With the market in a volatile state, top investors are turning to dependable names for value and growth. That's what we found after asking three Motley Fool contributors to survey and profile stock purchases being made by the world's best investors. Read on to see why some of Wall Street's top minds are buying Apple (NASDAQ:AAPL), Procter & Gamble (NYSE:PG), and McDonald's (NYSE:MCD) amid the market's recent shake-up.
Sometimes, the obvious answer is the right answer
Just as obviously, the answer is Apple.
With more than a quarter-billion shares in ownership, Berkshire Hathaway's latest 12-F filing shows that Apple is now Buffett's largest stock holding. In fact, at the time that filing was made public, Buffett's Apple stake made up nearly 26% of all Berkshire stock holdings, and comprised twice as big a slice of the pie as Berkshire's No. 2 holding, Bank of America.
My, how things have changed.
Worries that Apple has suddenly forgotten how to sell iPhones have peeled off roughly a third of Apple's stock market value. From a high north of $232 a share at the start of October, Apple has shrunk to less than $153 a share today.
This has to be painful for Apple shareholders. But for new investors right now, the fact that Apple is holding a 34%-off sale on its stock is great news: They can buy Apple stock at less than 12 times free cash flow. With Apple stock paying a 1.9% dividend yield and expected to grow earnings at 12% annually over the next five years, that's a very nice price if Apple just meets expectations -- and a steal of a price if it exceeds them.
Everything old is new
Demitri Kalogeropoulos (Procter & Gamble): After years of giving it the cold shoulder, Wall Street is finally warming up to Procter & Gamble's stock. The consumer products titan, which sells global staples like diapers and razors, is up over 17.5% in the past six months compared with a nearly 8% drop in the broader market.
There are some good reasons to be excited about P&G's business right now. It posted its best growth rate in years in the most recent quarter, with organic sales up 4%. That jump implies success at stealing market share from peers like Kimberly Clark. The stock is attractive to conservative-minded investors, too, who prize stable earnings and hefty dividend income. These characteristics look even better as market volatility spikes as it has in recent weeks.
P&G faces a significant test to its business strength today as it rolls out price increases across its portfolio to reflect rising input costs. Assuming it can convince fans of brands like Pampers, Tide, and Gillette to pay a bit more for its products, P&G's profit margins should continue climbing above its already market-beating 20% of sales. Combine that with the prospect of faster sales growth and there's a good chance the stock's rally survives well into the new year.
New dimensions for a sturdy business
Keith Noonan (McDonald's): McDonald's stock has handily outperformed the market over the last five years, climbing roughly 80% over the stretch compared with 35% growth for the S&P 500, and Morgan Stanley remains bullish on the fast-food giant. Analyst John Glass upgraded the investment firm's rating on the stock from "equal weight" to "overweight" in a note published at the end of November, and stated that Morgan Stanley was "buying the McDonald's of the future today" on the promise of the company's store modernization efforts. He also raised the firm's price target on the stock from $173 to $210.
Morgan Stanley anticipates that McDonald's store overhaul will start to produce greater payoffs in 2019 and help the company deliver best-in-class earnings performance for years to come. The revamp push includes the addition of more self-ordering kiosks, interior and exterior redesigns, and the expansion of McCafe space. Glass also pointed to McDonald's budget-focused fast-food offerings as being resilient during periods of economic downturn, and he sees value in the stock as a defensive bulwark in a period of market volatility.
The fast-food giant's stock is valued at roughly 21.5 times this year's expected earnings and has a dividend yield of roughly 2.6%. Its earnings multiple tops the S&P 500's forward P/E of roughly 15, but McDonald's sturdy business, 42-year history of annual dividend growth, prospects of an improving customer experience, new business avenues like delivery, and expansion in international markets explain why Morgan Stanley and other top firms and analysts are liking Mickey D's in today's market.
Demitrios Kalogeropoulos owns shares of Apple, Berkshire Hathaway (B shares), and McDonald's. Keith Noonan has no position in any of the stocks mentioned. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.