Although inflation isn't running quite as hot as it had been earlier this year, the general prices of things we rely on every day are still often ahead of where they were last year or the year before that. If, like many of us, your salary hasn't kept up with those costs, that may be causing you to look for ways to cut back to assure that your money goes far enough to meet your most important needs.
If you're making those types of decisions, it's one thing. If everybody is making them, then it could be a sign that the companies that focus on the essentials in life may end up holding up better than the ones that offer products people can do without. With that in mind, three Motley Fool contributors uncovered companies involved with products people use every day whose stocks look like they could be worth owning. They picked Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%), Bank of America (BAC -0.21%), and Kinder Morgan (KMI -0.64%). Read on to find out why, and decide for yourself whether any of them might provide solid performance for your portfolio in potentially rocky times.
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Buy into Buffett
Eric Volkman (Berkshire Hathaway): The monster investment vehicle of renowned investor Warren Buffett, Berkshire Hathaway has a sprawling portfolio. Buffett and Berkshire get the most attention from their moves in the publicly traded stocks within that collection, but the company also directly owns scores of businesses. And more than a few of these produce the goods many Americans use on a regular basis.
You might be even wearing a product manufactured by a Berkshire-held company right now. After all, it owns storied underwear maker Fruit of the Loom, having purchased the business in 2002.
That's not all, however. Fruit of the Loom has several brands in its portfolio, including sports equipment maker Spalding. So if you take a few pre-dinner shots on your driveway basketball hoop with a Spalding ball, you're also playing with Berkshire.
Do you regularly treat yourself or others to a cold, tasty ice cream from Dairy Queen? Well, no prizes by now for guessing which famous investor's company has fully owned that business since 1998. Under the same umbrella as the beloved frozen-treat slinger is Orange Julius, a veteran juice outlet operator that has scores of fans throughout the United States.
Most Americans these days have at least a few battery-operated devices in their households, cars, or offices. If you've loaded any electronics with Duracell batteries, you've put money in Berkshire and Buffett's very large pockets. Duracell is a relatively recent acquisition; it landed in the company's portfolio in 2014.
Many folks don't realize they're not only buying into Berkshire's monster portfolio of famous blue-chip stocks -- like Apple, Bank of America, and General Motors -- when they snap up the company's shares. They're investing in their own kitchens, closets, and utility drawers, too.
A linchpin in the economy
Jason Hall (Bank of America): The regional banking crisis of this spring seems to be mostly behind us. The FDIC acted quickly to stem the harm to the economy and to consumers, taking over three of the larger midsize banks before the bank runs that left them insolvent could spread to other institutions.
Yet at the same time, fears that the worst is still to come and the reality that many banks own a lot of loans worth less than their carrying value have left most bank stocks trading for big discounts. Sure, some of those banks may be forced to take losses and sell loans at a loss to raise cash, but I believe there is significant opportunity for investors to profit from the hangover and lingering fears.
Bank of America is at the top of my list of banks for opportunistic investors. One of the largest U.S. banks by deposits, BofA is regarded as being a very safe place to bank. Yet at recent prices, you can buy shares at 0.89 times book value, or a discount of 11 cents on the dollar. Typically, a high-quality bank like this would trade for 1.2 times book or even higher.
Part of that discount is due to ultra-cheap loans that have lost value because of rising interest rates and lingering fears of recession. But high depositor confidence and a fortress-like balance sheet mean BofA should have little trouble holding those loans to maturity, and not taking any loss. Trading for a book value discount is only part of the appeal: It also trades for 8.3 times forward earnings estimates, and the dividend yield is now above 3%. With millions of people and businesses depending on this stalwart every day, now looks like a great time to open a long-term holding position in Bank of America.
You probably don't realize how much you rely on this company
Chuck Saletta (Kinder Morgan): U.S. energy pipeline giant Kinder Morgan owns or operates around 82,000 miles of oil and natural gas pipelines. If you drive on an asphalt road, have a car or ride public transit that uses gas, or have electricity provided by a utility that uses natural gas or oil, you probably rely on something that has passed through its infrastructure. Likewise, most plastics are produced from natural gas and/or oil processing, the materials for which also could have been inside a Kinder Morgan pipeline.
The combination of just how much useful stuff relies on its pipelines and just how invisible those pipelines are in everyday life for most people is both a blessing and a curse for Kinder Morgan. It's a blessing because it assures some level of demand for its business, even if the economy is headed for a recession. It's a curse because their invisibility means that many people who are opposed to the concept of pipelines might be swayed if they recognized just how much they rely on them.
From an investor's perspective, probably what matters most is that oil and natural gas usage is likely to remain strong for decades to come. Indeed, even under its most optimistic scenarios for green energy, the U.S. Energy Information Administration projects fairly steady oil and natural gas demand through 2050.
Of course, steady demand is hardly the story of a rapid growth company. On that front, Kinder Morgan's market capitalization around $37 billion looks reasonable compared with its trailing-12-month operating cash flow of around $4.9 billion. That values the company at less than eight times the cash its operations throw off in a year, which seems fair for a business that isn't expected to grow all that quickly.
Add to it a dividend that is well covered by those cash flows and offers investors a yield around 6.6%, and the company offers a decent total profile for what looks like a fairly steady company.
Everyday companies can make solid investments
Whether it's Berkshire Hathaway, Bank of America, Kinder Morgan, or other similar companies, investors can certainly find value in owning the shares of companies that make products that are core to people's everyday lives. If you're looking to put a part of your portfolio into businesses like these, then today is an excellent day to make the choice for yourself to invest. After all, the sooner you're invested, the sooner you have the opportunity to potentially get something back from these businesses where your cash is probably already flowing in the form of your purchases.
