Berkshire Hathaway (BRK.A -0.30%) (BRK.B -0.26%) has a stock portfolio worth about $350 billion with dozens of holdings, most of which were hand-picked by legendary investor Warren Buffett himself. While some of the portfolio has held up quite well in the recent market downturn, most of Buffett's stocks are trading for significantly less than their recent highs.
With that in mind, now could be a great time to look for buying opportunities. Here are two stocks from Berkshire's portfolio that look especially attractive from a long-term perspective as we approach the end of the first quarter of 2022.
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This bank stock has a lot to gain as interest rates rise
Bank of America (BAC -1.07%) has fallen by about 15% from its 2022 highs in just over a month as the market has taken a downward turn, but it could be one of the biggest beneficiaries as interest rates rise.
Bank of America has one of the more favorable costs of capital in the banking industry. Out of the bank's $2.1 trillion deposit base, nearly 40% is noninterest-bearing, meaning that it won't cost the bank any additional money as rates rise and interest income grows. In fact, Bank of America estimates that a 100-basis-point (one percentage point) increase in the interest rate yield curve would result in $6.5 billion in additional net interest income over a 12-month period. Now, imagine if rates rise by 2%, 3%, or more, as many experts believe will be needed to combat inflation. With net interest income of about $43 billion over the past 12 months, Bank of America could see a significant boost.
What's more, Bank of America doesn't have the same degree of wage pressure that is impacting other banks, as it has been at the forefront of wage growth in its industry for years. The bank raised its minimum wage to $21 an hour last year and has committed to a $25 hourly minimum wage by 2025. In a nutshell, Bank of America's profits should rise quicker than peers', and with less expense pressure weighing on profits.
Berkshire's favorite real estate stock
You'll find dozens of stocks in Berkshire's portfolio, but only one from the real estate sector. Store Capital (STOR) is a real estate investment trust that focuses on single-tenant properties in the service, retail, and manufacturing industries. It primarily owns properties occupied by tenants that aren't vulnerable to recessions, e-commerce disruption, or both. Restaurants, day care centers, automotive repair, and metal fabrication businesses are just a few examples of the top property types in Store's portfolio.
Store Capital has only been a public company since 2015 but has already grown its portfolio to nearly 2,900 properties. Management sees a tremendous opportunity to keep the momentum going and has done a great job of taking advantage of cheap capital in recent years to acquire attractive properties. The market for Store Capital's target property types is $3.9 trillion in size, and the company plans to continue to step on the gas in 2022 and beyond.
Store Capital is an excellent income stock and has a great track record of raising its dividend every year since going public. And thanks to shares declining by more than 20% from their highs in the recent market turbulence, Store has a very attractive 5.3% dividend yield.
Buy for the long run
As a final thought, it's important to emphasize that Buffett and his team chose these stocks as long-term investments, and that's exactly how you should approach them if you decide to buy. Bank of America has excellent leadership and tremendous cash flow, and Store Capital has some of the best return potential relative to its risk level anywhere in the market. Buffett does not own these stocks because he thinks they're going to be higher in a few months. Invest accordingly.
