3 Buffett shares to buy Hand Over Fist in October
Warren Buffett is arguably one of the greatest investors of all time.
Under the executive direction of the Oracle of Omaha from 1965, the actions of the conglomerate Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) To mean a total return of 20% every year for half a century and it is not over.
Business partner Charlie Munger helped Buffett understand the merits of buying a wonderful business at a fair price instead of just buying a fair business at a wonderful price. This is something the Oracle of Omaha discussed in more detail in the 1989 Berkshire Hathaway Annual Letter to Shareholders.
If you want to follow Buffett’s much-loved investing philosophy with your own stock picks, consider these three high-quality stocks in Berkshire’s portfolio that are currently trading at fair or better valuations. They may well be worthy of buying the hand on the fist in October.
1. Verizon: Generate a solid cash flow on the desire for 5G
Large Cap Telecom Verizon (NYSE: VZ) Berkshire Hathaway currently ranks eighth, and those holdings are valued at nearly $ 8.7 billion. Much of the company’s current success can be attributed to its smartphone-related services.
A recent survey by Pew Research found that 85% of Americans own a smartphone. Even more mind-boggling is that, according to Statista, the majority of U.S. smartphone owners (57%) spend an average of at least five hours a day on their smartphones apart from using their smartphones for work. With smartphones approaching such a high prevalence in American society, Verizon’s smartphone-centric business model functions in many ways as a utility, albeit a growing utility.
And Verizon is committed to upgrading its infrastructure from its dominant 4G network to the new and improving 5G network. This should translate into continued revenue and profit stability over the next decade, at least if 4G’s ten-year lifespan is any indication. This long-term plan is precisely why analysts predict that Verizon will be able to increase its earnings per share (EPS) by nearly 4% per year over the next five years.
This increase in EPS has also helped Verizon maintain a strong payout ratio (which is expected to be in the over 40% range this year) that it uses to fund its enviable dividend. It is reasonable to expect that Verizon will be able to generate dividend growth in line with its earnings growth going forward. The low payout ratio also means Verizon’s 4.7% dividend yield is safe for income investors looking to buy.
Despite Verizon’s stable fundamentals, the stock is currently trading at a discount. Verizon’s price-to-earnings (P / E) ratio of 11.3 is well below its 13-year median P / E ratio of 14.7, which should limit the decline and also suggests a potential rise in multiples of valuation.
2. Visa: capitalizing on the growing cashless society
Berkshire’s stake in mega-cap payment processor Visa (NYSE: V) is valued at around $ 2.2 billion, making it the 18th largest holding in Berkshire Hathaway’s portfolio.
contrary to American Express and Discover financial services, which offer credit to customers and generate interest and fees, Visa and its peers MasterCard focus on building relationships with financial institutions that issue credit and debit cards to customers.
Visa has three main sources of income.
- Data processing revenue: Earned when the business authorizes and clears a transaction.
- Service revenues: This involves Visa providing services to support the use of Visa products by customers.
- Income from international transactions: Gained when Visa processes cross-border transactions and performs the currency conversion activities necessary to handle the transaction.
Visa capitalizes on a decades-long trend involving the shift from a predominantly cash-based society to a (predominantly) cashless one. For example, a recent survey indicated that 80% of American consumers prefer to spend with a debit or credit card rather than cash.
Madmen Matthew Frankel and Jason Hall recently pointed out that only $ 45 trillion of the global $ 185 trillion payments market is through card payments, suggesting that Visa has plenty of room to grow. This untapped market potential and recognition of the leading Visa brand is what leads analysts to predict that Visa will post 20% annual profit growth over the next five years.
While Visa stock isn’t a good deal, trading at 39 times EPS forecast of $ 5.83 this year, it’s also not exactly expensive considering its growth potential. . In short, Visa is a wonderful and well-priced action with years of strong growth yet to come.
3. US Bancorp
US Bancorp (NYSE: USB) is the sixth largest holding in Berkshire Hathaway’s portfolio, a stake valued at $ 9 billion. With nearly 2,300 offices and more than 4,000 ATMs in 26 states of the United States, US Bancorp is the fifth-largest bank in the United States in terms of assets.
In addition to the usual ways a bank generates income (by lending money at a higher interest rate than it pays to depositors, guaranteeing credit cards, and paying service fees), US Bancorp differentiates itself in a major way. It operates a payments business that provides a variety of services to consumers, merchants and businesses.
Last year, about 25.6% of US Bancorp’s net income came from its payments business. In its report on second quarter 2021 results, management noted that the sales volumes of its various payments businesses exceeded pre-pandemic levels of 2019 through June and helped its payments revenues to increase by 17.5% year on year.
US Bancorp’s unique revenue mix is why analysts expect the company to generate 13% profit growth in each of the next five years.
With a current price-to-book ratio of 1.9, US Bancorp’s valuation is very much in line with its 13-year median price-to-book ratio. The bank also offers a stable dividend, currently generating a 3% yield. This stock offers above average quality at a fair price.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.