Warren Buffett guided Berkshire Hathaway to crushing market returns in good times and bad, and the Oracle of Omaha investment conglomerate has now posted a total return of around 3.5% year-to-date. That might not sound like a lot, but it’s pretty darn impressive considering the S&P500 the index return level is down 15% in 2022.
With a nod to Buffett’s impressive market-beating mojo, a panel of Motley Fool investors has identified a trio of excellent stocks in Berkshire’s portfolio that have what it takes to perform fantastically. Read on to see why they identified Amazon (AMZN 5.73%), Kroger (KR -1.53%)and Apple (AAPL 3.19%) like stocks that can help you crush the market in the long run.
An amazing company at a great price
Keith Noonan (Amazon): The market has fallen in love with Amazon. This is partly due to investors fleeing growth stocks in search of safer options amid risk factors such as rising interest rates, high inflation and other sources of uncertainty. macroeconomic.
With heavy technology Nasdaq Compound index down about 25% this year alone, there’s certainly a broader shift at play, and it’s not shocking to see Amazon shares affected by the trend. There were also individual, company-specific catalysts that drove the selloff, and Amazon shares are now down about 43% from their peak last year.
Following the growing demand created by pandemic-related conditions, Amazon’s e-commerce business is now growing at a much slower pace. To make matters worse, the company is also seeing increased segment spending due to high shipping costs and other inflationary pressures. These factors alone might have been enough to deter some investors from the stock, but Amazon is also in the midst of a massive spending spree to expand its infrastructure and improve its technology resources.
In short, there’s a perfect storm of catalysts driving big losses in the e-commerce industry right now, and it’s hurting the overall profitability of the business. On the other hand, the long-term prospects for Amazon’s online retail segment remain incredibly bright, and its cloud services business is incredibly profitable and continues to grow at an impressive rate.
With short-term headwinds and market volatility currently shaping sentiment on the stock, long-term investors have the opportunity to build positions in one of the world’s best companies at a great price.
When in doubt, push a pawn
James Brumley (Kroger): A pawn is the infantryman of the chessboard. They can’t do much, but there are plenty of them and they serve their purpose. The cliché “when in doubt, push a pawn” is just a nifty way of saying that when you’re not sure what move to make, pushing a pawn forward is a relatively low-risk decision that might end up helping a little.
The Kroger company is a proverbial pawn. Grocery is neither high-growth nor high-profit, but it’s the kind of business that works the same in any environment. Even inflation is not a major stumbling block for the industry, as higher prices can be passed on to consumers, who have to eat.
To that end, know that Kroger stocks are doing surprisingly well in an otherwise bearish backdrop. The stock is up 20% since the end of last year, while the S&P 500 is down 15%, largely because investors – with few other reliable choices – are looking for property names of reliable consumption. If this economic malaise is going to persist, there’s no reason to think Kroger shares won’t continue to outperform.
Take a bite of this Buffett favorite
Daniel Foelber (Apple): At first glance, Apple doesn’t look like the kind of company Buffett would like. After all, Berkshire Hathaway’s holdings tend to be value stocks with strong fundamentals and safe cash flow. But more than 38% of Berkshire’s public equity portfolio is in Apple shares. And for good reason.
Apple may be a technology company. But its business model is, in many ways, more like a consumer goods company. Smartphones and high-performance computers have become consumer staples in today’s society. And for many people, tablets and wearables like smartwatches and AirPods are also essentials.
What sets Apple apart from other companies is its ability to increase total reach, retain existing customers, and increase customer spending year after year through price increases and new product offerings. For many customers, switching from Apple to competing products isn’t even a question, as Apple arguably integrates its consumer technology better than any company in the world.
Additionally, Apple has been able to grow its earnings and buy back stock at such a rapid rate that its stock is still not expensive even though it has risen over 600% in the last 10 years. Down more than 20% from its peak, Apple has a price-to-earnings ratio below 24 and is the only US company with 12-month net income of more than $100 billion. Apple is growing, its stock is good value, it’s making a lot of money, and it’s dominating its industry.
Apple’s sales would likely slow in a recession as consumers resist upgrading to the shiniest new thing. But even with a downturn in business, Apple would still be ready to turn a massive profit and use the excess cash to buy back its own shares. Given rising interest rates, recession fears and continued inflation, it’s hard to think of a safer tech stock than Apple.