One way investors can find potential market-beating investments for the long term is to follow in the footsteps of successful billionaire investors, and there's no one more successful at investing for the long haul than Warren Buffett. So we asked three Motley Fool analysts to tell us which of Buffett's investments they think will be in his stocking again this holiday season. After all, it's not called a stocking for nothing!
Buffett's portfolio manager, Ted Weschler, has been buying General Motors for Berkshire Hathaway this year as the stock has been weighed down by an astounding 78 recalls affecting over 30 million vehicles. While General Motors generated lots of bad press and will likely pay a large fine over these, the company's brands have not been damaged significantly, and over the long term General Motors will do well.
For investors, the bad press and short-term headwinds of the recalls enables you to buy shares at the low forward P/E ratio of 9 and a forward EV/EBITDA ratio of 6. Both are well below Ford's ratios of 12 and 14, respectively. This is despite the fact that General Motors has a much stronger balance sheet than Ford given it went through bankruptcy to clear out its debt that was holding the company back.
At the same time, low oil prices should provide a tailwind to GM's sales. Oil prices are currently at five-year lows and could drop further, as neither U.S. producers nor OPEC have indicated they plan on cutting production. We are already starting to see this, as General Motors recorded its best November sales in seven years. Low oil prices will also importantly provide a big boost for GM's more profitable SUV sales, which already were set to do well given Ford's retooling of its F-series production plants. In November, GM's full-size truck sales leapt, with Silverado and Sierra sales up 24% and 57%, respectively.
Other positives for GM next year include a hopeful payoff of the investment in marketing to turn around perception on the Cadillac, which, despite having arguably its best products ever, is still suffering a sales drop. Also, in Europe, where GM has been struggling, the company expects its business to return to profitability in the the next two years.
With all the positives and a low price, it's only a matter of time before the market realizes the value that GM offers. In the meantime, you are paid while you wait for the market to re-evaluate GM via its 3.6% dividend yield.
Leo Sun: Berkshire Hathaway owns nearly 18% of DaVita Healthcare Partners (DVA 1.95%), one of the largest dialysis providers in the United States. The U.S. dialysis market is steadily growing because of the unfortunate prevalence of diabetes and hypertension -- two conditions that often lead to kidney disease.
DaVita and Fresenius Medical Care (FMS -0.97%), the two largest companies in this field, respectively controlled 33% and 37% of the U.S. dialysis market in 2013. In May 2012, DaVita acquired HealthCare Partners, the largest U.S. operator of physician groups and networks, boosting its annual revenue 44% between fiscal 2012 and 2013.
Last year, DaVita and Fresenius were both weighed down by fears that the Centers for Medicare and Medicaid Services, CMS, would reduce payments to dialysis providers by as much as 9.3%. Yet in a classic "buy when others are fearful" move, Berkshire boosted its DaVita stake by 23.5% last November. The investment paid off -- on Nov. 26, the CMS announced that it would only reduce payments by 1% over the following two years, and shares of DaVita rallied nearly 20% in 2014.
DaVita exhibits the steady top- and bottom-line growth that's typical of Berkshire's top investments. Over the first nine months of 2014, DaVita's patient service revenue rose 6.3% year over year as net income improved 19.5%.
Eric Volkman: One stock that Buffett will be able to unwrap this holiday season is a company gifted to him by someone else. DirecTV (DTV.DL) is a Berkshire Hathaway shareholding picked by the great man's heirs apparent, Todd Combs and Ted Weschler.
Although the stock is a departure in certain respects for Berkshire -- Buffett has famously avoided tech companies -- in other respects it fits the company's investing philosophy well. It's got a very strong position in its niche, being one of only two significant satellite TV providers on the market. It's also been consistently profitable of late and has steadily grown its top line. DirecTV is very active in Latin America, fertile territory in which its subscriber count has more than quadrupled since 2007.
AT&T (T 1.27%) made a $95-per-share buyout offer for the firm this past May, a deal that's awaiting approval from the Federal Communications Commission. The FCC is in no apparent rush, so the deal almost certainly won't happen by Christmas. Regardless, in the very near future Berkshire should reap a big payout from the buyout. The resulting windfall should give Buffett and the boys plenty of scratch to buy many more stocking stuffers for their portfolio.