If you’ve ever wondered why Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is given so much attention by the investment community, look no further than his track record. Through 2021, the Oracle of Omaha, as he’s come to be known, led his company’s Class A shares (BRK.A) to an aggregate return of 3,641,613%. Meanwhile, the broad-based S&P 500 generated a 30,209% return, including dividends paid, over the same stretch. Buffett effectively lapped Wall Street’s benchmark index 120 times in less than six decades.
Suffice it to say, new and tenured investors are wise to pay close attention to what Warren Buffett and his investment team are buying, selling, and holding.
As we move into March, quite a few of the 49 securities held in Berkshire Hathaway’s $328 billion investment portfolio look like values. However, three Warren Buffett stocks stand head and shoulders above the rest and are begging to be bought.
The first Warren Buffett stock that’s ripe for the picking in March is payment processor Visa (NYSE: V). Even though there’s a good chance the U.S. will enter a recession at some point in the next 12 months, which would almost assuredly lead to a short-term reduction in consumer and enterprise spending, Visa’s competitive advantages and valuation are too enticing to pass up.
Based on Securities and Exchange Commission (SEC) filings from the four major payment processors in the U.S., Visa accounted for 52.6% of credit card network-purchase volume in 2021. Having a 29-percentage-point share lead over the next closest competitor in the top market for consumption globally has its perks. It also doesn’t hurt that Visa was able to expand its share of U.S. credit card network-purchase volume more than any other payment processor following the Great Recession.
But don’t think for a moment that Visa’s growth story ends at the U.S. border. This is a company that acquired Visa Europe in 2016 to expand its reach and has a multidecade runway to organically push into underbanked regions of the world, such as the Middle East, Africa, and Southeastern Asia. Visa can deliver a sustained double-digit growth rate, which is truly impressive given that it’s one of America’s largest publicly traded companies.
One of the most impressive things about Visa’s double-digit growth is it’s accomplishing this feat without turning to lending. By conservatively sticking with payment processing, Visa avoids the pitfalls of dealing with loan losses and delinquencies that accompany economic contractions and recessions as a lender. Not having to set aside capital to cover potential loan losses is a big reason Visa’s profit margin is pretty consistently above 50%.
Visa makes a lot of sense for investors from a valuation perspective as well. Over the trailing five years, Visa has traded at an average multiple of 30 times its forward-year earnings. Shares can be scooped up right now for less than 23 times Wall Street’s forecast earnings for 2024.
With total payment volume (on a constant currency basis) growing 15% in 2022 and the company authorizing a new $12 billion share-repurchase program, Visa is truly firing on all cylinders.
Johnson & Johnson
The second Warren Buffett stock that’s begging to be bought in March is healthcare conglomerate Johnson & Johnson (NYSE: JNJ). Despite the negative press J&J is contending with regarding its talc-based baby powder lawsuit, this is a highly diverse, exceptionally profitable, and incredibly inexpensive healthcare stock that’s ripe for the picking.
Something you’ll want to note right off the bat about healthcare stocks is their defensive nature. We don’t get to simply flip a switch and decide not to get sick just because it’s not financially convenient to do so. Regardless of economic conditions, there’s always demand for prescription drugs, medical devices, and healthcare products. This consistency of demand helped J&J grow its adjusted operating earnings for 35 consecutive years prior to the COVID-19 pandemic.
More than half of Johnson & Johnson’s nearly $95 billion in sales last year came from pharmaceuticals. Brand-name drugs offer rapid growth, high margins, and strong pricing power. The downside of shifting its focus to brand-name therapies is that prescription drugs have a finite period of sales exclusivity. J&J minimizes the risk of patent cliffs by constantly reinvesting in its internal research engine, forming collaborations, and making acquisitions.
Additionally, Johnson & Johnson has the ability to rely on its medical-technologies segment to do some heavy lifting. Despite the medical-device industry being competitive, J&J is well positioned to take advantage of an aging global population that’s steadily gaining access to preventative care.
Another reason for investors to confidently buy into the Johnson & Johnson long-term growth story is its balance sheet. Credit-rating agency Standard & Poor’s (S&P), which is a division of the better-known S&P Global, assigned J&J its highest possible credit rating (AAA). S&P only has two publicly traded companies rated AAA, and it signifies the agency’s utmost confidence that Johnson & Johnson can service and repay its outstanding debt.
But what’s truly mind-blowing is Johnson & Johnson’s valuation. At just 14 times Wall Street’s forecast earnings for 2024, J&J is trading at its lowest forward-earnings multiple in more than a decade.
A third Warren Buffett stock that’s begging to be bought in March is, ironically, a stock that the Oracle of Omaha and his team have been reducing in Berkshire Hathaway’s investment portfolio: U.S. Bancorp (NYSE: USB). U.S. Bancorp is the parent company of the more familiar U.S. Bank.
Normally, bank stocks wouldn’t be considered a smart buy with the possibility of a U.S. recession growing. When the economy contracts, it’s typical for the Federal Reserve to lower interest rates to encourage borrowing. For banks, this usually means less net-interest income and higher loan losses as people and businesses fail to meet their payment obligations.
However, this time really is different for bank stocks. The nation’s central bank is solely focused on taming historically high inflation. If that means continuing to raise interest rates into a weaker economy, then so be it. Even if the loan-loss provisions and charge-offs increase for U.S. Bancorp, the benefit of higher interest rates on outstanding variable-rate loans can increase the company’s earnings per share during a recession. That’s practically unheard of for bank stocks.
What helps U.S. Bancorp stand out is its relatively conservative management team. This is a bank that predominantly sticks with loan and deposit growth and avoids riskier derivative investments. The result of this “boring” approach has been a return on assets that’s consistently on the high end among big banks.
U.S. Bancorp’s recently completed acquisition of Union Bank — the U.S. banking subsidiary of Mitsubishi UFJ Financial Group — also provides a needle-moving catalyst for the company’s bottom line. This buyout increased the company’s deposits by $82 billion, added approximately 1 million consumer accounts, and is already expanding U.S. Bancorp’s net-interest margin forecast for the current year.
As one final note, no big bank has done a better job of encouraging its customers to bank online or via mobile app than U.S. Bancorp. Since digital transactions are considerably cheaper than in-person or phone-based interactions, U.S. Bancorp is reaping the rewards of this digital push.
Valued at roughly 9 times Wall Street’s forecast earnings for 2024 and sporting a 4% dividend yield, U.S. Bancorp is a screaming value.
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Sean Williams has positions in Visa. The Motley Fool has positions in and recommends Berkshire Hathaway, S&P Global, and Visa. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.