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3 Warren Buffett Stocks to Buy Right Now

By David Jagielski - May 3, 2020 at 6:45AM

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These stocks can be great pillars to build your portfolio around.

Finding a good stock can be a challenge these days, especially with many businesses struggling due to the COVID-19 pandemic. But if you're looking for a solid long-term investment, it's hard to go wrong with one of the stocks that Warren Buffett's Berkshire Hathaway (BRK.A 0.45%) (BRK.B 0.53%) has already vetted.

Below are three stocks Berkshire holds that can be great additions to your portfolio today.

Warren Buffett

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1. DaVita

DaVita (DVA 1.81%) focuses on providing patients with essential kidney care, including dialysis services. At a market cap of around $10 billion, it's still a modestly sized healthcare stock. But it's been producing solid returns for investors: Over the past 12 months, the stock is up nearly 40%. That's not bad given that the S&P 500 has been down 4% over the same period. The Denver-based company has operations in 10 countries outside the U.S. and serves more than 200,000 dialysis patients.

The company's coming off a strong 2019, in which its adjusted per-share profits were $5.40, well above the $3.57 it reported for the previous year. On DaVita's earnings call in February, CFO Joel Ackerman projected even more growth for 2020, expecting adjusted EPS to fall between $5.75 and $6.25. Revenue was projected to rise as high as $11.7 billion for the year, which would represent year-over-year sales growth of 2.7%. In 2019, DaVita's sales were flat from the previous year.

However, the one variable that could impact these results is COVID-19 because the pandemic could affect the company's costs as a result of supply chain issues and the number of patients it treats this year. On April 13, DaVita said in a press release that the company didn't start to feel the impact of the coronavirus "until late into the first quarter." As a result, it doesn't expect COVID-19 to have a significant impact on its first-quarter results. However, the company conceded that future results could "vary materially" from its previously issued guidance. But despite any short-term impacts from the pandemic, it's a safe bet to rebound given the essential service DaVita provides.

The stock's predictability and consistency is likely a key reason Buffett likes the stock and why it's been in Berkshire's portfolio since 2011: In each of the past three years, DaVita's posted a profit and its operating margin has been 13% or higher. The company's sales have also been within a narrow range of $10.9 billion to $11.4 billion. The stock is a solid value buy, trading at around 16 times its earnings. Berkshire currently owns a 30% stake in the healthcare company. 

2. Apple

Apple (AAPL 2.28%) is a solid investment and one of Berkshire's top holdings. Buffett's given the company high praise, saying the tech stock is "probably the best business I know in the world." Like DaVita, shares of Apple are up around 45% in the past year. Investors also earn a modest but growing dividend yield of 1%. But that doesn't mean that the company is giving up on increasing its sales.

The tech giant recently launched the iPhone SE, which at $399 is a budget-friendly smartphone that's earned rave reviews early on. It's perfect timing for the cheaper phone, which can be an attractive upgrade option for consumers who aren't willing to shell out hundreds more for a top-of-the-line iPhone, especially with so many people unemployed or underemployed as a result of COVID-19.

Apple's coming off an underwhelming year in which both its revenue and profit were down from the prior year. And unfortunately, 2020 might not be much better given that the economy is struggling. But over the long term, the stock is one of the more stable ones that investors can put in their portfolios because it's a safe bet to recover from this downturn.

As Apple moves more toward services, including Apple Music, Apple Pay, the iCloud, and the Apple TV+ streaming service that it launched in November 2019, it'll be easier for the company to achieve incremental revenue growth as its subscriber base grows. Last fiscal year, service sales grew by 16% from the previous fiscal year, and over two years, they're up by 42%. In fiscal 2019, they accounted for 18% of Apple's total sales compared to 15% in the previous year.

Buffett first invested in Apple in 2016 and Berkshire currently owns a 5.7% stake of the popular tech company. 

3. Procter & Gamble

Procter & Gamble (PG 0.61%) is another Buffett stock that's done well over the past year. It's up 10%. While its returns pale in comparison to Apple's and DaVita's, it offers investors something those other stocks don't and that Buffett definitely loves: an above-average dividend with tremendous growth. On April 14, Procter & Gamble increased its dividend for the 64th year in a row. The Dividend King now pays shareholders a quarterly payout of $0.7907, which is a 6% increase from the $0.7459 that it was paying previously. Investors now enjoy an annual dividend yield of 2.7%. The average S&P 500 stock pays around 2% per year in dividends.

Another reason Procter & Gamble is a great buy is the company's wide range of personal care and baby care products and many other day-to-day essentials. Procter & Gamble released its third-quarter results on April 17 and noted that it's seen strong demand for its products in North America and Europe as a result of the pandemic. Its organic shipment volume was up by 6% from the prior-year quarter.

Berkshire's portfolio first included Procter & Gamble in 2005 back when the company acquired another Buffett stock -- Gillette for $57 billion. Currently, Berkshire owns $37 million worth of Procter & Gamble stock, making it one of Buffett's smallest holdings. 

Which is the best stock to buy today?

All three stocks can be great options for investors today. If your focus is on dividends, Procter & Gamble is the easy choice. If it's growth you're after, it might depend on what your portfolio looks like. If you already have exposure to tech stocks, DaVita provides more diversification than Apple while still offering decent growth prospects. Otherwise, Apple should be your default choice, because it offers both dividends and plenty of growth potential.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$168.69 (2.28%) $3.77
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$145.81 (0.61%) $0.88
DaVita Inc. Stock Quote
DaVita Inc.
$90.90 (1.81%) $1.62
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$442,030.00 (0.45%) $1,972.25
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$294.31 (0.53%) $1.54

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

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