Warren Buffett is well known for his investing savvy. He's a particular favorite among long-term buy-and-hold investors who appreciate great companies with stocks at good prices.
Yet as much as Buffett's favorite holding period is forever, the portfolio at Berkshire Hathaway (BRK.A -0.00%) (BRK.B -0.11%) that the Oracle of Omaha runs has seen a lot of turnover in 2020. Airline stocks got the boot early this year, as Buffett concluded that the coronavirus pandemic had fundamentally and permanently changed the dynamics for passenger carriers. Berkshire has also made big shifts in its bank stock holdings, selling off stakes in many Wall Street banks while building up its position in favored Bank of America.
Selling went well beyond what anyone expected. Buffett even jettisoned long-held Costco Wholesale and also dramatically reduced his somewhat surprising stake in mining giant Barrick Gold.
On the buy side, we've seen a lot of new companies enter the field. Pharmaceutical stocks won big in the third quarter, as Buffett bought shares of Merck (MRK 1.55%), AbbVie (ABBV 0.52%), and Bristol Myers Squibb (BMY -0.24%). The Berkshire CEO even played the IPO game by participating in the initial offering of Snowflake (SNOW 1.25%) shares, jumping into the SaaS stock realm.
As a Buffett fan, I don't think all this activity tells me much about what stocks I should buy for my own individual portfolio. I see only one Buffett stock with real appeal for devotees of the investing legend.
Warren Buffett. Image source: The Motley Fool.
This is the Buffett stock to buy
If you're looking for the true Buffett stock to put in your portfolio, the best choice is Berkshire Hathaway itself. There are two reasons why: One is fundamental, and the other is based more on its stock price.
The fundamental reason why Berkshire Hathaway is a strong investment has to do with its core insurance business model. The Buffett-led company has money to invest in the stocks that Berkshire picks because the insurance unit collects premiums upfront and doesn't have to pay claims until later -- much later, in some lines of insurance policies. As Berkshire's insurance businesses grow, the capacity to expand its portfolio also grows.
Meanwhile, Berkshire Hathaway's stock price remains attractive, even after a significant rally of nearly 35% since March. In the past three years, Berkshire shares are up only 16%, compared to S&P 500 returns of close to 50% over the same timeframe.
Why buy a poor-performing stock?
Some Buffett detractors argue that the very thing that's made Berkshire shares value-priced is the reason not to buy the stock. Buffett's lost his touch, they argue. The pop in airline stocks right after Berkshire sold them off is just the most recent example critics cite.
I've been an investor long enough to remember the last time the stock market community counted Buffett out. During the late 1990s, Buffett refused to jump into the tech boom. Berkshire shares massively underperformed. But in the tech bear market that followed, Berkshire gained ground while those tech giants plunged.
I'm not saying the current boom in high-growth digital disruptors will inevitably sink the market. I'm convinced, though, that investing styles come in and out of fashion. At some point -- likely when momentum plays have burned the maximum number of investors possible -- the Buffett approach will come back into vogue.
Berkshire itself sees the value in its stock, having dramatically ramped up its share repurchases in 2020. Buffett doesn't put much importance on book value anymore, but with the stock at 1.3 times book even after its recent run-up, few would argue that Berkshire is overpriced.
Add some Buffett exposure to your portfolio
Warren Buffett is 90, but the investments he's put together will continue to generate solid returns long after he stops leading the company he brought to prominence. Whether you want to add a value favorite to counterbalance growth stocks elsewhere or just want Buffett on your side, Berkshire Hathaway is still a Buffett stock worth buying.
