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3 Warren Buffett Stocks to Buy in September

By Jason Hawthorne – Updated Sep 8, 2021 at 9:26AM

Key Points

  • The e-commerce king is still expanding at an impressive pace.
  • A large drugmaker sheds lagging units to focus on growth.
  • Those wireless, cable, and internet bills are going into shareholders’ pockets.

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Don't be surprised if he buys more, too.

When looking for stocks to buy, peering into the portfolios of well-known investors can be a good place to start. Perhaps the best-known is Warren Buffett, CEO of Berkshire Hathaway (BRK.A -0.07%) (BRK.B -0.07%). While many know of his large holdings, the portfolio contains at least 40 stocks.

Several of the less-publicized look to be great buys this month. Amazon (AMZN 1.75%), Merck (MRK 0.95%), and Verizon (VZ 0.47%) aren't the stocks most people associate with the notoriously conservative nonagenarian. But they could offer market-beating returns for those looking to follow in the footsteps of the oracle.

A masked customer opens her door to a masked deliveryman with a box.

Image source: Getty Images.

1. Amazon

You read that right. As of June, Berkshire Hathaway owned almost $1.9 billion worth of the stock. After saying he was an "idiot" for not buying shares earlier, one of his two lieutenants took care of the chore in 2019. 

When a company is as successful as Amazon, it can often get overlooked. It seems counterintuitive that a company that has grown so large could keep getting bigger. But it does. In the past five years, sales, operating cash flow, and the stock price are all meaningfully higher. It has resulted in a market cap of nearly $1.8 trillion.

Metric 2016 Trailing 12 Months Change
Revenue $136.0 billion $443.3 billion 226%
Operating cash flow $16.4 billion $59.3 billion 261%
Stock price $750 $3,519 369%

Data source: Morningstar.

The company continues to gobble up share of the e-commerce market. In the first six months of 2021, Amazon generated $221.6 billion in sales. That was 35% more than the same period of 2020. In a move that caught Wall Street off guard, management projected third quarter year-over-year growth of only between 10% and 16%. But that is lapping a quarter when Amazon grew 37% over 2019.

On top of the massive retail operation, Amazon Web Services (AWS) is the true profit driver for the company. In the most recent quarter, it accounted for 13% of sales and 54% of operating income. As far as the legacy business, it benefited massively from the pandemic.

Online commerce in the U.S. grew 44% last year. That was three times the growth rate from 2019. During the year, Amazon accounted for nearly one-third of all e-commerce sales. With growth like that, it's understandable if the company's takeover of the retail landscape slows a bit in 2021. Still, it's a company with an ever-increasing mix of recurring household purchases and impulse buys. Add in a fast growing, profitable technology business, and Amazon covers a lot of territory in creating a diversified portfolio. In that way, it's a little like Berkshire Hathaway itself.

2. Merck

Buffett owns several of the large pharmaceutical stocks, including Merck. It's a small position of less than $1 billion. Still, the healthcare giant could offer a compelling value right now. It has six drugs that generated more than $1 billion in sales last year and houses a nearly $4.7 billion animal health unit.

The star is Keytruda, a treatment for various forms of cancer. It brought in $14.4 billion in 2020 and sales for the first six months of 2021 were up 21% year over year. Beyond oncology, the company also has popular drugs in vaccines, immunology, cardiovascular, and diabetes treatment.

After spinning off its slow-growing women's health and biosimilars business into Organon (OGN 1.81%), it expects full-year sales growth of between 12% and 14% to $46.9 billion at the midpoint. That's a welcome change for shareholders who have endured a decade where the top line was flat between 2011 and 2020. In spite of the optimism, shares of the stock trade near the lowest multiple of both trailing and forward sales in years.

MRK PS Ratio Chart

MRK PS Ratio data by YCharts

With a low valuation, a fresh focus on faster-growing segments, and a 3.4% dividend, this Berkshire Hathaway holding is worth adding to your portfolio this month.

3. Verizon

Another holding trading near multiyear lows of sales -- not counting a moment during the pandemic-induced sell-off of March 2020 -- is Verizon. Buffett loves stocks with predictable revenue and pricing power. Verizon has both in spades. The communications company is a necessary expense in many households for its wireless service and high-speed Fios cable offering. Despite the predictability of its business, Wall Street has soured on the shares as evidenced by the low multiple of both sales and earnings.

VZ PS Ratio Chart

VZ PS Ratio data by YCharts

Growth has been anemic in recent years, with revenue in the trailing 12 months only slightly ahead of where it stood in 2015. That said, investors in Verizon probably aren't buying shares for fast growth. They're buying it for income. The company pays out a 4.6% dividend and recently raised the payout for the 15th consecutive year. 

Investors looking for a stable company trading cheap should consider Verizon this month. It may not provide life-changing returns, but its low valuation and hefty dividend offer a margin of safety. That might come in handy in an environment in which more and more pundits are calling for a rocky road ahead in the stock market.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jason Hawthorne has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Berkshire Hathaway (B shares). The Motley Fool recommends Verizon Communications and 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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