Warren Buffett wasn't nearly as busy buying stocks in 2020 as I thought he'd be. After the market meltdown earlier this year, I fully expected the legendary investor to use a lot of Berkshire Hathaway's (BRK.A 1.86%) (BRK.B 1.47%) huge cash stockpile to buy attractive stocks at a discounted price. But he didn't.
However, Buffett and his investing lieutenants did make some purchases last year. Here are what I think were Warren Buffett's three best stock picks in 2020.
1. Berkshire Hathaway
There's no question as to what Buffett's favorite stock is. Under his direction, Berkshire bought back nearly $9.26 billion of its own shares in July, August, and September.
My Motley Fool colleague Dan Caplinger recently wrote that Berkshire Hathaway is the only Warren Buffett stock worth buying. I wouldn't go quite that far, but I fully agree with Dan's bullishness about Berkshire.
At its core, Berkshire is an insurance company. The premium revenue generated by its insurance business enables Buffett and his team to invest in other attractive companies. Sometimes they buy an entire company; other times they buy a stake in a publicly traded company. This business model has worked exceptionally well over the long term: Berkshire has more than doubled the average return of the S&P 500 index over the last 55 years.
The only reason why Buffett would repurchase so much Berkshire stock is if he and his longtime business partner Charlie Munger believe that it's attractively priced. My view is that was definitely true throughout 2020 and is still the case.
2. Bristol Myers Squibb
During the third quarter, Buffett went on a shopping spree of sorts. Berkshire added several big pharma stocks to its portfolio. I think the most promising of these is Bristol Myers Squibb (BMY -0.76%).
Unlike most stocks on the market right now, BMS is dirt cheap. Its shares trade at only eight times expected earnings. I suspect Buffett had a smile on his face when he pulled the trigger on the BMS purchase.
But BMS isn't just a value stock; it's also a growth stock. Wall Street analysts project the drugmaker will generate average annual earnings growth of more than 21% over the next five years. Sure, analysts can be overly optimistic. However, I don't think they are in this case.
BMS' lineup is loaded with drugs delivering strong sales growth. These include blockbusters such as Eliquis, Revlimid, and Pomalyst as well as rising stars like Reblozyl and Zeposia that could become blockbusters. With a solid dividend yield of 3.2% thrown into the mix, my view is that Bristol Myers Squibb will be a big winner for Buffett over the next decade.
3. Bank of America
Buffett has been a fan of bank stocks for years. Despite a major sell-off with most of these stocks in 2020, though, the only one that he bought more of was Bank of America (BAC 2.42%).
Why did the Oracle of Omaha limit his banking focus only to this one stock? Buffett likes to invest in well-run companies. And Bank of America is arguably the best-managed bank around.
The financial services giant is in a much better position to endure an economic downturn than it was during the Great Recession. It's also set to prosper if the economy rebounds strongly thanks in part to its investments in online technology.
I think that Buffett's bet on Bank of America will pay off. It ranks below Berkshire and Bristol Myers Squibb, in my view, but is still one of the billionaire's best picks last year.