Warren Buffett is one of the greatest investors of our time. He parlayed a stake in a struggling textile manufacturer into an insurance powerhouse with a subsidiary list that makes almost an entire economy on its own. As a result of his long-term success, when he takes a position in a publicly traded stock, investors take notice.
That raises a key question -- just because Buffett owns a stock, does that mean that you should go out and buy it yourself? Maybe -- his reputation is well deserved, after all. But then again, maybe not. In reality, it depends on your needs, the rest of your portfolio, and the risks you're willing to take. Read on to find out about a handful of stocks that Warren Buffett owns and determine for yourself whether they're also right for you to own.
No. 1: You have to eat, right?
Buffett's company owns nearly 61.8 million shares of food retailing titan Kroger ( KR 3.25% ), which remains the largest supermarket company in America. The challenges, costs, and quality concerns associated with shipping perishable food and produce make the supermarket format more resilient than most other retailers are to online competition. That makes Kroger's scale as the largest supermarket chain a formidable moat that gives it the staying power that Buffett likes to see in his holdings.
Kroger's anticipated earnings growth of around 7% annualized over the next few years isn't a lightning-quick rate, but it does at least exceed the elevated inflation rate we've seen recently. With food providing a large part of Kroger's revenue and people pretty much needing to eat no matter what, Kroger is well positioned to navigate continued inflation.
In addition, Kroger has a fairly decent tradition of sharing the benefits of its success with its shareholders. Its dividend has regularly increased since the company resumed paying them in 2006. That gives investors a decent path to the possibility of increasing their own income, without needing to sell their shares.
That combination of a decent moat, reasonable growth rate, and a generally rising dividend match many of the key characteristics that Buffett tends to invest in when he buys stocks. They also provide a reasonable case for why Kroger may be worth owning by us mere mortal investors as well.
No. 2: When people spend more, this company makes more
American Express ( AXP 2.33% ) holds a special place in Buffett's portfolio. He bought a huge stake in the business way back in the 1960s, when a significant lending scandal knocked its business for a loop. This is one of his largest examples of buying a solid long-term business during a rough spot that turned out to be temporary but offered a bargain price for its shares.
A large chunk of American Express' money comes from the merchant fees it charges when consumers swipe their cards at vendors around the world. Those fees are generally expressed as a percentage of the swipe amount, which means as prices rise, so does the money that American Express collects. That gives it an incredible ability to organically keep up with inflation over time.
The company trades at around 20 times its trailing earnings, which is a bit of a discount when compared to the overall S&P 500. In addition, American Express is such a big player in the business travel market that it's poised to do well as pandemic restrictions ease and travel picks back up. That gives good reason to believe its earnings growth could see a one-time boost from that recovery.
While Buffett got in big because of a short-term scandal, American Express' long term business model is probably why he has held on to its shares for so long. That model looks well positioned to handle both inflation and a return to business travel. Add a relatively reasonable valuation to the mix, and it could be worth considering today.
No. 3: Imagine working through the pandemic without its services
Buffett's company owns a whopping 158 million shares of telecommunications giant Verizon ( VZ 0.78% ). Originally part of the Bell Telephone System, Verizon emerged a strong player from the breakup of that behemoth. Now known more for its wireless and broadband services than that legacy wired phone service, the company has certainly evolved over time to keep up with changes in the industry.
Verizon is not expected to light the world on fire with its growth, but since its shares trade at a mere 11 times trailing earnings, investors aren't paying a significant premium, either. A key benefit of that relatively low valuation is a dividend that offers nearly a 5% yield despite consuming not much more than half of the company's earnings.
Buffett tends to let cash pile up until he makes a big acquisition, and the dividends that Verizon throws off certainly adds to his stash of cash. There's good reason to believe that those dividends can continue to serve that purpose for him and for other investors. After all, when the pandemic struck and so many of us were forced to work from home, we turned to our phones and our internet services as lifelines to our ability to earn a living.
Even as pandemic restrictions ease, work has often shifted more to a hybrid in-office/at-home model rather than a 100% return-to-the-office one. That means people who beefed up their broadband connections and/or cell-phone service to handle the extra demands of remote work are likely to keep those services around. That bodes well for Verizon's ability to sustain its business -- which is all that's really priced into its shares today.
Food, finance, and telecommunications
Kroger, American Express, and Verizon are all giants in critical businesses that are poised to last for a long time to come. Those types of companies are core to Buffett's overall investing strategy and make up a huge chunk of his portfolio. While they're not exactly the fastest growing stocks on the planet, they all offer solid reasons for investors to consider owning their shares.
Whether that's enough to make them right for your portfolio as well is a question that only you can answer for yourself. If you do decide to own their shares, do recognize that you will certainly be in good company among your fellow stockholders.