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3 Top Warren Buffett Stocks to Buy in October

By Keith Speights – Oct 10, 2021 at 5:52AM

Key Points

  • Apple should enjoy solid commercial success with its iPhone 13 launch.
  • Merck has multiple potential catalysts on the way.
  • RH is likely to continue its winning ways with several tailwinds at its back.

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Two of the three haven't been big winners for Buffett so far this year. But that could soon change.

Warren Buffett is once again doing what he's done throughout much of his career -- beating the market. Shares of his Berkshire Hathaway (BRK.A -1.07%) (BRK.B -1.17%) are handily outperforming the S&P 500 index so far this year. Berkshire's lead has widened with the market going wobbly in recent days.

You could copy the success achieved by the Oracle of Omaha by simply buying shares of Berkshire itself. Alternatively, you could put money into some of the stocks in Berkshire's portfolio that have solid prospects. If the latter strategy is more up your alley, here are three top Buffett stocks to buy in October.

Warren Buffett with people in the background.

Image source: The Motley Fool.

1. Apple

Apple (AAPL -0.35%) ranks as the biggest holding among the stocks in Berkshire's portfolio. However, the tech giant hasn't been one of Buffett's biggest winners this year. Apple's gains have lagged well behind those of the S&P 500.

I think that lackluster performance should only be temporary. Apple typically enjoys a sales boost in the fourth quarter as it rolls out new iPhone versions. And while there aren't any spectacular new features in the iPhone 13, it should still be a resounding commercial success.

Some believe that the smartphone market can't be the growth driver in the future that it's been for Apple in the past. The main worry is that there will be fewer reasons to upgrade with only incremental improvements in capabilities. However, my take is that new augmented reality (AR) features will be on the way that erase those concerns.

Meanwhile, Apple's ecosystem continues to expand. Even the much-maligned Apple TV+ is showing potential with hit shows such as Ted Lasso that could deliver subscriber growth. I predict that Apple will remain Buffett's favorite stock for years to come.

2. Merck

Merck (MRK -0.73%) stands out as another stock that hasn't boosted Berkshire's fortunes very much this year. But the big drugmaker should have plenty of good news on the way.

The company recently reported exceptional results for its COVID-19 pill. Merck's antiviral therapy cut hospitalizations or death by 50% compared to placebo. A U.S. Emergency Use Authorization (EUA) is likely on the way soon along with authorizations in other key markets.

Cancer drug Keytruda continues to serve as Merck's primary growth driver. The immunotherapy could soon pick up an additional important approval as a first-line treatment for metastatic triple-negative breast cancer after Merck reported positive late-stage results. 

Merck should also bolster its pipeline in the near future with its pending acquisition of Acceleron Pharma (XLRN). The company is spending $11.5 billion to snag Acceleron's promising late-stage pulmonary arterial hypertension candidate sotatercept. Acceleron also received substantial royalties from Bristol Myers Squibb's sales of Reblozyl. Merck expects the acquisition to close in the fourth quarter of 2021. 

3. RH

Unlike Apple and Merck, RH (RH -1.46%) has delivered a huge gain so far this year. Shares of the upscale home furnishings company have soared more than 40% year to date, making it one of Buffett's best-performing stocks of 2021 thus far.

Can RH's hot streak continue? I think so. There are several factors driving demand for home furnishings. Interest rates remain very low historically. Consumers are increasingly purchasing larger suburban homes and second homes. In addition, the potential for vaccines and new therapies to help end the COVID-19 pandemic could spark more spending.

RH also has big plans in store for 2022. The company is launching RH England in the spring. It expects to open RH Paris next fall. More expansion in Europe will be on the way in the future. 

Sure, the stock sports a higher valuation than Buffett would normally prefer with shares trading at nearly 30 times expected earnings. But RH should have strong growth prospects over the coming years. I look for it to continue making Buffett even wealthier than he already is.

Keith Speights owns shares of Apple, Berkshire Hathaway (B shares), and Bristol Myers Squibb. The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), and Bristol Myers Squibb. The Motley Fool recommends RH and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Rh Stock Quote
$282.64 (-1.46%) $-4.19
Berkshire Hathaway Stock Quote
Berkshire Hathaway
$475,145.00 (-1.07%) $-5,135.00
Berkshire Hathaway Stock Quote
Berkshire Hathaway
$314.87 (-1.17%) $-3.73
Apple Stock Quote
$147.52 (-0.35%) $0.51
Merck & Stock Quote
Merck &
$109.31 (-0.73%) $0.81
Bristol-Myers Squibb Stock Quote
Bristol-Myers Squibb
$80.46 (0.22%) $0.18
Acceleron Pharma Stock Quote
Acceleron Pharma

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

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