Warren Buffett has gained international recognition for his ability to beat the stock market by focusing on fundamentals. Widely considered the greatest investor of all time, the Oracle of Omaha is still chock-full of sound advice and witty jokes, but his investment performance has declined. In fact, Buffett-led Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) has produced a total return of just 188% over the last 10 years, underperforming the S&P 500's 264% total return.

With that in mind, we asked some of our contributors which companies Warren Buffett should consider adding to his portfolio in 2021. They came up with Honeywell International (NYSE:HON), 3M (NYSE:MMM), and Emerson Electric (NYSE:EMR).

A graphic of a person holding a lightbulb with a brain-shaped filament representing the "0" in "2021."

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A distinguished past and an equally bright future

Daniel Foelber (Honeywell International): Berkshire Hathaway stock doesn't pay a dividend, and that's one reason it has underperformed the market of late. Ignoring dividends, shares of Berkshire have essentially matched the broader market -- which is disappointing compared to Buffett's track record but not necessarily terrible. Given Buffett's age, declining performance, and low-growth portfolio, investors are better off selecting companies with "Buffett-like" characteristics that pay dividends. Honeywell fits that mold nicely.

HON Total Return Level Chart

HON Total Return Level data by YCharts

The company is an industry leader across several different business lines. Despite rocky 2020 earnings, Honeywell was able to generate enough free cash flow to cover its dividend payment. It was also able to maintain its strong balance sheet. One of Honeywell's biggest advantages is its low debt. In fact, Honeywell has one of the least leveraged balance sheets of the large industrials -- sporting a financial debt-to-equity ratio of just 0.15. The company's financial health is a key reason it was able to make timely acquisitions in the third quarter and fourth quarter

One of the main qualities Buffett looks for is earnings growth. Honeywell's combination of established business lines and investments in the industrial internet of things (IIOT) position it well for the next 100 years. IIOT is centered around leveraging data and increasing connectivity to improve asset performance. As the maker of industrial components and systems, Honeywell has a clear advantage in this emerging field.

In terms of track record, Honeywell has that in spades. The company has beaten the market over the past year, three years, five years, and 10 years. It has also increased its dividend for 10 consecutive years. With a yield of 1.8% and plenty of dividend and earnings growth on the horizon, Honeywell has the makings of an excellent stock to buy in 2021.

3M is a turnaround play

Lee Samaha (3M): Buffett is known for buying cash-generative companies that have the ability to improve profitability, but not necessarily from increasing revenue. That's exactly the case with 3M right now. Nobody expects the company will turn into a growth machine overnight, but what they do expect is an improvement in operational performance from 3M.

There are three bits of good news on that front. First, CEO Mike Roman has been actively restructuring the company through a mixture of cutting costs, changing how the company is run, and making acquisitions and divestments in order to improve the underperforming healthcare segment. 

Second, 3M continues to generate buckets of cash with $6.7 billion in adjusted free cash flow in 2020. That will give Roman plenty of financial firepower with which to take further restructuring actions and/or make acquisitions.

MMM Free Cash Flow Chart

Data by YCharts

Third, 3M has significant exposure to the automotive industry, and an improvement in vehicle production in 2021 is likely to feed through into improved prospects at the company.

All told, investors in 3M have reason to believe that its operating performance will improve in the coming years, and that's something a Buffett-type investor will welcome.

A royal dividend stock for the Berkshire Hathaway portfolio

Scott Levine (Emerson Electric): Although the drama around Reddit discussion boards has skyrocketed in popularity among topics investors are discussing around the water cooler, a more time-honored pastime is bantering about which stocks would fit well among Berkshire Hathaway's holdings -- stocks like Emerson Electric. A global leader in providing solutions for various markets including commercial, residential, and industrial, Emerson Electric extends its reach into a wide range of industries from water and wastewater services to food and beverage.

One obvious reason Emerson should be on Buffett's radar is its long-standing commitment to its dividend. While Berkshire Hathaway doesn't reward shareholders with a dividend, the Oracle of Omaha certainly is attracted to those stocks that provide some yield, making no secret about his affinity for them. Providing investors with an attractive 2.4% forward dividend yield, Emerson Electric's stock is in a royal class among dividend darlings. A Dividend King, Emerson Electric has raised its distribution for more than 50 consecutive years. And it's not as if management is jeopardizing the company's financial health in order to please investors with a high distribution. Over the past 10 years, Emerson Electric has averaged a payout ratio of only 59%.

Besides offering shareholders passive income, management's skill at generating profits represents another compelling reason Warren Buffett should consider a stake in the company. In fact, a company's ability to generate a strong return on equity (ROE) is high on Buffett's list of criteria for potential acquisitions.

EMR Return on Equity Chart

EMR Return on Equity data by YCharts.

Compared to its peers based on market cap, Eaton Corporation and Roper Technologies, Emerson Electric has consistently demonstrated the ability to generate profits from equity at a superior rate. When it comes to the critical ability to trust management's expertise at taking shareholder equity and growing the bottom line, investors can trust the C-suite at Emerson Electric.

Of course, no conversation about potential Buffett picks would be complete without a consideration of the price tags. In the case of Emerson Electric, it appears that the stock is currently on sale. Trading at 14.8 times operating cash flow, shares are valued at a discount to their five-year average multiple of 15.5. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.