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2 Warren Buffett Stocks at Fire-Sale Prices

By Matthew Frankel, CFP® - Updated Apr 14, 2020 at 7:39AM

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The stock market has rebounded, but these two stocks are still remarkably cheap.

Since bottoming out in late March, the stock market has rebounded nicely, with the S&P 500 up by more than 25% from the recent low. Many stocks that were trading for insanely cheap prices have posted big gains, but that's not to say that there aren't some attractive bargains to be found.

Berkshire Hathaway (BRK.A 3.75%) (BRK.B 4.02%) has one of the most closely followed stock portfolios in the world, and for good reason. Many of the positions were initiated by CEO Warren Buffett himself, and Buffett and his stock-picking team have an excellent track record of beating the market over long periods. With that, here's why Buffett stocks STORE Capital (STOR 2.27%) and Synchrony Financial (SYF 4.68%) are still trading at bargain prices and could be excellent choices for long-term investors.

Warren Buffett smiling.

Image Source: The Motley Fool.

Don't be too worried about the rent payments from this company's tenants

STORE Capital is a real estate investment trust, or REIT, specializing in single-tenant properties, particularly in the retail and service industries, but there's a substantial presence of manufacturing businesses as well. (Note: The company's name stands for Single Tenant Operational Real Estate.)

Typically, single-tenant net-lease real estate is one of the most stable types of commercial real estate you can invest in, but most major net-lease REITs have been hammered in the recent downturn. In fact, STORE Capital is down by nearly 55% from its February high. The reason? While many of STORE's roughly 2,500 properties are occupied by tenants that are "essential businesses" and therefore still in operation, a significant portion is not. To name the biggest trouble spots, restaurants, health clubs, movie theaters, and family entertainment centers combine to make up 28% of the company's rental income.

However, don't be so quick to assume that STORE Capital's revenue is going to take any sort of permanent hit. The CARES Act provides much-needed (and potentially forgivable) loans to hard-hit businesses, and even if a tenant has difficulties paying rent, I'd be willing to bet the parties can come to an amicable arrangement that works best for both parties. Plus, STORE has about $700 million in liquidity, which should be plenty to allow the company to make it through the tough times. In a mid-March update, STORE's CEO revealed that many insiders have recently purchased shares, and I think they'll be happy with the move once the U.S. economy returns to normal. 

This company could get hammered in a long recession, but...

I often describe Synchrony Financial as the biggest credit card company you've never heard of. The company issues store credit cards on behalf of some of the biggest retail names in the U.S., such as Amazon.com, Gap, T.J. Maxx, and Lowe's, just to name a few. The company also provides specialty payments solutions and is the company behind the CareCredit healthcare credit card. In all, Synchrony had more than $87 billion in loan receivables at the end of 2019.

Since the coronavirus market downturn started, Synchrony's stock has been absolutely hammered. Even after a recent rebound, shares are down by more than 50% so far in 2020. And to be fair, it's easy to see why. Store credit card debt is generally lower-quality compared with other types of consumer debt, and even in good times, Synchrony's net charge-offs are on the high end for the credit card business (5.15% of the portfolio was charged off in 2019). Now, Synchrony also has one of the best net interest margins in the entire financial industry -- around 15% -- so it can absorb these types of losses and still remain profitable. However, in a deep recession, we could see defaults rise significantly and cause the company's profits to disappear. 

Having said that, it's starting to look like the economy is going to recover sooner than initially expected, and the stimulus payments and expanded unemployment benefits in the CARES Act should help most consumers stay afloat during the tough times.

Buy for the long term

As a final thought, remember that Warren Buffett is a long-term investor, and you should approach these two stocks with that type of mentality -- especially now. While much of the recent news in the COVID-19 fight has been generally positive, the market will likely remain highly volatile until there's some clarity regarding when we'll get back to business. These stocks could certainly fall even more if we get some bad news along the way.

So, while these three stocks will likely take investors on quite a roller coaster ride in the near term, they are looking like incredibly attractive opportunities if you're measuring returns in terms of several years or more.

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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$417,401.43 (3.75%) $15,101.43
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$278.28 (4.02%) $10.76
Synchrony Financial Stock Quote
Synchrony Financial
SYF
$29.54 (4.68%) $1.32
STORE Capital Corporation Stock Quote
STORE Capital Corporation
STOR
$27.01 (2.27%) $0.60

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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