Warren Buffett’s Time-Tested Stock-Picking StrategyWarren Buffett’s Time-Tested Stock-Picking Strategy Berkshire Hathaway, led by investing icon Warren Buffett, has consistently outperformed the broader market. Here are three investments from Berkshire’s portfolio that warrant consideration for most portfolios. 1. Occidental Petroleum (OXY) Despite the growing interest in alternative energy, fossil fuels are projected to remain the world’s primary energy source until 2050. Buffett has invested heavily in Occidental Petroleum due to its CEO’s expertise, vast oil and gas assets, and leadership in carbon capture initiatives. 2. Kraft Heinz (KH) Kraft Heinz, a company initially formed through a merger facilitated by Buffett, has faced challenges. However, under new leadership, the company has made progress towards innovation and becoming a reliable cash cow. Its low valuation and strong dividend yield make it an attractive investment. 3. Visa (V) Visa, the global leader in card payments, continues to expand its market share and enhance its offerings. The company’s commitment to innovation and meeting regional payment needs positions it well for continued growth. Investing $1,000 in Kraft Heinz While Kraft Heinz may have been overlooked by The Motley Fool’s Stock Advisor team, considering its low valuation, strong dividend yield, and potential for future growth, investors may want to consider allocating some of their portfolio to this stock.
His legend may come from a different era of investing. But the fact is that Warren Buffett’s stock-picking approach still works. After a brief post-pandemic lull, his Berkshire Hathaway fund outperforms the broad market again.
Read between the lines: you’d be wise to adopt some of his choices.
If you have a few thousand dollars that you know you won’t need for a while, here are three investments from Berkshire that belong in almost anyone’s portfolio.
1. Occidental Petroleum
If you think the advent of alternative energy poses a threat to fossil fuels anytime soon, think again. The United States Energy Information Administration predicts that liquid fuels such as oil and natural gas will remain the world’s largest source of energy production through 2050. The growing demand for energy between now and then (largely due to population growth) means that we will likely be burning more oil and gas in 2050 than we do now.
Connect the dots… the energy sector still offers many opportunities.
That’s why Warren Buffett has hitched his wagon to one of the company’s bright but overlooked stars. That’s Occidental petroleum (NYSE: OXY)Berkshire currently owns a 123 million-share, $16 billion stake in the oil giant, largely because, in Buffett’s own words, CEO Vicki Hollub “knows how to separate oil from rock, and that’s an uncommon talent, valuable to her shareholders and her country.” Buffett also touts Occidental’s “vast oil and gas assets in the United States,” which were hand-picked largely based on their likely future operating costs and their efficient fit with Occidental’s existing assets.
Running a well-oiled business doesn’t always mean Occidental stock performs as well as hoped. Shares, for example, are down slightly from their April peak and haven’t turned a profit since April 2022.
But look at the bigger picture. This energy outfit is arguably one of the best-managed names in the sector (if not the best-managed), even if most investors don’t see it that way. Buffett does.
The kicker: Warren Buffett also praises Occidental Petroleum’s “leadership in carbon capture initiatives.” What is carbon capture? It’s (literally) the removal of carbon dioxide from the ambient air. While the technology is still in its infancy, research firm Global Market Insights reports that the global carbon capture market is expected to grow at a compound annual rate of 19% through 2032. Occidental is positioned to capture more than its fair share of that growth.
The story continues
2. Kraft Heinz
Kraft Heinz (NASDAQ: KHC) is one of Warren Buffett’s rare missteps.
As a reminder, Kraft and Heinz used to be separate companies. But the food industry lends itself to economies of scale. That’s why Buffett, then a major shareholder in Heinz, helped orchestrate the tie-up in 2015 by steering the company toward a peer takeover.
It turned out to be a bad fit. The desired synergies never materialized. In fact, the two companies were far too mismatched to simply merge. That’s why, after a more than 70% drop in the stock price in 2017 and 2018, Buffett finally admitted in 2019 that Berkshire had “overpaid for Kraft.” The 326 million shares of Kraft Heinz that Berkshire owns have not changed in the meantime.
The funny thing is, the combined company could be stronger than it’s ever been. CEO Carlos Abrams-Rivera has proven he understands what needs to be done since taking over earlier this year. Innovation, for example, is once again a priority. The 360CRISP platform, for example, makes microwaved grilled cheese sandwiches taste and feel like pan-fried versions of the popular snack/meal.
It’s not a growth stock by any means. However, it is becoming an increasingly reliable cash cow. It’s also a cheap stock with a strong dividend yield: Kraft Heinz shares are currently valued at less than 10 times this year’s expected earnings and have an annual dividend of almost 5% of the current price.
You should know that the company hasn’t increased its dividend since 2019, after cutting it following the post-merger regrouping. However, given all the work it’s done in the meantime, it’s possible that the dividend will increase again in the near future.
3. Visa
And finally, if you now have an extra $3,000 to spend, add your credit card company Visa (NYSE: V) to your list of Warren Buffett stocks to buy.
Berkshire’s stake in Visa isn’t huge. It owns just over 8 million shares worth about $2 billion. That’s less than 1% of the value of Berkshire’s stock holdings and less than 1% of Visa itself.
This is a position Buffett has held for a while, and for good reason. This is a company and a business that will be around for a long, long time. As long as the world uses money, consumers and businesses will need a way to manage it. Market research firm Business Research Insights believes that the global card payments market is expected to grow at an annual rate of just over 13% through 2032.
Visa is ensuring that it remains a leader in the growing payments space by making sure that its cards remain the easiest and most rewarding in the world. The company operates several independently managed innovation centers around the world that are designed to meet the unique payment needs of each region, for example. As an example of this effort, the credit card broker now offers a turnkey customer loyalty/rewards program for merchants looking for ways to enhance their engagement with consumers.
These initiatives are clearly working. Despite the economic headwinds currently blowing, the 9% increase in total payment volume last fiscal year has been followed by similar growth in the first half of this fiscal year. This continued growth suggests that the world is increasingly turning to cards as an alternative to cash or even cheques. Again, it is a trend that shows no signs of abating.
Should You Invest $1,000 In Kraft Heinz Now?
Before you buy Kraft Heinz stock, you should consider the following:
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Visa. The Motley Fool recommends Kraft Heinz and Occidental Petroleum. The Motley Fool has a disclosure policy.
The Best Warren Buffett Stocks to Buy Now with $3,000 was originally published by The Motley Fool
