For the better part of six decades, Berkshire Hathaway (BRK.A 0.09%) (BRK.B -0.05%) CEO Warren Buffett has been lapping the benchmark S&P 500. Whereas the S&P 500 has gained a little over 34,300%, including dividends, since he became CEO of Berkshire in the mid-1960s, the Class A shares (BRK.A) of the Oracle of Omaha's company have gained over 5,086,000%, as of the closing bell on March 27!
Warren Buffett's "secret" to success is really no secret at all. He and his investment team seek out predominantly brand-name, profitable businesses with rock-solid management teams and allow time to work its magic.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
But even with Wall Street's three major stock indexes reaching new all-time highs, plain-as-day values can still be found in the 45-stock, $374 billion investment portfolio Warren Buffett oversees at Berkshire Hathaway.
What follows are three Warren Buffett stocks that are screaming buys in April, and have the potential to deliver for investors for a long time to come.
Chevron
The first Warren Buffett stock you can confidently add to your portfolio for April (and beyond) is energy company Chevron (CVX 0.42%). This integrated oil and gas giant happens to be one of only two holdings in Berkshire's investment portfolio that Buffett and his team added to during the December-ended quarter.
If there's a negative that comes with investing in oil stocks, it's that they're cyclical. In other words, they ebb-and-flow with the health of the U.S. economy. As we witnessed during the initial stages of COVID-19 lockdowns, the demand cliff can wallop the underlying commodities these businesses rely on. Thankfully, an assortment of macro and company-specific factors suggest Chevron is well-positioned for success.
To start with, Chevron should benefit from a constrained global oil supply. Roughly three years of capital underinvestment from energy majors (including itself) during the pandemic, coupled with Russia's invasion of Ukraine, makes it unlikely that crude oil will be oversupplied anytime soon. When the supply of a critical commodity is constrained, it's normal for the price of that commodity to rise. That's excellent news for Chevron's upstream drilling segment.
Another reason Chevron has proved unstoppable is because it's an integrated energy company. Although it generates its best margins from drilling, it also operates transmission pipelines, chemical plants, and refineries. Pipelines produce highly transparent and predictable cash flow, while chemical plants and refineries hedge against downside in the spot price of crude -- i.e., a lower spot price reduces input costs and typically leads to higher consumer/enterprise demand. Chevron is perfectly hedged in the event that the spot price of crude moves lower.
It also has one of the most enviable balance sheets among integrated energy companies. A higher spot price for crude oil allowed Chevron to meaningfully pay down its debt and close out 2023 with a net debt ratio of just 7.3%. It has the financial flexibility needed to make acquisitions, fund a robust capital-return program, and reinvest in its high-margin drilling operations.
The last piece of the puzzle with Chevron is that it's historically cheap. Shares can be picked up right now by opportunistic long-term investors for less than 11 times forward-year earnings. That's a 27% discount to its forward-year earnings multiple over the trailing-five-year period, and a heck of a bargain for an oil titan that's paying a 4.2% yield and has raised its payout for 37 consecutive years.
Sirius XM Holdings
A second Warren Buffett stock that makes for a screaming buy in April (and beyond) is satellite-radio operator Sirius XM Holdings (SIRI 4.64%). Coincidentally, Sirius XM is the other company, besides Chevron, Buffett and his team were purchasing during the fourth quarter.
The primary reason Sirius XM stock has performed so poorly recently is due to concerns about the health of the advertising industry. A couple of money-based figures and recession-forecasting tools portend trouble for the U.S. economy. It's pretty normal for businesses to pare back their advertising budgets when the first hint of trouble arises with the economy.
However, Sirius XM isn't like traditional radio operators, and that's a big deal.
Whereas terrestrial and online radio operators generate the bulk of their sales from advertising, Sirius XM brought in just 20% of its revenue in 2023 from ads (primarily via Pandora, which it acquired in 2019). The lion's share of revenue for Sirius XM (nearly 77% of net sales) last year can be traced to subscription services. Subscribers to Sirius XM are considerably less likely to cancel their service than advertisers are to pare back their spending during periods of economic uncertainty. In short, it positions Sirius XM better than its peers to thrive in any economic climate.
This is probably a good time to mention that Sirius XM is also the only licensed satellite-radio operator. Though it still faces competition for listeners with terrestrial and online radio, being the only licensed satellite-radio operator affords the company strong pricing power, which it's been able to use to outpace the prevailing rate of inflation.
Another reason Sirius XM is a stellar buy is the transparency of some of its expenses. While royalty and talent acquisition costs are going to change from one quarter to the next, equipment and transmission costs tend to be relatively fixed no matter how many subscribers the company adds. That's a recipe for long-term margin expansion.
The final piece of the puzzle is Sirius XM's historically cheap valuation. Shares of Sirius XM can be picked up right now for less than 12 times forward-year earnings, which works out to a 40% discount to its average forward-year earnings multiple over the last five years.
Image source: Getty Images.
Paramount Global
The third Warren Buffett stock that stands out as a screaming buy in April, and likely well beyond, is media titan Paramount Global (PARA 3.50%).
The are two culprits behind the abysmal performance of Paramount's stock. First, it's suffering from the same advertising concerns holding down Sirius XM. The traditional TV divisions for legacy media operators like Paramount Global are still fairly reliant on advertising revenue.
The other concern for Paramount Global is the company's debt. With advertising sales declining and movie productions being hit-and-miss following the pandemic, there's been some concern about the company's ability to service the $14.6 billion in long-term debt it had outstanding at the end of 2023.
While these are tangible concerns that have rightly weighed on Paramount's stock, the risk-versus-reward now favors investors with a long-term mindset.
One factor working in Paramount's favor is that we're in an election year. According to GroupM, political ad spending in the U.S. is expected to grow by 31% to $15.9 billion this year from the previous election cycle (2020). While this may not be a cure-all for Paramount's legacy TV segment, it'll provide a nice lift following a difficult period for many ad-driven businesses.
Paramount's streaming segment provides reason for optimism, too. Though investors would prefer to see substantially smaller losses in the current year, what's important is Paramount has maintained strong subscription pricing power. Being able to increase prices without losing many (if any) of its 67.5 million Paramount+ subscribers is this segment's key to turning the corner to recurring profits.
I'd be remiss if I didn't also note that Paramount is behind the nation's leading free, ad-driven streaming platform, Pluto TV. If the U.S. economy were to fall into a recession, "free" becomes an incredibly enticing option for consumers looking to save money.
Patient investors can pile into this Buffett stock right now for less than 9 times forward-year earnings, which may prove to be one heck of a bargain.
