With an investment portfolio worth some $335 billion, Berkshire Hathaway is indisputably one of the largest and most admired investment holding companies on the planet. But that didn't happen overnight. Headed up by legendary investor Warren Buffett, the company has a track record of investing in many of the greatest businesses around.
Here are two high-quality businesses that investors should consider for their own portfolios now.
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1. Mondelez International: A portfolio of globally recognized brands
Regardless of what's going on in the world or with the economy, nobody can afford not to eat if they hope to sustain life. That is what makes consumer staple stocks so dependable, regardless of the economic environment. And Mondelez International (MDLZ 0.60%) is arguably a top-notch company that can capitalize. With brands like Cadbury chocolate, Honey Maid graham crackers, and Philadelphia Cream Cheese, the company offers something for everyone's taste.
Mondelez's top market share in cookies and crackers and second-best market share in chocolate probably caught Berkshire Hathaway's attention. The investment holding company's $45 million stake in Mondelez is admittedly quite modest. But that doesn't take away from the fact that analysts anticipate that Mondelez's stacked product portfolio could generate an 8.6% annualized growth rate of its non-GAAP (adjusted) diluted earnings per share (EPS) through the next five years.
Income investors will be delighted to learn that the company's 2% dividend yield is a bit more than the S&P 500 index's 1.7% yield. And with the dividend payout ratio poised to come in around 54% for this year, the payout should continue to grow. Yield-hungry investors can snatch up shares of Mondelez at a forward price-to-earnings (P/E) ratio of 22.4, which is cheaper than the confectioners industry average of 24.2.
2. Floor & Decor: A proven winner
When you think of home improvement retailers, generalists like Home Depot and Lowe's are probably the first to come to mind. But by specializing in hard-surface flooring, Floor & Decor (FND -1.16%) has carved out a niche since its founding in 2000. The company's entire average store space of 79,000 square feet is devoted to selling approximately 4,400 wood, tile, vinyl, laminate, and natural stone flooring products. This approach gives the company a more extensive offering of products than its competitors, which is what draws customers into its 200 stores.
Floor & Decor's winning business model has paid dividends to its shareholders in recent years. The stock parlayed a $10,000 investment into about $20,000 over the past five years. That's meaningfully more than the not quite $17,000 that the same investment amount in the S&P 500 index would have become during that time (with dividends reinvested). This is probably why Berkshire Hathaway owns a 4.5% stake in the company worth $440 million.
FND Total Return Level data by YCharts.
And these market-beating returns look likely to continue in the years ahead, since the company projects that it can increase its store count to 500 over the long haul. This is what has led analysts to believe that Floor & Decor's earnings can compound at 13.6% annually over the next five years, which is well above the home improvement retail industry average annual earnings growth rate prediction of 4.3%.
Best of all, growth investors can buy the stock at a forward P/E ratio of 28. Taking its remarkable growth prospects into consideration, that is a sensible premium over the home improvement retail industry average forward P/E ratio of 16.
