Warren Buffett Portfolio: 6 of His Best Long-Term Picks

Warren Buffett is a proponent of value investing, which looks to find stocks that are undervalued in their market price as compared to their intrinsic value. Financial metrics like price/book (P/B), price-to-earnings (P/E), return on equity (ROE), and dividend yield carry the most weight on the Buffett scales. In addition, Buffett seeks out companies that have what he calls "economic moats"—high barriers to entry for a competitor who may wish to invade the market and erode profit margins.

Key Takeaways

  • Warren Buffett is a proponent of value investing, which looks to find stocks that are undervalued in their market price as compared to their intrinsic value.
  • These market leaders have high barriers to competition, are fairly priced, and, regardless of what short-term stock prices say, should deliver long-term value to shareholders.
  • Nike, Burlington Northern Sante Fe Corp., ConocoPhillips, Costco, The Coca-Cola Company, and Proctor & Gamble have a favorable price to book (P/B) ratio, price to earnings (P/E) ratio, return on equity (ROE), and dividend yield, according to Buffett's assessment.
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What is Value Investing?

Nike Inc.

The Nike (NKE) name is synonymous with high-performance shoes, but the company has expanded far beyond just footwear and is now a leader in apparel, sporting goods, and just about anything else for the athletically-inclined. Nike is also close to the top in just about every market it participates in.

As of December 3, 2020, the company has $9.48 billion in cash and $12.97 billion in total debt. This company is also making big inroads in China and other developing economies, and it has one of the strongest and most recognizable brands in the world.

Burlington Northern Santa Fe (BNSF) Railway

Buffett really believes in this rail freight company—so much so that he put $34 billion on it on Nov. 3, 2009. This freight railroad operator either owns or leases 32,500 route miles of track in the United States and Canada. Burlington Northern Santa Fe Railway (BNSF) transports nearly everything that makes an economy go, from consumer goods and autos to lumber, petroleum, and coal. Notably, while Buffett owns a controlling in BNSF, the company is not publicly traded since it was acquired as a wholly-owned subsidiary of Berkshire in 2010.

Railroad operators like BNI are considered "early cycle" beneficiaries of a strengthening economy; when activity picks up after a recession, transport companies tend to be among the first to see higher orders, as well as increased sales and earnings growth. Burlington Northern also sports a below-market average P/E and a total market 0.05% dividend yield.

ConocoPhillips

ConocoPhillips (COP) is an integrated energy company that participates in all parts of the oil and gas industry—from drilling to refining to end sales of refined products like gasoline, natural gas, and petrochemicals for industrial use.

After a historically volatile year for the energy and oil and natural gas sectors, ConocoPhillips reported a third-quarter 2020 loss of $0.5 billion, or ($0.42) per share, compared with third-quarter 2019 earnings of $3.1 billion, or $2.74 per share. The company also distributed $0.5 billion in dividends and announced an increase to the quarterly dividend for shareholders.

Costco

This operator of discount warehouses has been the definition of slow and steady for decades. Operating under a strict philosophy of capping profit margins so that customers get lower prices whenever Costco (COST) does, the company has built a loyal following that borders on fanatical. Members pay an annual fee to Costco for the right to shop at the stores, and most Costco cardholders will tell you that they can save more money than the membership cost in a single visit. Those membership fees, meanwhile, drop like a rock to Costco's bottom line as net income.

Costco sells mostly grocery items, produce, and consumer goods, but you can find just about anything in a Costco warehouse, including clothes, electronics, seasonal goods, jewelry, and home improvement items.

The Coca-Cola Company

Buffett has owned the eponymous soft drink maker since 1988, and it has been one of his most successful holdings. Coca-Cola (KO) continues to grow around the world, following a unique strategy of selling mainly syrup and concentrate to bottlers and restaurants, which then formulate the finished products that you see in grocery stores and restaurants.

While the U.S. market is somewhat saturated, the leading brand and high-profit margins make Coca-Cola a cash cow—a source of dependable earnings, year in and year out. In addition, the company generates the lion's share of sales overseas, and it sports strong product growth rates in emerging markets like India. While Coca-Cola India experienced a 2% fall in its consolidated net profit, its total income was up 18.16% during 2019-20. Finally, revenue from operations rose 18.63% during 2019-20 as compared to a year ago.

Procter & Gamble

It's a safe parlor bet to say there's at least one Procter & Gamble (PG) product in every home in America. The company is a consumer products Goliath, with brands like Tide, Bounty, Pampers, Head & Shoulders, Gillette, Olay, Crest, Oral-B, Dawn, Downy, and Duracell. P&G's long-term strategy is to only compete in markets where it has a number one or number two market share and pare off products when it can't obtain that leadership position. Having a top market share allows PG to easily raise product prices when the cost to produce items rises.

As of December 3, 2020, PG also has a 2.27% dividend yield and a price to earnings (P/E) ratio of 25.55.

Warren Buffett

Alison Czinkota / Investopedia

The Bottom Line

There's no shame in being a coattail investor, especially when that coat belongs to Warren Buffett. While all stock investing comes with some risk, a basket of these six stocks is a diversified way to participate in an economy that is by all accounts growing after the worst recession in decades. These market leaders have high barriers to competition, are fairly priced, and, regardless of what short-term stock prices say, should deliver long-term value to shareholders.

As Buffett himself said, in the short term the market is a voting machine, in the long term, it is a weighing machine. Buffett has an uncanny ability to pick the stocks with the greatest growth potential, ensuring that the profit scale will always tip in his favor.

Article Sources

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