We shouldn't ever copy others when making investment decisions, but it's hard to resist following Warren Buffett's moves. The great investor's Berkshire Hathaway (BRK.A 0.11%) (BRK.B -0.06%) company has consistently produced outsized returns for investors since Buffett took it over in the 1960s.
As of last September, Berkshire had 45 titles in its portfolio of publicly traded companies. Of these, two Buffett stock favorites are particularly worthy of being put under a microscope. Let's see if we can tease out why Buffett favors General Motors (GM -0.87%) and Amazon (AMZN -1.12%).
1. General Motors
Although it's a long-established titan in the auto industry -- and Buffett loves his titans -- the current iteration of General Motors is actually a recent (2012) buy for Berkshire. Since then, the company has cashed out a bit, but still holds a big position in the carmaker with a stake of over 4% for a total value of more than $3.9 billion.
As an investment, General Motors is entirely in character for Buffett. Even with the rapid evolution of the auto industry in the recent past, the company is still a dominant manufacturer in the U.S., and an important player in many markets abroad.
A relative newcomer like Tesla might win points from investors for style and panache, but the incumbent crushes it at selling effectively to the mass market. Which, given the monster costs that go into vehicle manufacturing, is the name of the game in that industry.
With Tesla and electric vehicle (EV) peers like Rivian and Lucid Group now in that contest, General Motors is an unfashionable stock these days. But the most successful investors don't always put their money on the prettiest horses.
General Motors knows how to run this race. The company not only effectively navigated the numerous supply chain difficulties the world experienced throughout last year, it managed to land well in the black in all three so-far reported 2021 quarters, crushing analyst expectations as it did so.
Finally, General Motors might be dowdy when placed against the Teslas and Lucids of the world, but in fact it's strong in the EV space, with sales of over 200,000 units in 2020. And it's very active in next-generation car tech with its majority ownership of assisted/autonomous driving subsidiary Cruise.
Compared to Tesla or Rivian, General Motors trades at microscopic multiples in terms of valuations like price-to-sales. Meanwhile, it can move fast and compete powerfully with the best of these companies. I think the stock is worthy of consideration for any portfolio.
A seemingly more uncharacteristic stock for Buffett/Berkshire to own is Amazon. Historically, the celebrated investor had eschewed tech stocks, stating that he was reluctant to put money into businesses he didn't understand.
That was then, and this is now. With younger executives becoming prominent in Berkshire's power structure, the former luddite has embraced several top tech names, notably Apple, in which Berkshire holds a $163 billion position.
The Amazon holding is much smaller in terms of both overall value (just under $1.8 billion) and total stake in the company's equity (0.1% vs. 5.5% for Apple). Yet Buffett has clearly embraced the online retailing giant, admitting in 2019 that "I've been a fan, and I've been an idiot for not buying" Amazon shares sooner.
But to be fair, years ago few had the vision to realize that this once perennially money-losing company mostly known for sales of books would grow to rule the e-commerce world.
Even in this day and age many don't realize just how powerful, revenue-generating, and profitable Amazon's key cloud computing division Amazon Web Services has been, and almost certainly will continue to be in the future.
All of this is very impressive, but should you pull a Buffett and buy the stock too? After all, it's very pricey on numerous historical and forward metrics. Its trailing-12-month sales ratio is nearly 4, while its forward P/E is a lofty 53.8. Amazon is famous for its power to grow, but those numbers look awfully high to me even considering that.
Having said that, we should realize that Amazon has proven the bears wrong time and time again for over two decades. Also, it always seems to pull growth rabbits out of its hat. So true believers in the company's ability to keep juicing the fundamentals should consider pulling the trigger on Amazon shares.