Through the first three quarters of 2022, Warren Buffett's Berkshire Hathaway has bought 19 stocks. Those range from surprise picks like Taiwan Semiconductor to upstream oil producer Occidental Petroleum, which has become a Buffett favorite.
While speculating about Berkshire's buys in 2023 is just that, speculation, one can predict that Buffett will go on offense in 2023 as Berkshire has historically had its best outperformance during bear markets.
Based on some of Buffett's criteria for buying a stock, here are two new names that would fit well with the Berkshire portfolio.
Image source: Motley Fool.
1. Williams-Sonoma: A retail bargain
Buffett is a well-known fan of big brand stocks; Coca-Cola and Apple are two of Berkshire's biggest holdings. The Berkshire chief sees brand as a key component in an economic moat, especially for consumer stocks, and Williams-Sonoma (WSM -1.50%) has one of the best brands in home furnishings.
The company dates back to 1956, and today has a sprawling home furnishings empire that includes Pottery Barn and West Elm. The company has also evolved with the times, establishing a strong position in e-commerce as roughly 70% of its revenue now comes through the digital channel.
Williams-Sonoma's latest financial results offer another indicator of its economic moat. The company reported an operating margin of 15.5%, better than most of its peers, and the company has continued to grow in a difficult environment for home furnishings stocks as comparable sales jumped 8.1% in the quarter.
Berkshire already owns shares of RH, the former Restoration Hardware, which is another high-end home furnishings stock that offers a similar value proposition to Williams-Sonoma.
Finally, the retail stock's price is also likely to catch the eye of a value investor like Buffett.
Currently, it trades at a price-to-earnings ratio of just 7, and the company has been aggressively buying back stock, reducing its shares outstanding by 11% over the last year. It also pays a dividend yield of 2.7%.
With its brand strength, wide operating margins, and great valuation, Williams-Sonoma would fit nicely into Berkshire's portfolio in 2023.
2. Walt Disney: A timeless brand giant
If you're looking for an economic moat, it's hard to find a better one than Walt Disney's (DIS 0.83%).
The company has an unrivaled library of intellectual property spanning from Disney animated classics to Marvel and Star Wars, and the Disney brand has represented quality family entertainment for nearly a century.
It has a flywheel business model that allows it to leverage that intellectual property into movies, TV shows, live entertainment, theme park rides, and consumer products like toys.
Buffett tends to prefer straightforward business models, and Disney's may have gotten a bit complicated.
It's in the middle of a transition from a linear TV business to a streaming one, which adds some risk, but Berkshire already owns one of its peers, Paramount Global, the parent of Paramount+, CBS, and several cable networks. Berkshire began buying Paramount stock in the first quarter.
Some observers have speculated that Berkshire bought Paramount because it expects it to get acquired by a larger media company, but it also could see opportunity in the streaming industry.
Additionally, Buffett places high value on smart leadership, and with Bob Iger back in the CEO chair, it's hard to fault Disney in that category.
Iger has long been one of the most respected leaders in Hollywood, and he reinvented Disney during his earlier stint running the company from 2005 to 2020, driving acquisitions of Pixar, Star Wars, Marvel, and 21st Century Fox, as well as launching the Disney+ streaming service.
Disney stock just touched a new 52-week low even as the company said that losses in its streaming business would begin to narrow after reaching $4 billion in its just-ended fiscal year. The company just launched the ad tier for Disney+ and raised prices across the board for its streaming services, which should help it reach its target of break-even profits by fiscal 2024.
Meanwhile, its theme parks continue to print cash, and the rest of the business should generate solid margins in a healthy economy.
Disney stock today offers a unique combination of a low price, a wide economic moat, an appealing growth opportunity in streaming, and smart leadership, all qualities that Buffett looks for.
With those strengths, the stock looks like just the type to gain the Buffett stamp of approval.
