billion in cash and just $8.8 billion in debt, which should give it the financial flexibility to get through any economic conditions that arise. Additionally, the stock trades for just 10.9 times earnings, its lowest valuation since mid-2013.”
As far as how much lower stocks will fall, an end isn't easily seen.
"Equities are in a 'go-nowhere-fast' mode, with a downward bias in the near term," Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis, told
Reuters.
"We need oil to stabilize to provide some confidence for investors, partly because to a degree, investors' stress is high, earnings visibility is low, and market internals continue to weaken," he said.
Other experts also expect the U.S. market to eventually snap out of its funk.
Newsmax Finance Insider Ed Yardeni doesn’t expect a recession and is optimistic long-term, but he expects 2016 to be “choppy and difficult.”
"I admit the risks of recession are increasing, but I’m not looking for multiples to dive into the single digits, which they do in recessions," he told
Barron's.
"I remain fundamentally optimistic. Last year was choppy and difficult; this year will be choppy and difficult. But the U.S. will come out of this in particularly good stead," he said.
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