Known as the Oracle of Omaha, Warren Buffett has collected both an incredible investment record and a deservedly vast following among investors of all types. Every move he makes is scrutinized in the hope of gleaning some wisdom from his investment choices. Here are three Buffett stocks that are worth digging into right now, each of which clearly highlights this investment legend's long-term approach to investing: Walmart, Inc. (WMT 0.87%), Apple, Inc. (AAPL -0.20%), and Seritage Growth Properties (SRG 1.20%).
Don't count this titan out quite yet
Brian Stoffel (Walmart, Inc.): Admittedly, my investment style doesn't map perfectly with Warren Buffett's. While he focuses primarily on non-technology companies with pricing power, I like those that benefit from either high switching costs or network effects.
Image source: Getty Images.
One stock we both like, however, is Walmart. Buffett's Berkshire Hathaway (BRK.A 0.88%) (BRK.B 0.55%) currently owns 1.4 million shares of Walmart, worth about $134 million. While I don't own shares myself, I've given the company an outperform rating on my CAPS profile, a move I made in May.
But it hasn't always been this way. Back in 2016, when the company made the $3 billion purchase of Jet.com, I called it a desperate and foolhardy move. There's no way Walmart could ever catch Amazon, I reasoned.
Thus far, I've been proven very wrong. While still not an existential threat to Amazon, Walmart's e-commerce performance has been impressive. U.S. e-commerce sales grew 44% last year and another 40% during the most recent quarter. It turns out Jet.com's Marc Lore, who came over with the acquisition, has made a major difference at the company. Walmart's shrewd decision to invest in India's Flipkart only adds to my belief that Walmart is setting itself up to be a market beater.
Walmart is currently trading for just 16 times trailing free cash flow and offering a 2.2% dividend to investors. I think now is as good a time as any to consider an investment in Walmart.
Take a bite with Buffett
Keith Speights (Apple, Inc.): Warren Buffett was kind of late to the party with Apple. But the consumer technology stock has become Berkshire Hathaway's biggest holding. It's also the top holding in my personal portfolio. Between the two of us, we own close to $47 billion of Apple stock. Granted, Buffett's stake (via Berkshire) is just a wee bit higher than mine.
There are several reasons why Apple still is a stock worth buying. For one thing, Apple's moat is both compelling and enduring, thanks to its ecosystem of products. For example, if you use an iPad, you're likely to use an iPhone, as well. And you're likely to shop on the Apple App Store.
We could also talk at length about Apple's fantastic financial position. The company has a cash stockpile of nearly $71 billion. It continues to generate cash flow like crazy. Apple even claims a much-overlooked dividend that currently yields a not-too-shabby 1.3%.
But the biggest reason, in my view, to like Apple is what could be coming around the corner for the company. Apple is on track to invest more than $14 billion this year in research and development (R&D). It's pouring an undisclosed but almost certainly significant amount of this R&D money into augmented reality (AR). I think that AR could be a game changer for Apple within a few years.
Prepared in advance for bad news
Reuben Gregg Brewer (Seritage Growth Properties): Seritage is a real estate investment trust, or REIT, created by struggling Sears Holdings to raise cash. It was heavily dependent on Sears and Kmart stores for its revenues when it first came to market in 2015 -- Buffett bought shares for his personal account late that same year. However, as of the second quarter, those two stores accounted for just 43% of rents. Seritage has made a lot of progress in its shift away from Sears.
|
|
Sears Holdings Revenues as a Percent |
|||
|---|---|---|---|---|
|
Date |
9/15* |
6/16 |
6/17 |
6/18 |
|
Percentage |
78% |
71% |
56% |
44% |
Data source: Seritage Growth Properties company filings. *First full quarter as a public company.
The big draw here is that Sears and Kmart stores are paying around $4 per square foot in rent, while new tenants are paying market rents, which are closer to $14. It's not hard to see why Buffett would like this math.
The ideal outcome for Seritage is a continuation of the slow and steady shift away from Sears Holdings' troubled brands. But things have taken a turn for the worse at Sears Holdings, with the company recently declaring bankruptcy. That could mean Seritage suddenly gets left with a lot of empty space.
It's hardly a surprise that Sears Holdings is in financial trouble. But here's the interesting thing: Seritage inked a deal with Buffett's Berkshire Hathaway in July that will allow the REIT to access up to $2 billion in cash. So even if Sears goes belly up, Seritage should have enough cash to keep moving forward.
If you can stomach some near-term uncertainty, the business opportunity here appears pretty enticing -- enticing enough, as it were, to attract both Buffett and Berkshire Hathaway to put their money on the line.
