Stocks that are held within Berkshire Hathaway's portfolio can be a great place for value-oriented investors to look for good buys. The company, owned by Warren Buffett, isn't going to be holding high-risk meme stocks or shares of companies that are going to be incredibly volatile. It can be a great place to start if you're thinking about safe stocks to hold over the long term.
Two of the better buys in Berkshire's portfolio today are Bristol-Myers Squibb (BMY 0.44%) and American Express (AXP 0.10%). Not only do they have strong fundamentals, but both companies could do well this year (and beyond) as the economy attempts to return to normal.
1. Bristol-Myers Squibb
Bristol-Myers Squibb is the type of stock you can tuck away for years and even decades. It takes up a modest 0.1% of Berkshire's portfolio today, but the company still has hundreds of millions of dollars invested in the top healthcare stock. Over the past four quarters, Bristol-Myers has consistently reported an operating income that has been at least 13% of revenue. A big reason for that is that the business generates incredibly strong gross margins that hover around 80%.
With the stock trading at less than 10 times its future earnings, investors aren't paying much of a premium to own a piece of the company -- the average stock in the Health Care Select Sector SPDR Fund trades at a multiple of more than 16. But that reflects just profitability over the next year. The real value in the stock is over the very long term, as Bristol-Myers continues to develop new products that will help its business expand over the long haul.
Most recently, the U.S. Food and Drug Administration approved the company's new immunotherapy treatment for advanced melanoma. Opdualag will be used with another cancer drug that Bristol-Myers makes, Opdivo. The combined therapy could bring in more than $4 billion in annual revenue for Bristol-Myers by 2029, which could be a decent chunk of the top line for a business that reported $46 billion in sales in 2021.
Bristol-Myers could have a strong year in 2022 if there's a return to normal in the economy as patients undergo more screenings and doctors issue more prescriptions. But even if there isn't, the business has been shown to be resilient, generating 9% sales growth last year. In addition to growth potential, the stock also provides investors with a generous dividend yield of 2.9%. That's more than double the average S&P 500 stock, which pays 1.3%.
There's no shortage of reasons to buy Bristol-Myers for the long term, and at a cheap price, now may be an excellent time to add the stock to your portfolio.
2. American Express
Financial services company American Express is a more popular Buffett stock since it takes up 8% of Berkshire's portfolio today. That's more than rivals Visa and Mastercard, which account for less than 1% combined.
While all the major credit cards will benefit from a strong economy, American Express may outperform, particularly in the business world, as its cards are popular with corporate travelers. And the signs of a return to normal are evident in the company's most recent earnings report.
For 2021, revenue (net of interest expense) soared 30% to $12.1 billion. The company stated there was record card-member spending during the period. Meanwhile, net income rose 20% to $1.7 billion. What's promising is that AmEx projects even more revenue growth ahead, predicting that its sales will grow between 18% and 20% this year.
Investors are clearly banking on some better times ahead. Year to date, while the S&P 500 has fallen by 4%, shares of AmEx are up 14% (Bristol-Myers stock has risen at an even higher rate of 19%). The credit card company is trading at a multiple of 19 times its forward earnings. That makes it look incredibly cheap compared to both Visa and Mastercard, where investors are paying more than 30 times the future profits of those two companies.
And with a modest 1.1% dividend yield as well (Visa and Mastercard both pay less), there's some added incentive to just buy and hold for the long haul.