Rachel Hartman
Updated on: October 12, 2024 6:13 pm GMT
Investors looking for reliable stocks that could yield high returns might find inspiration in the current holdings of Warren Buffett’s Berkshire Hathaway. Despite recent sell-offs of major positions, Buffett’s portfolio still boasts robust stocks like Coca-Cola, American Express, and Ulta Beauty—companies that could be ripe for investment right now.
Coca-Cola: A Resilient Dividend Powerhouse
Warren Buffett has been a long-time believer in Coca-Cola (KO), with Berkshire Hathaway owning 400 million shares, representing a 9.3% stake in the beverage giant. This position constitutes approximately 9.2% of Berkshire’s total portfolio.
Coca-Cola’s strength lies in its diverse product range, which includes not only its well-known sodas but also teas, fruit juices, energy drinks, and even alcoholic beverages. This diversification has helped the company weather various economic downturns over the years.
Strong Dividend History
- Dividend increases: Coca-Cola has raised its dividend annually for 62 consecutive years.
- Current yield: The forward yield is about 2.7%, making it appealing to dividend-seeking investors.
Analysts expect Coca-Cola’s organic sales to rise between 9% and 10% this year, despite previous pandemic-related slowdowns. Forecasts show that from 2023 to 2026, the company’s reported sales and earnings per share (EPS) are projected to grow at compound annual growth rates (CAGRs) of 4% and 9%, respectively. With a price-to-earnings (P/E) ratio of 24 based on forward earnings, the stock still appears reasonably valued.
American Express: A Financial Services Leader
American Express (AXP) has been a key part of Buffett’s strategy since he first invested in 1998. Berkshire currently owns 151.6 million shares, which equates to an 11% ownership stake, amounting to 12.7% of its portfolio.
Unlike its competitors Visa and Mastercard, American Express serves as both a bank and a card issuer. This complex business model allows it to earn interest on loans and generate revenue through its payment processing and card issuance operations.
Strong Growth Prospects
- Revenue growth: Analysts predict a CAGR of 9% for revenue from 2023 to 2026.
- Earnings growth: EPS is anticipated to grow at a CAGR of 15% during the same period.
- Current valuation: The stock is seen as a bargain with a P/E ratio of just 17 based on forward earnings.
- Dividend yield: It offers a forward dividend yield of 1.1%.
American Express differentiates itself by providing services primarily to higher-income customers, thus insulating its business from broader economic challenges. While its global presence is not as extensive as Visa’s or Mastercard’s, American Express is gradually expanding its international footprint.
Ulta Beauty: A Retail Gem
Ulta Beauty (ULTA) represents one of Buffett’s latest ventures, with Berkshire acquiring 690,106 shares in the second quarter of 2024, capturing about 1.5% of Ulta’s shares. This relatively small position accounts for just 0.1% of Berkshire’s entire portfolio.
Founded in 1990 and went public in 2012, Ulta has rapidly expanded its brand by focusing on stand-alone stores, offering salon services, and targeting younger consumers through strong social media campaigns.
Future Growth Potential
- Customer base: Ulta has a loyalty program with 43.9 million members.
- Revenue outlook: Analysts expect Ulta to grow revenue at a CAGR of 3% from 2023 to 2026.
- Current challenges: Revenue for the full year is expected to remain flat, with EPS projected to decline by 11%.
- Valuation: The stock trades at a historically low P/E ratio of 16 based on forward earnings.
- Share buyback: Ulta recently announced a $2 billion buyback plan, which represents over 11% of its market cap.
Ulta faced a dip amid fears of slowing growth and rising expenses, yet its low valuation and strategic moves like share buybacks may position it as a deeper value play worthy of consideration.
Conclusion
While some investors may have reacted to Berkshire Hathaway’s recent stock sales, the portfolio still holds long-term winners. Coca-Cola, American Express, and Ulta Beauty have attributes that could make them compelling investments for those looking to follow in Buffett’s footsteps. As these companies navigate their respective challenges and leverage growth opportunities, they could offer substantial returns for investors willing to hold them for the long haul.
Learning about Berkshire Hathaway’s strategy and the strong qualities of its stocks can help investors a lot. Remember, it’s always a good idea to do your own research and think about your own investment goals before deciding where to put your money.
