When stock prices are falling, the temptation is to think that they'll only continue to go lower. It's just as irrational as when investors think that stock prices can only go up, as many investors felt in early 2021. But fears of a worsening stock market and economy are a big reason why many quality stocks are struggling, or aren't trading at better valuations.
Billionaire investor Warren Buffett doesn't concern himself with outlooks and forecasts as he is confident that valuations will rise in the long term. Over the years, he has offered some valuable advice that can help guide investors' actions at a challenging time like this one.
Don't wait too long to invest
A big danger for investors is trying to time the market, or predicting when a stock has reached a bottom before buying in. The reality is that you won't know a stock has hit a bottom until after it has recovered. The greater risk is waiting too long and seeing the stock rally, and then potentially become too expensive to buy.
Buffett's advice is simple: "Don't pass up something that's attractive today because you think you will find something way more attractive tomorrow." By being too greedy, investors could end up missing the boat on a great buy.
Two Buffett stocks that look like good buys
The sell-off that has taken place in the markets over the last year has made many stocks more attractive buys, even ones that are relatively safe options.
One good example is tech giant and iPhone maker Apple (AAPL +2.59%), which is one of the billionaire investor's favorite stocks. Its shares fell 27% last year, performing worse than the S&P 500 (which declined 19%) amid a large-scale sell-off in the tech sector. At 21 times earnings, Apple's stock looks fairly cheap when compared to the average tech stock, which trades at a multiple of 24.
Its profits in its latest fiscal year (ended Sept. 24, 2022) totaled $99.8 billion, which represent one-quarter of the revenue the company has generated during that time -- $394.3 billion, which grew 8% year over year. The company's business continues to generate solid growth, and its service business has loads of potential to bring in even better numbers in the future. While it may be tempting to wait to see if Apple's stock falls lower, this is an example of a situation where investors may not want to wait too long before buying shares of a top company.
NASDAQ: AAPL
Key Data Points
Buffett's Berkshire Hathaway doesn't normally have a large position in healthcare, but one healthcare stock it recently owned was mega drugmaker Bristol Myers Squibb (BMY +2.05%). Bristol Myers didn't have a bad year in 2022; its shares rose more than 15%. But at 23 times earnings, its valuation is still in line with that of the healthcare average.
Given the stock's penchant for acquisitions and continued growth, investors hoping for the share price of this stalwart to dip may be sorely disappointed. I'd argue that, given how robust the business is, it's worth more of a premium. The company has many top-selling products in its portfolio, including blood clot medication Eliquis, which has generated more than $9.1 billion in sales through the first nine months of 2022. During that same time frame, cancer drug Opdivo brought in another $6 billion in revenue.
NYSE: BMY
Key Data Points
In addition to strong fundamentals, Bristol Myers also pays an attractive dividend that yields 3.2%. The company announced last month that it would be increasing its dividend for the 14th consecutive year. If the stock continues climbing, that payout will shrink, giving investors yet another reason to buy shares of Bristol Myers sooner rather than later.
Take advantage when good stocks are at cheap prices
If a business is strong and the valuation is low, long-term investors should recognize the buying opportunity and jump on it while it's there. While Buffett is a bargain hunter, he isn't afraid of paying a fair price for a stock: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
