If you’re a newer investor — say, with around $300 to commit to stocks now — you’ll want make a reliable start to your young portfolio. So why not begin with some stocks that are already owned by Warren Buffett’s Berkshire Hathaway? He’s got a penchant for finding and sticking with the market’s less volatile long-term winners, after all. Here are three of his top holdings that would probably be good fits for your budding portfolio.
Coca-Cola
Shares of The Coca-Cola Company (NYSE: KO) will never be considered “high growth.” The beverage business just doesn’t work that way. Even when the cola giant is doing well, its revenue growth barely outpaces inflation as the drinks market is pretty well saturated.
What Coca-Cola lacks in growth potential, however, it more than makes up for in consistency and reliability. Much of that consistency can be attributed do the company’s product lineup. Coca-Cola isn’t just its namesake cola. This is also the parent to Gold Peak tea, Costa coffee, Minute Maid juice, Dasani water, Powerade sports drinks, and a bunch of other colas. It’s always got something to sell to someone, and people will always want something to drink.
The Coca-Cola Company’s reliability isn’t just rooted in its diverse range of products, though. It’s fiscally consistent too, largely because of the way its business model works. Contrary to what you might expect, Coca-Cola isn’t doing much of its own bottling these days. It’s punted that work to localized bottlers and distributors so it can focus on what it does best. And that’s marketing and branding.
Coca-Cola’s part in the bottling process is simply providing bottlers with concentrated flavor syrups — a much easier product to manage that also offloads the riskier part of the business to the bottlers themselves. That’s operating and input costs like water, manpower, equipment, etc.
Coca-Cola’s side of the business is actually rather stable, which is how the company’s been able to raise its dividend payout every year for the past 62 years. It’s that dividend, by the way, that may be why Berkshire’s been willing to sit on its stake in the beverage behemoth since late-2006.
Bank of America
If the idea of owning a bank stock in this environment has you worried, you’re not crazy. Demand for most banking services is slowing down, while defaults and delinquencies are ramping up.
Take a step back and look at the bigger picture, though. There’s nothing happening to banks at this time that they haven’t survived before. Just think back to 2008’s subprime mortgage meltdown. For that matter, the dot-com crisis of 2000 wasn’t terribly different in terms of banks’ cyclical headaches either.
And that’s the key. This is a cyclical headwind. The downside of the cycle will eventually run its course, if it hasn’t already — something Buffett knows.
Enter Bank of America (NYSE: BAC). It’s the nation’s second-biggest bank as measured by assets, and arguably the country’s best-known as measured by name-recognition. This size and strength leave it well-positioned to bounce back whenever the headwinds finally stop blowing.
In the meantime, BofA is holding up better than you might expect. Although its fourth fiscal quarter’s total charge-offs on soured loans reached just under $1.2 billion, that’s still only a manageable 0.45% of its total loan portfolio (versus 0.26% a year earlier). The same quarter’s adjusted return on its tangible common equity — or ROTCE — came in at a healthy 11.7% too, indicating the bank is effectively using and managing its balance sheet.
Things could be better, to be clear. But with shares still down 25% from their early-2022 peak, the worst-case scenario is already arguably priced in, and then some. Newcomers will be getting in while the trailing price-to-earnings ratio is a mere 12, and while the dividend yield is a respectable 2.6%.
Bank of America is Berkshire’s second-biggest position, by the way. It’s holding a little more than 1 million shares of the bank. This trade is currently worth around $38 billion.
Chevron
Last but not least, consider taking Buffett’s lead by stepping into a stake in oil giant Chevron (NYSE: CVX). In an era that’s seemingly prioritizing a shift away from fossil fuels and toward cleaner renewable energy sources, this seems like a tough bet to make.
But the movement towards more environmentally friendly energy isn’t nearly as far along as it appears to be on the surface. The United States Energy Information Administration reports that roughly one-third of the nation’s energy needs are still met by petroleum alone. Natural gas — a hydrocarbon business Chevron is also in — meets another third of the nation’s energy demand.
Renewables (in all forms) still only provide less than 15% of the nation’s consumed power. This same basic breakdown applies all over the rest of the planet is well.
It’s a problem simply because the total global demand for power is growing almost as quickly as renewable energy production facilities can be built. Standard & Poor’s predicts that even as far down the road as 2050, petroleum will remain the world’s single biggest source of energy. Renewables will be a close second, but natural gas should still be in a respectable third place at that point in time.
Connect the dots. It will be decades before the world can wean itself off of the use of oil and gas. There’s lots of money to be made by Chevron between now and then, and even after then. This bullish backdrop won’t stave off the volatility that’s inherent with energy stocks, which are closely tethered to oil prices.
So buckle up if you’re diving in. Between the company’s long-term prospects and the stock’s dividend yield of over 4%, however, this volatility will be worth it. Warren Buffett thinks so anyway. As of the latest look, Berkshire’s sitting on nearly $20 billion worth of Chevron stock.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, and Chevron. The Motley Fool has a disclosure policy.
The Best Warren Buffett Stocks to Buy With $300 Right Now was originally published by The Motley Fool