Assuming stocks remain well below recent highs achieved in mid-February, Americans are about to get their hands on a nice chunk of money at a very opportune time. As part of a $2 trillion stimulus bill meant to prop up the economy amid the COVID-19 pandemic, eligible adults will receive $1,200 checks, along with $500 for every child in their household, in the coming weeks. Though the economy may be reeling, some stocks have been oversold, giving investors a chance to spend these checks on shares of high-quality companies at attractive prices.
While not everyone may be in a fortunate enough position to use their stimulus checks to invest, particularly as businesses and citizens grapple with unforeseen store closures, paused operations, and stay-at-home orders, those who are able to buy stocks now can invest at prices substantially below recent highs.
But where should investors start?
Cloning the Oracle of Omaha
During uncertain times like these, investors should look to invest in companies capable of enduring suppressed consumer spending and other challenges that might surface as the U.S. tries to combat the coronavirus. Fortunately, there's one great investor we can look to for ideas -- an investor who knows how to find enduring, quality companies better than just about anyone else: Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B -0.28%) (BRK.A -0.23%).
Warren Buffett. Image source: The Motley Fool.
Buffett has quite a knack for picking stocks. His investment prowess has helped Berkshire build its market value at an average compound annual growth rate that doubles the S&P 500's (including dividends) since 1965.
So why not take a few ideas from history's greatest investor?
As Guy Spier, another great investor and a friend of Warren Buffett, has said: "Many of the best ideas are already out there for us to see. We just have to clone them."
But which Berkshire Hathaway stocks, exactly, are worth buying during this downturn? Here are some copied ideas, straight from Buffett's portfolio, that are likely to perform well over the long haul: Apple (AAPL 2.48%), American Express (AXP 1.39%), and Berkshire Hathaway itself.
1. Apple
Probably one of the best ideas investors can steal from Buffett is Berkshire's biggest stock holding by far: Apple. Berkshire has a 5.6% stake (worth a whopping $64 billion) in the tech giant. This even dwarfs Berkshire's second-largest holding, in Bank of America, which is valued at about $20 billion.
"It's probably the best business I know in the world," Buffett said when asked about his Apple stock in a February interview with CNBC. The famed investor added that, since Apple is Berkshire's third-largest business after its insurance and railroad subsidiaries, he doesn't even think of the holding as a stock. Instead, "I think of it as our third business," Buffett said.
Recently, Apple withdrew its fiscal second-quarter revenue guidance as it copes with supply shortages and weakened consumer demand in an economy that came to a screeching halt. But the tech company has the wherewithal to take this setback in stride. Apple generated $64 billion in trailing-12-month free cash flow, or the cash left after regular operations and investments are covered. And it has nearly $100 billion of net cash on its balance sheet.
With shares down about 20% from an all-time high of $328, this is a great opportunity for investors to buy this tech stock.
2. American Express
Shares of American Express have been absolutely pummeled. The stock is down 39% from a high achieved in February. Investors are likely concerned about payment volumes declining, something that would hurt American Express' revenue from fees on transactions. In addition, the company's lending business could be at risk if consumers have trouble paying their bills.
But the stock's sharp decline has arguably more than priced in a likely period of suppressed consumer spending and the risks associated with consumer debt. The stock trades at just 10.5 times earnings and boasts a 2% dividend yield.
American Express is Berkshire's fourth-largest stock holding, worth $13 billion.
3. Berkshire Hathaway
Finally, there's Berkshire Hathaway itself. Believe it or not, Berkshire stock was Buffett's biggest purchase in Q4. The company repurchased $2.2 billion worth of its own shares, more than all of Berkshire's other stock purchases during the quarter combined.
If Buffett thought buying its own stock was a great idea during Q4, imagine what he thinks now that the stock is trading 19% below levels in mid-February, and about 10% lower than the lowest price Berkshire traded at during Q4.
What's particularly exciting about Berkshire stock today, however, is its massive cash balance. The company finished 2019 with $125 billion of cash, cash equivalents, and U.S. Treasury bills. While this stockpile weighed on results in 2019 since it wasn't deployed in a profitable, growing business, it serves as a major opportunity during this 2020 coronavirus market crash, giving Buffett a loaded elephant gun just as great deals are surfacing.
By betting on Berkshire, investors are essentially betting that Buffett can spend some of this $125 billion opportunistically. And given Buffett's track record, this is a wise bet.
No stock investment is without risk
Blindly following Buffett's Berkshire Hathaway into investments isn't a foolproof strategy. Even the Oracle of Omaha can be wrong from time to time. But using Berkshire's portfolio as a starting point for finding ideas will likely yield a list of companies not only able to survive this pandemic but also to thrive when the economy finally ramps back up.
Apple, American Express, and Berkshire Hathaway, in particular, look like three Warren Buffett stocks that can beat the market over the long haul and reward shareholders handsomely, especially if investors buy them while they're beaten down.
