For a look at stocks that Warren Buffett loves, investors can peruse Berkshire Hathaway's 13F filing each quarter. These filings show which stocks the famous money manager's company holds and how many shares it owns, but investors hunting for more Buffett-style picks can also apply his wisdom and favored investing principles in hopes of finding other companies that are poised to deliver impressive returns.
For stocks with the potential to be strong long-term performers, we put together a panel of three Motley Fool contributors and asked each of them to spotlight a stock that the Oracle of Omaha might love. Here's why they think Comcast (CMCSA 1.00%), Snap-on (SNA 0.62%), and Tencent Holdings (TCEHY 2.05%) have qualities that fit the Buffett mold.
Comcast, then and now
Rich Smith (Comcast): It's been nearly a year now since I offered up Comcast as the kind of stock that Warren Buffett would love -- and I don't know about Buffett, but given that Comcast stock is up 30% since I recommended it, I have to think that a lot of Comcast shareholders love those returns! But what about the future? Isn't Comcast doomed to lose cable subscribers as the world marches steadily to a streaming, over-the-top TV future?
Well, yes and no. Yes, last quarter Comcast lost 121,000 cable TV subscribers to the Netflixes and Rokus of the world. But also, no, Comcast is not doomed, because no matter how many millennials decide they want to "cut the cord" on cable, the fact remains that you still need an internet connection to stream Netflix. And you still need internet to run your Roku. And for millions of subscribers across the country, that means you still need Comcast to sell you internet access.
This fact makes Comcast the very definition of a Buffett "tollbooth" business -- a business you have to pay whether you like it or not, in order to do the things you do want to do. It's the reason Comcast is able to charge enough to rake in $15.5 billion in free cash flow over the last year.
And with a stock selling for only 12 times that free cash flow, it's a good reason to buy yourself some Comcast stock.
A straightforward business that generates cash
Chuck Saletta (Snap-on): Above all else, Warren Buffett loves to invest in companies that generate prodigious amounts of cash and can be purchased at reasonable valuations. Snap-on rings the bell on both fronts, plus it pays a decent dividend -- something that Buffett likes to receive but isn't necessarily fond of paying himself.
Trading at around 13 times its expected earnings, Snap-on looks reasonably valued. That particularly holds true once you consider that those earnings are expected to increase by around 7% annualized over the next five years. As if that reasonable valuation and growth rate weren't enough, Snap-on has generated more cash from its operations than it has thrown off in earnings over the last several years.
Snap-on also pays a decent dividend. Its current payout is $0.95 per share per quarter, or $3.80 per year. That's almost a 16% increase from the $0.82 per share per quarter it had previously paid. At its current payout, the company carries a respectable yield of around 2.2%. Perhaps even better from a dividend perspective, despite that decent yield, Snap-on's dividend only represents around 29% of its earnings. That gives it room to both reinvest in its business and the potential to continue increasing its payout.
While the toolmaking business where Snap-on competes isn't exactly the fastest-growing industry on the planet, Snap-on has established itself as a competent player that rewards its shareholders well. When combined with its strong cash-generating abilities and reasonable valuation, Snap-on looks like the type of company that Buffett would be happy to own.
Monthly dividend checks and resilient real estate
Keith Noonan (Tencent): Buffett is known for being somewhat averse to investments in the technology sector, and Chinese tech stocks look riskier thanks to ongoing trade disputes with the U.S., but he might still find a lot to like about Tencent Holdings. In addition to having its own core technology and entertainment businesses, the Chinese multimedia conglomerate owns substantial stakes in a wide range of technology companies. The company counts over 700 companies in its portfolio, prompting some investors to liken it to the Berkshire Hathaway of the Chinese tech sector.
Tencent has large positions in many of the world's leading video game publishers, social media companies like Reddit and Snap, and numerous e-commerce and entertainment platforms. Buffett might also find a lot to like about Tencent's core business, which revolves around its video games, social media platforms, cloud business, and movies.
Tencent is responsible for WeChat -- China's biggest social media platform and one that has a fast-growing app ecosystem that's comparable to what Alphabet's Android and Apple's iOS operating systems built on mobile. WeChat counts over a billion daily active users and gives the company a formidable moat and is integrated into its other products. Tencent also develops and publishes some of the world's most successful video games, operates one of China's biggest video streaming platforms, and has been delivering solid free cash flow even as its core businesses have faced some regulatory pressures.
Tencent's unmatched strength in China's social media market, industry-leading entertainment divisions, and wide range of assets give the company a formidable moat, and its investment holdings make it a diversified way to benefit from momentum in the country's tech space. And while China's economy has recently seen slowing growth lead to big sell-offs for the country's stocks, you can count Buffett among the list of investing experts who expect the country to share superpower status with the U.S. over the next century.