Warren Buffet is widely acknowledged to be one of the greatest investors of all time. His investment vehicle, Berkshire Hathaway (BRK.A 0.64%) (BRK.B 0.54%), has returned an incredible 3,600,000% over the years under his leadership, far surpassing the returns of major indices like the S&P 500.
Buffett's research capabilities are legendary -- luckily, you don't need to spend thousands of hours researching these companies like Buffett has in order to invest like him. Here are three of Buffett's favorite stocks that you can load up on this summer. One has been a top portfolio holding for years, one is a new buy, and one is a relatively new addition that the famed investor added to significantly during the last quarter.
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1. Coca-Cola
Warren Buffet likes Coca-Cola (KO 0.68%). You can tell because he's often seen with a can of Cherry Coke onstage at the Berkshire annual meeting. And why shouldn't he be a fan? The stock has served him well over the years.
As one of Berkshire's largest holdings, Coca-Cola has helped to grow the Oracle of Omaha's portfolio for years. While shares of the company aren't necessarily cheap and currently trade at 25 times earnings, shares have performed admirably throughout the market sell-off. Coca-Cola is up 8% over the past year, while the Dow Jones Industrial Average and S&P 500 are down 12% and 13%, respectively, over the same time frame.
Coca-Cola also pays out an attractive and market-beating dividend that currently yields 2.95% . The company is a Dividend King that has been growing this dividend payment for 60 years and counting.
For a 130-year-old company , Coca-Cola still has plenty of tricks up its sleeve. Its recent acquisition of Mexico's Topo Chico mineral water has been an unbridled success, as Coke has turned it from a regional mainstay into a trendy favorite all over the United States .
Coke also teamed up with Molson Coors to create a hard-seltzer version of Topo Chico called Topo Chico Ranch Water, which has proven popular this summer. In a similar move, Coca-Cola is partnering with Brown-Forman, the parent company of Jack Daniels whiskey, to create a pre-made version of the popular "Jack and Coke" mixed drink.
Buffett likes Coca-Cola so much that Berkshire Hathaway owns over 9% of the shares outstanding. It may be a good addition to your portfolio, as well .
2. Ally Financial
The Oracle of Omaha has a well-known penchant for banks, and one of his newest holdings is Ally Finanical (ALLY 6.73%), according to filings. Ally fits the bill for Buffett as an undervalued stock in the financial sector, trading at a price-to-book value of 0.9. This means that the stock is valued below the value of its assets if it were to be liquidated.
Ally also looks cheap on a price-to-earnings basis, trading at just four times earnings. The company also has $18.45 of cash per share on hand, making it even cheaper than it looks at first glance. This all combines to gives investors like Buffet a nice margin of safety. Additionally, like Coca-Cola, Ally pays out a generous and market-beating dividend, with the current payout yielding 3.45%.
Buffet is a big fan of share buybacks as a way to return value to shareholders, and Ally has been a prodigious buyer of its own shares over the years. The company is authorized to buy back up to $2 billion worth of its shares in 2022, which equates to nearly a fifth of its total market cap.
Ally was once part of General Motors as its financing arm and maintains a large presence in auto financing. It has since expanded into mortgages, consumer banking, brokerage services, credit cards, and more. Ally is an online-only bank, so it's able to generate superior returns on equity compared to most of its traditional competitors.
3. Floor & Decor
Floor & Decor (FND 1.06%) is one of my favorite stocks, so it was exciting to see that Buffet recently added to his position by over 460%, according to the latest filings. Clearly, Buffett sees value in the fast-growing specialty flooring retailer.
Valued at 26 times earnings, Floor & Decor isn't exactly the type of cheap stock that you would expect to see Buffett buying. As he says, however, he would prefer to own a wonderful business at a fair price as opposed to a fair business at a wonderful price.
Buffet also knows that the valuation will come down to 18 times next-year's earnings and that the former high-flyer has been caught up in the panic over mortgage rates rising, which has hit housing-related stocks. For this reason, Floor & Decor is down nearly 60% from its 52-week high.
The company is led by former Home Depot executive Thomas Taylor and is growing at an impressive rate. Floor & Decor has grown revenue at a 25% compound annual growth rate (CAGR) over the past five years, and earnings per share by 37% over the same time frame.
The company is also growing its store count at an impressive clip, with 17.8% annualized growth over the past five years. Even better, Floor & Decor is going to ramp up that store count and has a goal of growing from its current 160 location to 500 over the next several years.
This 500 store total would still be far smaller footprint than that of companies like Home Depot and Lowe's, which suggests that there's plenty of blue sky ahead for the Atlanta-based company.
Be like Buffett this summer
Buffett is a legendary investor who has handily trounced the broader market for decades and generated incredible wealth for Berkshire investors. By investing in wonderful businesses at fair prices, looking for a margin of safety, and holding on to these stocks for a long time to let them compound, Buffett's style of investing has led to outsized returns.
This is a simple but effective style that we can all learn from, and luckily, thanks to public filings, we can see what stocks Buffett is buying and holding. I like his mix of holdings with Coca-Cola and recent additions like Floor & Decor and Ally Financial. I'd follow the Oracle of Omaha's lead to buy these three stocks hand over fist this summer in order to build your own portfolio that will grow for decades to come.
