Warren Buffett is arguably the most successful investor alive. Because he picks his investments based on their long-term fundamental quality instead of short-term speculation, Buffett's stock picks tend to be among the most solid and reliable businesses around.
Of course, investors should never blindly follow the investment decisions of others, not even when it comes to an investing luminary such as Warren Buffett. But when looking for reliable companies that can bolster your portfolio, checking out Warren Buffett's stocks is a great place to start.
With this in mind, we asked three Motley Fool contributors to each pick one particularly attractive stock from Warren Buffett's portfolio. Below, find out why Procter & Gamble (NYSE:PG), Costco Wholesale (NASDAQ:COST), and Coca-Cola (NYSE:KO) popped up as promising names to consider, and let us know if you agree.
Bob Ciura (Procter & Gamble): P&G is a Buffett-approved stock that could be a cornerstone of any investor's portfolio. Through Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), Buffett owns a huge piece of the consumer staples giant. According to Berkshire's 13F filing with the Securities and Exchange Commission, Berkshire held 52 million shares of P&G as of the end of 2014. This amounted to a $4.8 billion stake at that time, making P&G one of Berkshire's biggest investments.
Buffett initially invested in P&G largely through Gillette, which P&G later bought out. However, the rationale for still holding P&G stock is extremely sound. P&G is an industry leader with several of the most valuable and recognizable brands in the world, such as Tide, Crest, and Charmin. P&G sells its products in more than 180 countries across the globe, and it has a huge product portfolio that cumulatively generates more than $80 billion in annual revenue. P&G's portfolio includes 23 brands that each generate at least $1 billion in annual sales.
P&G's track record of rewarding shareholders speaks for itself. It has paid dividends for an astounding 124 consecutive years, dating all the way back to the company's incorporation in 1890, and it has increased its dividend for 58 consecutive years which makes it respected Dividend Aristocrat.
P&G stock is a bit pricey right now, at 25 times earnings, however, the stock pays an impressive 3.1% dividend, which seems to rise higher every year. For a rock-solid dividend and a world-class brand, go with P&G.
Dan Caplinger (Costco): Warehouse retailer Costco Wholesale has been a Buffett favorite for years, and given the company's success, Buffett's ongoing commitment should come as no surprise. Over the past 20 years, Costco has rewarded shareholders with average returns of almost 18% annually, and that track record has only improved recently, with a climb of more than 40% since this time last year.
Costco's primary asset is its innovative business model, whereby it collects high-margin revenue through upfront membership fees that then align the company's interests with those of its shoppers. By using membership revenue as a guaranteed cushion, Costco can afford to offer bargain-basement pricing on the goods it offers, which creates the positive feedback loop of giving its customers desirable deals that keep them coming back for more at renewal time. Indeed, Costco has 90% of its customers renew their memberships each year, and the company has finished at the top of retailer lists for customer satisfaction.
You'd think the Costco model would be easily replicable, but rivals have had only middling success in duplicating the pioneer's performance. With a well-known reputation for treating its employees extremely well and a commitment to local communities, Costco is a great example of what Buffett looks for in a company for his portfolio.
Andres Cardenal (Coca-Cola): Coca-Cola is one of the most iconic Warren Buffett stocks. The classic beverage company is the second largest position in Berkshire Hathaway's portfolio behind Wells Fargo (NYSE:WFC). The Oracle of Omaha first bought Coca-Cola in 1988 and has remained committed to his investment ever since. In fact, he has never sold a single share of the company since then, and he has publicly stated that he is planning never to sell his shares.
Warren Buffett is all about competitive strengths, and Coca-Cola comes second to none in that area. Its flagship Coca-Cola and Diet Coke brands are global industry leaders; in total, Coca-Cola owns 20 different brands making more than $1 billion each in global revenues. In addition, its gargantuan distribution network and financial resources to invest in marketing and advertising put Coca-Cola in a position of undisputed strength.
The trend toward healthier nutrition represents a considerable challenge for Coca-Cola, as consumers are cutting back on traditional sodas and choosing healthier drinks. However, the company is adapting to changing demand via an increased focus on waters, teas, sports drinks and other products with a better health impact.
Importantly, Coca-Cola has proven its ability to deliver growing cash flows through all kinds of scenarios; the company has paid a quarterly dividend since 1920, and it has increased dividends over the last 53 years uninterruptedly, including an 8% dividend hike for 2015. At current prices, Coca-Cola stock pays a dividend yield around 3.2% -- not bad at all coming from such a rock-solid dividend powerhouse.
Andrés Cardenal owns shares of Berkshire Hathaway. Bob Ciura has no position in any stocks mentioned. Dan Caplinger owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, Costco Wholesale, Procter & Gamble, and Wells Fargo. The Motley Fool owns shares of Berkshire Hathaway, Costco Wholesale, and Wells Fargo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola.
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