Warren Buffet, the world's most successful investor, is an endless source of wit and wisdom for anyone who is looking to make money in the stock market. As the ultimate example of a long-term investor, Buffet has made a fortune for himself and his shareholders through his superior stock-picking skills.
Buffett's portfolio is publicly available for anyone to see, so we asked a team of our Motley Fool contributors to give us their favorite ideas from his holdings that they think could be a good place to invest new money. Read below why we think that American Express (AXP -0.10%), Phillips 66 (PSX 0.47%), IBM (IBM 0.78%), and Wells Fargo (WFC 1.57%) could make great stock picks for investors who want to follow in the master's footsteps.
Brian Feroldi: While several of Buffet's favorite stocks can be found trading at good prices these days, I think American Express is the most compelling stock to consider buying from his portfolio right now. Buffett has long considered this blue-chip one of his "Big 4" investments, and Uncle Warren currently owns more than 151 million shares of this credit card issuer, which is currently worth a cool $11.7 billion
Investors have soured on American Express's stock recently, as the news that the company is losing exclusivity from Costco in March 2016 have soured analysts' near-term growth expectations. In addition, the company has stated it plans to increase spending in the near term in order to drive long-term membership growth, which could make profits over the next few quarters look rather muted.
I think an increase in spending makes sense, as it should help the company attract new card members, which should in turn help drive profitable growth in the long term. Meanwhile, the company is returning gobs of cash to shareholders though its share repurchase program, and it has plenty of room to grow its modest 1.4% dividend quickly in the years ahead.
Despite the short-term trouble, American Express is still a big player in the credit card space and will benefit from the long-tail worldwide shift from cash and check to plastic. With shares down about 20% year to date, and currently trading for about 13 earnings, today's price looks like an attractive entry point into this blue-chip name.
Adam Galas: Phillips 66 is Berkshire's most recent big addition, with Buffett's company buying a 58 million share stake worth about $4.5 billion last week. There are three reasons I think Buffett is such a big fan of Phillips 66.
First, Phillips 66 has massive growth ahead of it. The company has over $20 billion of growth projects in the pipeline. That means cash flow should continue to grow at a good clip, allowing Phillips to continue returning cash to investors in the form of buybacks and dividends.
In fact, since it was spun off from ConocoPhillips back in 2012, Phillips 66 has been buying back shares at a rate of 4.9% per year.
It's also grown the dividend by a 41% compound annual growth rate, or 180% over the last three years.
To continue returning cash to shareholders Phillips is focusing much of its new investments into midstream projects, which generate steady, predictable cash flow via long-term, fixed-fee contracts that are largely immune from oil price volatility.
With increasing diversification into commodity incentive assets, Phillips 66 is likely to continue to reward long-term investors with market-beating returns and growing dividends for many years to come.
Tim Brugger: As one of the great investors of our time, it stands to reason folks are interested in Warren Buffett's investment philosophy. That said, a Buffett quote from nearly 20 years ago says it all: "If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes."
With that in mind, it's no wonder Buffett's investment vehicle -- Berkshire Hathaway -- has gone all-in on IBM. As of the end of Q2, IBM was Berkshire's third largest holding, with a market value of just under $13 billion. For an investor who generally shies away from tech stocks, Buffett loves IBM -- and for good reason.
Much was made of IBM's recent quarter, and most of it wasn't positive. A 13% decline in total sales and 15% drop in earnings per share, led by a 32% slide in hardware revenue, left many IBM followers dismayed. But Buffett understands it's CEO Ginni Rometty's "strategic imperatives" where IBM's bread is buttered, and in those areas, the company is beginning to shine.
Cloud revenues -- one of IBM's key growth drivers -- jumped again last quarter. Removing the impact of currency and one-time items, cloud sales skyrocketed over 70% in Q2, on pace to hit $4.5 billion in annual revenue. Another of IBM's strategic imperatives, and a market exploding like cloud-related sales due to the proliferation of big data, is business analytics. Again, IBM delivered last quarter, growing over 20% adjusting for currency.
For investors "willing to own a stock for ten years," as Buffett is, IBM is worthy of consideration. And at these depressed stock price levels and 3.5% dividend yield, IBM is an absolute steal for investors in search of value and income.
Joe Tenebruso: Fear is rampant in today's market. Weather it's concerns about China's slowing economy and plunging stock market, or the prospect of rising interest rates here in the U.S., many investors are on edge as volatility has once again returned to U.S. markets.
Fortunately, a review of Warren Buffett's holdings within Berkshire Hathaway can provide us with a solution. In fact, Wells Fargo -- which is Buffett's largest holding by far and comprises nearly a quarter of Berkshire's publicly traded stock portfolio -- may be the ideal stock to buy in the current market environment.
Wells Fargo's revenue is derived from its primarily U.S.-based operations, helping to somewhat insulate its shareholders from China's woes. And Wells Fargo's diverse business lines tend to hold up relatively well through different interest rate cycles, making a Federal Reserve interest rate hike a less worrisome scenario.
For instance, in a rising rate environment, Wells Fargo will likely benefit from higher net interest margins as the spread between what the bank pays its depositors and the interest it charges on its loans widens. And if interest rates remain low, Wells Fargo's massive fee-based mortgage origination business should continue to prosper, as low rates tend to boost demand for mortgages. In this way, strength in one area of Wells Fargo's business is often able to offset weakness elsewhere.
With the specter of global economic turmoil intensifying, Wells Fargo's proven ability to generate strong and consistent profits in even the worst economic conditions makes this well-run bank an excellent investment option in today's volatile market conditions.