Do you want to minimize your risk when buying stocks? One way is to let other proven investors do the work for you. And no, I don't mean relying on the analysis you'll find on a Reddit forum, regardless of how popular it may be. A much safer option is to buy the stocks in Warren Buffett's Berkshire Hathaway portfolio. The companies are vetted by the best in the business and are some of the safest investments you can buy in 2022.
Three stocks in that portfolio that can give you some broad diversification plus some decent dividend income are Johnson & Johnson (JNJ 0.67%), Apple (AAPL -0.57%), and Coca-Cola (KO 0.68%).
Image source: Getty Images.
1. Johnson & Johnson
Healthcare giant Johnson & Johnson isn't a terribly large holding in Berkshire's portfolio; it doesn't even make up 1% of the portfolio's total weight. But as a business, it is a solid option, as it has consistently strong earnings while also paying a dividend. So it's easy to see why it's a Berkshire holding.
Through the first nine months of 2021, the healthcare company reported revenue of $69 billion, an increase of 15% from the same period a year ago. Meanwhile, earnings of $16 billion have risen at an even higher rate of 24%. And although the company does have a COVID-19 vaccine that the Food and Drug Administration has approved for emergency use, it has added a modest $766 million thus far. Compared to the billions of dollars Moderna and Pfizer have collected from their COVID-19 vaccines, that pales in comparison. Johnson & Johnson's growth has come from all areas of its business, with medical device revenue of $20 billion rising through the first three quarters at a rate of 23%, followed by a 13% increase in sales from its pharmaceutical business to $38 billion; its smallest segment, consumer health, rose by 5% to $11 billion.
A possible return to normal next year (depending, of course, on how the omicron variant plays out) could further bolster Johnson & Johnson's business if hospitals and doctors' offices resume their normal operations. Either way, this remains a safe healthcare stock to hang on to over the long term. And with a dividend yield of 2.5%, you'll also be collecting far more than you would with the average S&P 500 stock, for which the payout is just 1.3%.
2. Apple
Apple is one of the billionaire investor's favorite stocks and top holdings for Berkshire. In the past, Buffett referred to the company as "probably the best business I know in the world." And it's hard to argue with that, as the $3 trillion company is the most valuable on the stock market today.
The proof is in the numbers. Product revenue for fiscal 2021 (ending Sept. 25) totaled $297 billion and rose by 35% year over year. Given that a pandemic was going on during that time and people were losing their jobs, it's impressive that consumers were still buying up the company's high-priced products. This demonstrates solid brand loyalty, which gives the business a significant edge against its competitors. A telling factor is Apple's marginal increase in selling, general, and administrative costs, which in fiscal 2021 was just 10% year over year. That tells you the company hasn't had to pump a lot into selling activities to grow its top line -- the products look to almost be selling themselves. By keeping its costs relatively stable from the previous year, Apple generated a huge increase in profits, reporting a net income of $95 billion this past fiscal year, which was 65% higher than last year's tally of $57 billion.
The company's business looks as strong as ever, and that's why Apple remains a terrific long-term investment, especially as it grows its ecosystem into streaming and offering more services. Although its yield of 0.5% is minimal, there's definitely room for that to increase in the future, as the company's payout ratio is minimal at just 15%.
3. Coca-Cola
Another Buffett favorite is Coca-Cola. Its products aren't nearly as expensive as Apple's, but they too enjoy strong brand loyalty that allows the business to continue to dominate. The company has faced challenges, especially amid the pandemic and lockdowns and restrictions, but Coca-Cola has shown that it can weather the storm quite well.
In the trailing 12 months, its profit margin has remained strong at 23%, in line with 2020's performance. In 2020, sales of $33 billion fell by more than 11% from the previous year when the top line came in at more than $37 billion. Today, however, things are looking a lot better. Net operating revenue of $29 billion through the first nine months of the year are up 20% from a year ago, and the company is projecting organic revenue growth of between 13% and 14% for the full year.
Coca-Cola's business may struggle in the short term due to the pandemic. However, with the company's products still in high demand and the business shifting toward offering more health-oriented products, there's little reason to worry about this stock when looking at the long term. And at 2.9%, it also pays the highest yield on this list.
