Warren Buffett's Berkshire Hathaway has been a wealth-creating machine for its long-term shareholders. From 1965 through 2022, Berkshire stock delivered an astounding return of 3,787,464%. Buffett earned those returns by acquiring businesses outright to operate through his conglomerate, and by picking stocks to hold in its extensive portfolio. His impressive track record makes it well worth investors' time to check out what stocks Buffett and his team are holding in the Berkshire Hathaway portfolio now.
Among its current holdings, three Motley Fool contributors believe Coca-Cola (KO 1.37%), Visa (V +1.58%), and Floor & Decor (FND 2.86%) could be timely buys this month.
The one stock Buffett is never selling
Jennifer Saibil (Coca-Cola): Coca-Cola is one of Warren Buffett's favorite stocks, and the qualities that he loves about it are the same ones that many investors look for in the companies they choose to add to their own portfolios.
Buffett has explained many times that he views the U.S. economy as a tailwind for the stock market, and not the other way around. The innovation and growth mindset of forward-thinking companies leads to sales growth and economic gains, and the strongest brands generate loyalty, sales, profits, and shareholder value. Buffett sees Coke as the epitome of that concept.
NYSE: KO
Key Data Points
This is why even during this challenging economic period, Coca-Cola has been increasing its sales and delivering robust profits. Loyal fans of Coke products don't want to switch to other brands even though prices are higher, and Coca-Cola is meeting demand by offering new beverages, sizes, and packaging, all while raising prices. Its net revenue increased 8% year over year in the third quarter. And while its operating margin contracted from 27.9% to 27.4%, earnings per share rose 9% to $0.71. Although it's feeling some pressure, it's well positioned to emerge from this period as a strong and growing company.
Investors have long appreciated Coca-Cola for its dividend. It's a classic Dividend King, with a 61-year streak of annual payout hikes. Its stock price is down 10% so far this year after beating the market last year. Since dividend yields move in the opposite direction of stock prices (assuming that payouts don't get cut), Coca-Cola's dividend now yields 3.2%, slightly higher than its 10-year average of around 3%. Coke is a cash machine, and it's expecting to generate record free cash flow of more than $11 billion in 2023. This is what drives the dividend and creates incredible shareholder value.
Investors should note that Coca-Cola isn't a growth stock; it's a value opportunity, and it offers security and passive income as a component of a well-rounded portfolio. At this price, and with the added incentive of its solid dividend, now could be a great time to open a position.
Housing-related stocks are starting to rebound
Jeremy Bowman (Floor & Decor): For the last two years, the actions of the Federal Reserve have loomed large over the stock market as its campaign to cool off inflation by raising interest rates and tightening the money supply has pushed stocks lower and had an outsize impact on some segments of the economy -- among them, the housing market.
However, there are signs that the Fed could be done raising benchmark interest rates for now, and investors became more confident in that view after the October inflation report showed that prices rose just 3.2% year over year -- the country's lowest inflation rate in more than two years.
NYSE: FND
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Stocks soared in response, especially those with exposure to interest rates and mortgage rates. That category includes flooring and home improvement retailer Floor & Decor -- a Berkshire Hathaway holding since the third quarter of 2021.
Like other home improvement retailers, Floor & Decor has struggled due to the slowdown in the housing market lately. In the third quarter, comparable sales fell 9.3%, and net income fell from $76.2 million to $65.9 million. However, it continued to expand its brick-and-mortar footprint, opening five new warehouse stores.
The company's competitive advantages, including economies of scale and a vast selection that even Home Depot and Lowe's can't match, should help it outperform in a housing market recovery. Home Depot said in its earnings report on Tuesday that sales of big-ticket items are still down. That includes categories such as flooring, which are often installed as part of a larger remodeling project.
If signs continue to indicate that mortgage rates have peaked for this cycle, and that a decline is possible as soon as next year, Floor & Decor shares should continue to rally.
Visa is one of the best businesses in the world
John Ballard (Visa): Visa has delivered market-beating returns to investors over the last decade. It operates a vast payment processing network that has consistently delivered double-digit percentage growth in annual revenue.
It's not surprising to see that Berkshire Hathaway continued to hold a sizable stake in it -- worth $1.9 billion as of the end of the third quarter. Like many other investments in its portfolio, Visa is a dominant business in a large and growing market that should produce reliable returns for many years.
NYSE: V
Key Data Points
Visa looks even stronger coming out of the pandemic. It posted year-over-year revenue and earnings growth of 11% and 22%, respectively, in the most recent quarter. While the stock has marginally underperformed the S&P 500 index over the last three years, Visa's tremendous opportunities in the digital payments market should produce enough growth to deliver above-average returns over the long term.
More consumers are continuing to increase the share of their spending that uses non-cash payments, and this remains the biggest tailwind fueling Visa's growth. A 2022 study by the Federal Reserve found that non-cash payments grew faster between 2018 and 2021 than they had in any other period since 2000.
As more consumers use payment apps on their smartphones to pay for Uber rides and other things, it should only expand Visa's business. The company said the number of global tap-to-ride transactions reached 1.6 billion in fiscal 2023, up over 30% year over year.
It's for reasons such as these that the stock is sitting close to its all-time high, and it should have more room to run in the years to come.
