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5 Warren Buffett Stocks to Buy Hand Over Fist for the Fourth Quarter

By Sean Williams – Oct 8, 2021 at 6:06AM

Key Points

  • Buffett has delivered an average annual return of 20% for his company's shareholders, dating back to 1965.
  • Berkshire Hathaway's investment portfolio is packed with growth and value stocks that are ripe for the picking.

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Riding the Oracle of Omaha's coattails has long been a moneymaking strategy.

If you've ever wondered why Wall Street and retail investors pay such close attention to billionaire Warren Buffett, it's because he has an impeccable moneymaking track record.

Since taking over as CEO of Berkshire Hathaway (BRK.A 0.26%) (BRK.B 0.06%) in 1965, the Oracle of Omaha has overseen the creation of nearly $600 billion in market value for shareholders, and delivered an average annual return of 20% for the company's Class A shares. Including year-to-date gains, we're talking about an increase of approximately 3,300,000%! Riding Buffett's coattails has long been a profitable venture.

As we push into the fourth quarter, five Warren Buffett stocks look particularly attractive and can confidently be bought hand over fist by investors.

Warren Buffett at his company's annual shareholder meeting.

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

General Motors

One of the best deals long-term investors are going to find in Berkshire Hathaway's portfolio at the moment is auto stock General Motors (GM 0.63%).

Like most automakers, GM has had to contend with two big hurdles over the past 18 months. First, the pandemic caused consumers to scale back on major purchases, which reduced short-term auto sales at the dealership level. And second, supply chain issues in the wake of the pandemic have caused GM and other automakers to lower or halt production on certain models. While these concerns are tangible, they're not a long-term worry. This means whatever short-term pain General Motors is experiencing is an opportunity for patient investors to pounce.

The real excitement for GM has to do with the electrification of consumer and enterprise auto fleets. In an effort to combat climate change, we're liable to see a multi-decade vehicle replacement cycle that almost exclusively emphasizes electric-powered vehicles. For its part, General Motors is investing $35 billion in electric vehicle (EVs), autonomous vehicle, and battery research through 2025. By mid-decade, the company expects to have launched 30 new EVs globally. 

While General Motors has long been a key player in its home market, the U.S., it's no slouch in the world's biggest auto market, either. GM is on pace to sell about 3 million vehicles in China this year (based on sales through the first six months), and has the deep pockets and infrastructure capable of gobbling up EV market share in the world's second-largest economy by gross domestic product.

Long story short, a forward price-to-earnings (P/E) ratio of 8 no longer makes sense for a company whose growth rate could sustainably pick up for decades.

Three lab researchers examining vials of liquid and making notes.

Image source: Getty Images.

Bristol Myers Squibb

Value stocks have always been a big theme for Warren Buffett, and that's exactly what investors are going to get with pharmaceutical stock Bristol Myers Squibb (BMY -0.06%).

Like most healthcare stocks, Bristol Myers' products are highly defensive. This is to say that a stock market decline or even an economic contraction won't adversely affect demand for its pharmaceuticals. Since we don't get to choose when we get sick or what ailment(s) we develop, drugmakers like Bristol Myers usually offer highly predictable cash flow.

One company-specific reason investors can buy this Warren Buffett stock hand over fist for the fourth quarter is its organic growth opportunity. Eliquis, which was developed with Pfizer, has become the most-popular oral anticoagulant in the world and should bring in more than $10 billion in sales for Bristol Myers Squibb this year. There's also cancer immunotherapy Opdivo, which I believe offers even more long-term opportunity. Although Opdivo flamed out in advanced lung cancer trials a few years back, it's being examined in dozens of clinical trials and has a very good chance to generate billions in added annual revenue via label expansion opportunities.

Bristol Myers' acquisition of cancer and immunology drugmaker Celgene in late 2019 gets high marks, too. Buying Celgene brought multiple myeloma drug Revlimid into Bristol's portfolio. Revlimid brought in over $12 billion in sales last year, and has a track record of maintaining double-digit annual sales growth. This key therapy is protected from an onslaught of generic competition until the end of January 2026.

There aren't many better values right now than Bristol Myers Squibb at less than 8 times Wall Street's forward-year earnings forecast.

A generic drug tablet with a dollar sign stamped into it.

Image source: Getty Images.

Teva Pharmaceutical Industries

In terms of valuation, no Warren Buffett stock is cheaper than brand-name and generic-drug company Teva Pharmaceutical Industries (TEVA -1.54%). Shares of the company can be scooped up by investors right now for under 4 times forecasted earnings per share in 2021.

How does a profitable company in a defensive sector get pushed to such a low multiple? The truth is Teva has had a lot of things go wrong over the past five years. It overpaid for generic-drug company Actavis, which ballooned its debt, and it's found itself in the crosshairs of litigation on more than one occasion. In fact, most U.S. states are litigating against Teva regarding its role in opioid crisis. The uncertainty surrounding these cases is primarily responsible for keeping Teva's valuation in check.

Thankfully, Teva has a secret weapon: CEO Kare Schultz. Schultz was hired in late 2017 as a turnaround specialist, and through nearly four years with the company he's worked wonders. Billions in annual operating expenses have been shed, and the company's net debt has shrunk from more than $34 billion when he took over to less than $24 billion. At the current trajectory, Teva could have around $15 billion in net debt by the end of 2023.

What's more, Schultz has the acumen to work out settlements for Teva's remaining legal issues. Considering Teva's debt position, Schultz is angling to offer free or discounted products, rather than pay cash. With most other drugmakers settling their opioid lawsuits, it seems to be just a matter of time before this gray cloud clears up and Teva returns to a fair valuation multiple.

A person holding their credit card above a portable credit card reader in a cafe.

Image source: Getty Images.

Visa and Mastercard

The final two Warren Buffett stocks to buy hand over fist for the fourth quarter are being lumped together for good reason: They're chief competitors and two of the most dominant companies in the payment-processing landscape, Visa (V 0.62%) and Mastercard (MA 1.08%).

The reason Visa and Mastercard have performed so well for so long is because they're cyclically tied companies. Although economic contractions and recessions are inevitable, they usually only last for a few months to a couple of quarters. Comparatively, periods of economic expansion last years. Payment processors Visa and Mastercard are simply benefiting from these disproportionately longer periods of expansion.

This dynamic duo also outperforms because they strictly stick to payment processing and aren't direct lenders. While it could be argued that they're giving up the opportunity to generate interest income and fees during these long-winded expansions, they're also shielded from a rise in credit delinquencies during economic contractions and recessions. Not having to set aside capital to cover credit delinquencies is a big reason why their profit margins remain so consistently high.

There's also a long runway for organic expansion with both companies. Most global transactions are still be conducted in cash, and a number of regions are remain underbanked (e.g., Southeastern Asia, the Middle East, and Africa). Pushing their payment infrastructure into these regions should allow Visa and Mastercard to sustain high single-digit sales growth for a long time to come.

Sean Williams owns shares of Mastercard and Teva Pharmaceutical Industries. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Bristol Myers Squibb, Mastercard, and Visa. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), 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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