His legend may come from a different era of investing. The fact is, however, Warren Buffett’s stock-picking approach still works. After a brief post-pandemic lull, his Berkshire Hathaway fund is once again outperforming the broad market.
Read between the lines: You’d be wise to poach a few of his picks.
If you’ve got a few thousand bucks you know you won’t be needing anytime soon, here’s a rundown of three Berkshire holdings that would be at home in almost anyone’s portfolio.
1. Occidental Petroleum
If you think the advent of alternative energy poses a near-term threat to fossil fuels, think again. The United States Energy Information Administration predicts that liquid fuels like oil and natural gas will still be the world’s single biggest source of energy production as far down the road as 2050. Indeed, growing demand for energy between now and then (largely stemming from population growth) means we’ll likely be burning more oil and gas in 2050 than we do now.
Connect the dots … the energy sector still has plenty of opportunity ahead.
That’s why Warren Buffett hitched his wagon to one of the business’s bright but overlooked stars. That’s Occidental Petroleum (NYSE: OXY). Berkshire’s currently sitting on a 123-million-share/$16 billion stake in the oil giant, mostly because — in Buffett’s own words — CEO Vicki Hollub “know[s] how to separate oil from rock, and that’s an uncommon talent, valuable to her shareholders and to her country.” Buffett also touts Occidental’s “vast oil and gas holdings in the United States,” which have been largely hand-picked based on their likely future operating costs and their efficient fit with Occidental’s existing assets.
Running a well-oiled company doesn’t always mean Occidental’s stock performs as well as hoped. Shares are down a bit from April’s peak, for instance, and haven’t made any gains since April of 2022.
Think bigger picture, though. This energy outfit is arguably one of the industry’s better-managed names (if not the best-managed), even if most investors don’t see it. Buffett does.
The kicker: Warren Buffett also touts Occidental Petroleum’s “leadership in carbon-capture initiatives.” What’s carbon capture? It’s (literally) the removal of carbon dioxide from ambient air. Although this technology is still in its infancy, research outfit Global Market Insights reports that the worldwide carbon-capture market is poised to grow at an annualized pace of 19% through 2032. Occidental is positioned to capture more than its fair share of this growth.
2. Kraft Heinz
Kraft Heinz (NASDAQ: KHC) is one of Warren Buffett’s rare missteps.
As a reminder, Kraft and Heinz used to be two separate companies. The food business is one that lends itself to scale, however. That’s why in 2015, Buffett — then a major stakeholder in Heinz — helped orchestrate the pairing by steering the company into an acquisition of its peer.
As it turns out, it wasn’t a great fit. The intended synergies were never realized. Indeed, if anything, the two outfits were far too mismatched to meld readily. That’s why in the wake of more than a 70% rout of the stock over the course of 2017 and 2018, Buffett finally conceded in 2019 that Berkshire “overpaid for Kraft.” The 326 million shares of Kraft Heinz Berkshire is holding haven’t budged in the meantime.
The funny thing is, the combined company may be stronger now than it’s ever been at any point in its existence. CEO Carlos Abrams-Rivera has proven he understands what needs to be done since taking the helm at the beginning of this year. Innovation is a priority again, for instance. As an example, its 360CRISP platform makes microwavable grilled cheese sandwiches taste and feel just like pan-prepared versions of the popular snack/meal.
It’s not a growth stock by any stretch of the imagination. It’s becoming an increasingly reliable cash cow, though. It’s also an inexpensive stock with a strong dividend yield — Kraft Heinz shares are currently priced at less than 10 times this year’s expected earnings, and sporting an annual dividend of nearly 5% of its present price.
You should know that the company hasn’t raised its dividend since 2019 after lowering it in the wake of its post-merger regrouping. Given all the work it’s done in the meantime, however, rekindled dividend growth is a possibility at some point in the foreseeable future.
3. Visa
Last but not least, if you’ve got an extra $3,000 to put to work right now, add credit card company Visa (NYSE: V) to your list of Warren Buffett stocks to buy.
Berkshire’s stake in Visa isn’t enormous. It only owns a little over 8 million shares collectively worth around $2 billion. That’s less than 1% of the value of Berkshire’s stock holdings, and less than 1% of Visa itself.
This is a position Buffett has held on to for a while, though, and for good reason. That is, this is a business as well as a company that’s going to be around for a long, long time. As long as the world uses money, consumers and businesses alike will need a way to conveniently handle it. Market research outfit Business Research Insights believes the worldwide card-payment market is poised to grow at an annualized pace of a little over 13% through 2032.
Visa is making sure it’s set to remain the growing payment space’s market leader by ensuring its cards remain the world’s easiest and most rewarding to use. The company operates several independently managed innovation centers all over the world meant to meet the unique payment needs of each region, for instance. As an example of this effort, the credit card middleman now offers a turn-key customer-loyalty/rewards program for merchants looking for ways to improve their engagement with consumers.
These initiatives are clearly working, too. Despite the economic headwinds currently blowing, last fiscal year’s 9% increase in total payment volume has been followed by comparable growth through the first half of this fiscal year. This ongoing growth points to the fact that the world is increasingly using cards as an alternative to cash or even checks. Again, it’s a trend that isn’t apt to slow anytime soon.
Should you invest $1,000 in Kraft Heinz right now?
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Visa. The Motley Fool recommends Kraft Heinz and Occidental Petroleum. The Motley Fool has a disclosure policy.
The Best Warren Buffett Stocks to Buy With $3,000 Right Now was originally published by The Motley Fool
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