Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) is the holding company for a portfolio of wholly owned companies and investments that is overseen by renowned investor Warren Buffett. The Berkshire empire includes a portfolio of approximately 46 stocks, worth roughly $330 billion as of March 31. The portfolio is outlined in public filings every quarter, and the changes that Buffett and his team make to it are always closely watched by investors.
A couple of months ago, I wrote about two Buffett buys to watch, and one to avoid -- and those choices still stand. But there are plenty of other Buffett stocks to consider as well, including some investors might want to avoid. Here are a couple more Berkshire-owned stocks to consider for your portfolio, and one in the bunch that might best be avoided.
2 Buffett stocks that are great buys
Mastercard (MA 0.07%) is pretty much always going to be a good buy for investors, as it has been one of the most consistent and resilient growth stocks on the market. It is that rare growth stock that outperforms even in bear markets, like in 2022, when the stock price fell only 2% while most technology stocks and large caps were down 20% to 30% or more for the year. That outperformance was also seen in 2018 and 2015, two difficult years for the market.
Mastercard's long-term performance bears that out, as it has posted an average annual return of about 21% over the past 10 years. Berkshire Hathaway owns a little under 4 million shares, valued at $1.5 billion. The shares account for about 0.5% of Berkshire's overall portfolio.
Mastercard's advantages stem from the duopoly it shares in the payment processing space with Visa. They control the two largest payments networks over which the vast majority of the world's payments are processed.
Another great benefit is Mastercard's business model, which is extremely efficient. It makes the vast majority of its revenue from fees charged every time a payment crosses its network. It is not a lender, like other credit processors, so there is no credit risk. And with no physical branches, like there are with banks and lenders, Mastercard has less overhead, which helps the company generate tons of cash flow and post huge operating margins. Finally, Mastercard, with its duopoly on payment processing, is in a prime position to capitalize as more economies turn to cashless payments.
Moody's (MCO 0.25%) is another Buffett stock that stands out, for many of the same reasons as Mastercard. Berkshire owns about 27.4 million shares valued at $7.6 billion. They make up 2.3% of Berkshire's portfolio.
Moody's, like Mastercard, has a wide competitive moat around its business, meaning it is well-protected from other competitors. Moody's is a leading credit rating agency, along with S&P Global, and the two control about 80% of the market, with each having a roughly 40% market share. The third major player is Fitch Ratings with a 15% market share. That share of the market is not likely to shift any time soon. There is no need for more than a few ratings agencies, as many more would water down the standard, and these are entrenched players with respected brands that would be hard to displace. And that's not to mention the high regulatory barriers to entry that exist for any new competitors.
The advantages it possesses in the credit rating business alone make Moody's a strong stock, but it's made even better by the fact that it has a second business, Moody's Analytics, that has been growing rapidly and accounts for about half of its revenue. Better still, the Moody's Analytics business tends to perform well during more difficult markets, as its institutional customers who subscribe to its data and analytic services are often needed more during bad times than when times are good. That gives Moody's excellent balance during periods where credit issuance is down and the ratings business suffers.
These are likely the primary reasons that Buffett likes the stock, and why it has generated annual returns of 17% over the past 10 years, as the chart above shows.
These two stocks are dominant players in their markets, and that likely won't change any time soon.
1 Buffett stock to avoid
There is something to be said for insurance stocks, particularly in the type of market we are in. Insurance stocks are considered safe havens during times of economic stress because insurance is not a discretionary item. People need it whether times are good or bad -- so when times are bad, insurance stocks tend to outperform.
Berkshire Hathaway itself wholly owns several insurance companies and has its own specialty insurance group. It also has a couple of insurers in its portfolio, including life and health insurance company Globe Life (GL 0.28%). Globe Life provided a nice portfolio boost for Buffett last year, up 29% while the Nasdaq Composite was down over 33% and the S&P 500 was down 19.4%. Over the last 10 years, Globe Life stock has posted a solid average annual return of 9.6%.
The primary role a stock like Globe Life would play in a portfolio is to provide ballast and balance and offer downside protection during times of market volatility. And Globe Life fills that role for Berkshire. It owns 6.4 million shares valued at $700 million. The stake accounts for 0.2% of Berkshire's portfolio.
However, I think there are better insurance stocks out there, like Progressive, which has more consistent performance, or MetLife, which has a much better dividend. For that reason, I'd probably avoid Globe Life and look elsewhere.
