Some would have you believe that investing is incredibly complicated, but at its core, a sound philosophy boils down to buying great companies and holding them for the long haul. It's as simple as that.
Where to find great companies? Of the various sources for inspiration, one common starting point is investigating the stock picks of billionaires. In doing so, it's apparent that Alphabet (GOOG -1.55%) (GOOGL -1.45%), Chevron (CVX 0.01%), and Kraft Heinz (KHC 0.43%) are all high-quality stocks that occupy prominent positions in billionaires' portfolios. Even better: They're all hanging on the discount rack.
Alphabet: Loved by billionaires
Besides its popularity among typical retail investors, Alphabet stock also has prominent positions among the holdings of many billionaires. Of the nine stocks Bill Ackman has in his Pershing Square Capital Management portfolio, Alphabet is the fourth-largest position, representing about 13% of the holdings at the end of the second quarter of 2024.
Ray Dalio is another billionaire enthusiastic about Alphabet; it was the third-largest position among the 877 holdings in his Bridgewater Associates portfolio as of the end of the second quarter.
With Alphabet recently losing an antitrust lawsuit, bears are fearful of the potential fallout -- like the court ordering the company to pay significant fines as well as the requirement that it will have to change its business practices.
Although these are valid concerns, it's highly unlikely that this spells doom for a company that's not only a leader in artificial intelligence (AI) but also an advertising force thanks to its ownership of YouTube and its retail presence through Android and Fitbit -- various endeavors that contribute to its formidable financial position. Through the first half of 2024, for example, Alphabet reported net income of $47.3 billion and operating cash flow of $55.5 billion.
Alphabet's class C shares are currently valued at 23.6 times trailing earnings, representing a discount to their five-year average earnings multiple of 26.2 and the S&P 500's price-to-earnings ratio (P/E) of 29.2.
Chevron: An under-rated energy stock
Those who follow Warren Buffett will certainly recognize Chevron stock: It's been in the Berkshire Hathaway portfolio for several years now. The Oracle of Omaha also has exposure to the oil patch through his position in Occidental Petroleum, though Chevron is the more sizable position, representing 5.6% of the Berkshire portfolio.
Shares of the oil supermajor have dipped about 4% since it reported second-quarter 2024 financial results. Reporting earnings per share (EPS) of $2.43, Chevron failed to deliver on analysts' expectations for $2.93.
But this hardly is an indication that the company is no longer an ideal energy stock. For one, Chevron has demonstrated steadfast commitment to rewarding shareholders, hiking its dividend for 37 consecutive years. Over the past three years, it has generated strong free cash flow to fund its dividend, and it's likely this will extend in the near term with management forecasting average annual growth in free cash flow of more than 10% with the price per barrel of Brent crude averaging more than $60.
CVX dividend per share (annual); data by YCharts.
Priced at 7.3 times operating cash flow, Chevron stock -- along with its 4.4% forward dividend yield -- seems particularly attractive in light of its higher five-year cash-flow multiple of 8.3.
Kraft Heinz: Tasty, high-yielding dividend
Like Alphabet, Kraft Heinz is another stock found in more than one billionaire's portfolio. Besides the Berkshire Hathaway portfolio, the food and beverage company is also held by the Bill & Melinda Gates Foundation Trust.
Although the S&P 500 has soared more than 17% since the start of the year, investors have decided against feasting on Kraft Heinz stock. Through the first six months of 2024, it has seen year-over-year declines in both operating and net incomes of 30.4% and 50.7%, respectively -- not very auspicious. But to conclude that the company is in dire trouble seems unreasonable.
For one, Kraft Heinz is generating strong cash flow. In the second quarter, for example, the company reported $1.7 billion in operating cash flow, an 8.1% year-over-year increase, and free cash flow of $1.2 billion, an increase of 8.7% compared to the same period last year.
Management forecasts year-over-year increases of 1% to 3% for adjusted EPS, suggesting the second half of the year will be more profitable.
For those looking for exposure to a leading consumer staples stock, Kraft Heinz -- and its tasty dividend with a 4.5% forward yield -- is a great choice.
Three great billionaire-backed stocks to buy now
Not every stock found in billionaires' portfolios will be the right fit for those of us with less personal wealth. But Alphabet, Chevron, and Kraft Heinz are all worthy considerations that can meet various interests of retail investors. For those keen on passive income, Chevron and Kraft Heinz are great choices, while AI-focused investors would be wise to take a closer look at Alphabet.
