It's been a wild month for Wall Street and Main Street. The spread of the coronavirus disease 2019 (COVID-19) has coerced counties worldwide, including the U.S., to implement stringent mitigation measures to slow the spread of this lung-focused illness that, as of March 21, had claimed around 13,000 lives, per Johns Hopkins University. As a result, the probability of a recession in the U.S. has risen significantly, while economic activity has slowed dramatically.
One thing consistent with the 32% drop-off in the benchmark S&P 500 since Feb. 19 (through this past weekend) is that it's hit everyone pretty hard. This includes the Oracle of Omaha, Warren Buffett.
Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), the conglomerate Buffett has led for more than five decades, has seen the value of its investment portfolio decline by about $100 billion in less than five weeks. There's no doubt this is a jaw-dropping figure, but Buffett has seen bear markets before. He and his team are adept at loading Berkshire Hathaway's portfolio with high-quality businesses and calmly allowing his investment thesis to play out over time.
With 52 securities currently held in Berkshire's portfolio, there are plenty of solid Buffett stocks for investors to choose from.
Considering the mauling some businesses have taken in recent weeks, I'd advocate buying the following five Buffett stocks hand over fist.
It's no secret that Buffett loves banks: Financials make up around 45% of Berkshire's invested capital. However, the recent sell-off has provided the perfect opportunity for investors to pile into the most efficient of all banks, U.S. Bancorp (NYSE:USB).
U.S. Bancorp is virtually never "cheap" in the traditional sense of the word, and that's because it consistently delivers a higher return on assets than any other big bank. If it can do more with its assets, then it absolutely deserves to be valued at a premium. Since U.S. Bancorp avoided the temptation of dipping into riskier derivatives during the financial crisis, its balance sheet and credit quality have remained relatively impeccable for a long time.
While there's no doubt that lower interest rates are going to weigh on net interest income, U.S. Bancorp's efforts to control noninterest expenses and push consumers toward digital and mobile banking should be able to offset some or all of this weakness. At only 9% above its book value, this may be about as cheap as you'll ever see America's most efficient bank.
Teva Pharmaceutical Industries
Although it was a selection made by a team member of Buffett's and not the Oracle of Omaha himself, investors should also consider gobbling up what they can of branded- and generic-drug developer Teva Pharmaceutical Industries (NYSE:TEVA).
There's no denying that Teva has had its fair share of issues over the past three years. Its top-selling branded therapy (Copaxone) is now facing generic competition, it settled on bribery charges and saw top-level executive turnover, and more recently, it was sued by 44 states over its role in producing opioids. However, Teva has also introduced new branded therapies, continued to expand its generic offerings, and according to CEO and turnaround specialist Kare Schultz, hit its trough year in 2019.
Schultz has been the key to the turnaround at Teva. Operating expenses will have been reduced by approximately $3 billion by the end of 2020, and the sale of noncore assets has helped lower net debt by $8 billion. Though work remains, Teva looks to be an absolute steal at a mere three times forecasted earnings per share, and especially with COVID-19 unlikely to adversely affect drug demand.
With the exception of airlines and oil stocks, there's probably not an industry that's been raked over the coals over the past month more than credit-service providers. There's obviously real concern that we'll see a drop-off in spending and a dramatic rise in credit delinquencies in the very near future. Thankfully, Visa (NYSE:V) is prepared to weather that storm.
One thing you should understand about Visa is that it isn't a lender like some of its fellow payment processors. Visa's job is solely to act as a payment facilitator, meaning if credit delinquencies do rise, the company will see virtually no impact to its business model.
It's also worth pointing out that Visa holds the lion's share of credit card network purchase volume in the United States. Given that consumption is what drives U.S. gross domestic product higher, the combination of monetary and fiscal stimulus will have this country's consumers back on their feet in no time. When combined with Visa's long runway of opportunity to push overseas markets away from cash, Visa looks to be a no-brainer buy.
With the auto industry hitting the skids, satellite radio operator Sirius XM (NASDAQ:SIRI) has been clobbered. The concern here is that if fewer vehicles are being sold, paid subscriber growth could flatten. But this isn't as big of a concern as you might think.
For one, keep in mind that Sirius XM acquired Pandora last year and absorbed some higher costs associated with integrating its platform. With a full year gone by since the buyout, Sirius XM expects more than $50 million in annual cost synergies from the merger, and it will likely deliver substantive year-over-year comparative sales improvements.
Furthermore, even though Sirius XM added Pandora, a platform that's dependent on advertising, it's still collecting the vast majority of its revenue from subscriptions. The thing about subscriptions is they're far less likely than ad dollars to be cancelled/pared back during a recession or economic contraction. This puts Sirius XM in a much better position to weather a recession than its terrestrial or even online competition.
Finally, what in the world are investors thinking by selling down beverage giant Coca-Cola (NYSE:KO) by over 35% since the market hit its peak? If there's a true Buffett stock to load up on hand over fist, it's Coca-Cola.
Few if any brands are as globally recognized as Coca-Cola. That might have to do with the fact that it operates in all but one country worldwide (North Korea), and has more than 20 brands generating at least $1 billion in sales each year. Coke is one of those few brands that appeals to all generations, meaning it's highly unlikely to see any meaningful slowdown in beverage consumption, even if a sharp short-term economic contraction occurs.
Coca-Cola is also cheaper than it's been in years. Having been valued at five-year averages of almost 22 times forward earnings and nearly 23 times cash flow, shares of Coca-Cola can now be scooped up for less than 17 times forward earnings and under 16 times cash flow. That's the cheapest Coke has been, based on these metrics, since 2012. Coca-Cola may not deliver jaw-dropping growth, but it's about as steady as they come in the cash flow department.