Berkshire Hathaway CEO Warren Buffett is considered the greatest investor of all time for good reason. From 1965 through 2022, his investment decisions led to a cumulative return of 3,787,464% for shareholders. Adding a few of Berkshire's stock holdings can certainly help round out a diversified portfolio for retirement.
Three Motley Fool contributors recently combed through Berkshire's holdings for timely stocks to buy right now. Here's why they selected Amazon (AMZN 3.43%), Kraft Heinz (KHC -0.55%), and General Motors (GM 0.48%).
Amazon is back on track
Jennifer Saibil (Amazon): Investors soured on perennial winner Amazon last year despite its long-term track record of industry dominance, increasing sales, and robust profits. When the market focuses on the short term at the expense of the long term, investors gain opportunities.
Amazon did have a tough 2022, facing high comparable sales from its extraordinary growth early in the pandemic, dealing with an excess of infrastructure, and struggling with inflation. It also posted its first annual net loss in a decade.
But it quickly got the situation under control, and it's demonstrating strong progress so far this year. It's gotten costs under control and is back to net profits, and sales continue to grow. In the 2023 second quarter, sales increased 11% over last year, topping management's guidance of 5% to 10%, and operating income increased from $3.3 billion to $7.7 billion.
Amazon hasn't missed a beat in launching new products and services and acquiring new businesses. It recently released new generative artificial intelligence services for Amazon Web Services customers, and it finalized its purchase of One Medical healthcare services in February. CEO Andy Jassy said Amazon Pharmacy customers doubled during the year and that, so far, for One Medical, Amazon is "encouraged by what we're seeing there."
Some of its successes have been in getting deliveries to customers faster and cheaper. It reconfigured its distribution network to have more products in places closer to more customers, and there has been a 20% decrease in the number of touch points per delivery. Regional deliveries have increased by 10 percentage points to 76%, getting there faster for less money.
As it widens its business, dominates new areas, and does it all more efficiently, it's poised to keep winning. Amazon stock is already up 66% in 2023, but it has tons of future potential ahead.
A bargain in the consumer staple aisle
John Ballard (Kraft Heinz): It's been a tough year for leading consumer brands. Inflation has taken a toll on sales and profits, which has hurt Kraft Heinz. The stock is down 9% over the last year, but CEO Miguel Patricio has orchestrated a promising turnaround.
In typical Buffett fashion, Berkshire Hathaway has continued to hold the stock through its underperformance in recent years. Buffett has previously spoken of Kraft's leading brands -- including Jell-O, Velveeta, and Oscar Mayer, among others -- as key reasons he likes the stock. The company's recent growth and improving profitability are starting to validate Buffett's patience.
Kraft Heinz reported growing sales, profits, and widening margins in the second quarter. Adjusted sales grew 4% year over year, while higher margins drove a 13% year-over-year increase in adjusted earnings per share. The company notched growth across food service, emerging markets, and U.S. retail -- a sign of broad-based demand for its top brands.
While Kraft Heinz lost market share in the quarter, management noted that sales momentum was building each month in the quarter, setting the stage for a stronger second half of the year.
Another reason to like Kraft Heinz is the dividend. It currently pays an above-average yield of 4.64%. The stock is also attractive on a valuation basis, trading at a relatively low forward price-to-earnings ratio of 12 -- about half the market average. Kraft is a bargain. Further growth in revenue and earnings could cause the market to revalue the stock at a higher P/E and, therefore, lead to market-beating returns.
An undervalued automaker
Jeremy Bowman (General Motors): While General Motors hasn't been a big winner on the stock market, it's hard to think of a company that better represents Buffett's approach to investing. GM has a collection of brands that have been around nearly as long as the automobile. It brings in consistent profit in a cyclical industry and trades at a dirt cheap valuation, currently going for a price-to-earnings ratio of 6.5.
GM is also making smart investments to be a leader in the next generation of the auto industry, with plans to roll out dozens of electric vehicle (EV) models, and its Cruise AV division puts it at the forefront of autonomous vehicles.
The company is fresh off a strong second quarter that featured 25% revenue growth to $44.7 billion and net income up 7% to $5 billion. GM raised its guidance for the year, calling for net income of $9.3 billion-$10.7 billion, or $7.15-$8.15 per share, up from a previous range of $8.4 billion-$9.9 billion, meaning it trades for just 5 times this year's forecast earnings.
Pure-play EV stocks trade at a premium on the market, and GM should be able to benefit from some of that premium valuation as its business shifts to EVs. The company produced more than 50,000 EVs in North America in the first half of the year, ahead of pure-play EV makers like Rivian and Lucid. For the second half of the year, the company expects to produce 100,000 EVs.
While its EV segment is currently unprofitable, that is expected to change by 2025. And if Cruise takes off, GM could deliver monster returns in the future. Given the valuation, this looks like a great buying opportunity for GM stock.
