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3 Buffett Stocks to Buy Hand Over Fist in June

By Sean Williams - Jun 9, 2021 at 6:06AM

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The Oracle of Omaha has a knack for owning great companies that can make investors rich.

When Berkshire Hathaway (BRK.A 1.15%) (BRK.B 1.11%) CEO Warren Buffett speaks his mind, Wall Street and investors pay close attention. That's because the Oracle of Omaha, as he's come to be known, has an incredible track record when it comes to making money.

Since taking over at Berkshire Hathaway in the mid-1960s, Buffett has led his company's stock to an average annual return of 20% -- and this is without paying a penny in dividends. In aggregate, Berkshire Hathaway's stock is up more 2,800,000% in 56 years. Success of this magnitude is precisely why investors ride the Oracle of Omaha's coattails into great investments.

Right now, Berkshire Hathaway owns stakes in four dozen securities (46 stocks and two exchange-traded funds). Of these holdings, three stand out as stocks you should buy hand over fist in June.

A smiling Warren Buffett at his company's annual shareholder meeting.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

Bristol Myers Squibb

One of Warren Buffett's keys to success is unearthing plain-as-day value stocks. Pharmaceutical stock Bristol Myers Squibb (BMY 1.28%) is a perfect example of a great company that's simply valued far too modestly for its growth and profit potential.

The Bristol Myers story is a perfect mix of organic and inorganic growth. In terms of building from the ground up, Bristol Myers and development partner Pfizer have grown Eliquis into the world's leading oral anticoagulant. Sales of Eliquis look to be on track to surpass $10 billion this year. 

There's also cancer immunotherapy Opdivo, which generated $7 billion in sales last year and is being examined in dozens of clinical trials. Even if only a few of these studies proves successful, label expansion opportunities, increased duration of use, improved cancer-screening diagnostics, and strong pricing power could allow Opdivo to eventually become a $10 billion a year oncology drug.

Beyond internal development, Bristol Myers Squibb is reaping the rewards of its November 2019 purchase of oncology and immunology drug developer Celgene. The prize of this deal was bringing multiple myeloma drug Revlimid into the fold. Revlimid has grown sales annually by a double-digit percentage for more than a decade, and is protected against a full onslaught of generic competition until the end of January 2026.

Bristol Myers Squibb looks to be capable of high-margin mid-single-digit sales growth through 2025, yet is valued at only 8 times Wall Street's consensus forward-year profit forecast. That's incredibly inexpensive, especially considering that you'd be getting a 3% dividend yield to boot.

A lab technician examining a prescription capsule, while another takes notes on a clipboard.

Image source: Getty Images.

Teva Pharmaceutical Industries

If you think Bristol Myers Squibb is a deep-discount value stock, wait till you get a closer look at brand-name and generic-drug producer Teva Pharmaceutical Industries (TEVA 1.89%).

Generally, stocks are cheap for a reason. In Teva's case, it's because the company has contended with a multitude of problems over the past five years. It paid far too much to acquire generic-drug producer Actavis in 2016, thereby taking on too much debt, and has faced all sorts of litigation, ranging from its role in the opioid crisis to whether or not it fixed prices for select generic drugs. None of this is good news; but it's also no longer as bad as it sounds.

Since taking the helm in late 2017, CEO Kare Schultz has worked wonders. That's because Schultz is a turnaround specialist who's done this once before at Danish pharmaceutical company Lundbeck. In his more than three years with Teva, Schultz has reduced the company's net debt from north of $34 billion to less than $24 billion, and he has the company on track to hit $15 billion in net debt by the end of 2023. He's also shaved $3 billion off of Teva's annual operating expenses and sold off a handful of non-core assets.

The key for Schultz is going to be if he can broker a settlement with U.S. regulators concerning opioid and generic price-fixing litigation. Teva can ill-afford a large cash settlement at this stage of its turnaround. If Schultz is able to work out a deal with lawmakers involving the gifting of generic medicines over the next decade, the gray cloud shrouding Teva would quickly disappear.

Although Teva still has work to do, it's generating $2 billion or more annually in operating cash flow, and it looks downright cheap at 4 times Wall Street's projected earnings per share for 2021.

A smiling woman holding a credit card in her left hand while using her laptop to make an online purchase.

Image source: Getty Images.

Amazon

For you growth stock investors, the Buffett stock to buy hand over fist in June is e-commerce giant Amazon (AMZN 0.84%).

I know what you're likely thinking: "Amazon has a $1.6 trillion market cap. What upside can it really offer?" The answer to that question is significant upside, especially if you pay close attention to its industry-level dominance and its operating cash flow growth.

Amazon is best-known for its online marketplace. According to an April report from eMarketer, Amazon controls approximately $0.40 of every $1 spent online in the United States. Its utter dominance of the retail space has helped it sign up more than 200 million people worldwide to a Prime membership. This is important for two reasons. First, the fees collected from Prime members helps Amazon to undercut brick-and-mortar retailers on price. And second, it gives Prime members extra incentive to spend more.

Amazon has also become a force to be reckoned with in the cloud infrastructure space. Amazon Web Service (AWS) holds about a third of all cloud infrastructure market share, according to a report from technology analysis company Canalys. What's worthwhile to note is that cloud service margins are considerably higher than retail margins. Thus, as AWS grows into a larger percentage of total sales, Amazon's operating cash flow should grow at a much faster pace than revenue

Remember how I said Amazon has significant upside? Throughout the previous decade, investors valued the company at a multiple of 23 to 37 times its cash flow. If this same range were to hold by mid-decade, Amazon's share price could double or triple from its current level. That's why it's a hand over fist Buffett stock to buy in June.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors.

Sean Williams owns shares of Amazon and Teva Pharmaceutical Industries. The Motley Fool owns shares of and recommends Amazon, Berkshire Hathaway (B shares), and Bristol Myers Squibb. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2022 $1,940 calls on Amazon, short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$141.82 (0.84%) $1.18
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$450,414.00 (1.15%) $5,112.01
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$299.75 (1.11%) $3.28
Teva Pharmaceutical Industries Limited Stock Quote
Teva Pharmaceutical Industries Limited
TEVA
$11.30 (1.89%) $0.21
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
BMY
$75.41 (1.28%) $0.95

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

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