Warren Buffet is an icon in the stock market, highly regarded as one of the most successful money managers of all time. As a prominent buy-and-hold value investor, the “Oracle of Omaha” currently has a fortune worth around $80 billion.
His company, Berkshire Hathaway (NYSE:BRK.A,BRK.B) often provides investors with valuable insight into what might be suitable for various portfolios based on investment objectives and individual risk tolerance. Today’s article takes a look at seven Buffett stocks to buy in August.
As a holding company, Berkshire Hathaway invests in a wide range of industries. Over the decades, Buffett has become a legend by picking big winners such as Apple (NASDAQ:AAPL) early on. He focuses on companies with solid fundamentals and sustainable competitive advantages in their business.
Here are 7 Buffett stocks to buy in August and hold for years:
- Coca-Cola (NYSE:KO)
- DaVita (NYSE:DVA)
- FedEx (NYSE:FDX)
- Marsh & McLennan (NYSE:MMC)
- SPDR S&P 500 ETF Trust (NYSEARCA:SPY)
- Teva Pharmaceutical Industries (NYSE:TEVA)
- Verisign (NASDAQ:VRSN)
Buffett usually prefers consumer stocks with extensive bargaining powers and wide economic moats. He often recommends investors to ignore the short-term noise in the markets. While some companies in his portfolio are low-cost producers with significant economies of scale, others own powerful brands or product franchises that consumers are more than willing to pay a premium for.
Buffett Stocks to Buy in August: Coca-Cola (KO)
52-week range: $46.22 — $57.56
Dividend yield: 2.95%
Atlanta-based Coca-Cola is the largest nonalcoholic beverage company in the world, owning and marketing well-known leading carbonated beverage brands such as Coke, Fanta, Sprite and a range of non-sparkling brands. Buffett is known for having his favorite soda, Coke, for breakfast.
On July 21, the company reported strong Q2 2021 results and raised its full-year guidance. Net revenue grew 42% year-over-year (YOY) to $10.1 billion. Operating income soared 52%. As a result, non-GAAP EPS increased 61% YOY to 68 cents. Coke generated $5.5 billion over the last six months, up 49%.
On the results, CEO James Quincey remarked, “Our results in the second quarter show how our business is rebounding faster than the overall economic recovery, led by our accelerated transformation.”
Yet management warned that the company still faced pandemic-related risks during the second half of 2021. For instance, new outbreaks are restraining sales in India and a number of other countries. But on the other hand, Coke has announced sales records in core territories like North America, China, and Brazil.
As a result, the company expects to generate 12% to 14% in organic revenue growth for 2021, up from the previous quarter’s forecasted growth of 9%. Analysts indicate that the company is currently around twice as profitable as PepsiCo (NASDAQ:PEP).
KO stock recently hit a record 52-week high of $57.56 and still hovers around $57 territory. Despite positive near-term prospects, KO stock is only up about 4% year-to-date (YTD). Investors looking for a reopening stock that has not yet seen a significant price gain in 2021 should consider adding KO stock to their portfolios.
However, as the pandemic seems to be far from over, the spread of the delta variant could potentially curb progress made on economic reopenings. Short-term volatility is still in the cards. Forward price-to-earnings (P/E) and (P/S) ratios for KO stock stand at 25.97 and 6.78, respectively.
DaVita (DVA)
52-week range: $80.85 — $129.59
YTD price change: Up 2.73%
From consumer foods, we move on to healthcare. Denver-based DaVita provides dialysis and related lab services to patients stateside.
DaVita issued Q1 financials at the end of April. Consolidated revenue remained flat at $2.82 billion. Net income from continued operations went up by $7 million to reach $237 million. Hence, diluted earnings per share from continuing operations was $2.09, compared to the year ago EPS of $1.83. The company ended March with $884 million cash.
Management revised its previous guidance of adjusted diluted EPS generated through continuing operations from the $7.75 to $8.75 band to the $8.20 to $9.00 range.
The company is expected to release Q2 results on Aug. 3 after market close. DaVita shares are trading at 14.41 times consensus forward P/E and 1.25 times sales. I believe the shares could easily belong in many retail portfolios.
FedEx (FDX)
52-week range: $163.86 — $319.90
Dividend yield: 1.01%
Memphis, Tennessee-based FedEx provides customers and businesses worldwide with a broad portfolio of transportation, logistics, e-commerce, and business services.
On June 24, the company announced Q4 results for the fiscal year ended May 31. Revenue climbed to $22.6 billion, up 30% YOY. Adjusted non-GAAP bottom line more than doubled, increasing to $1.36 billion. Adjusted diluted EPS came at $5.01, compared to $2.53 in the prior-year quarter. Cash and equivalents ended the quarter at $7 billion.
CFO Michael C. Lenz cited, “For fiscal 2021, we delivered record financial results while also recognizing the valuable contributions by our team members. We expect continued strong momentum in fiscal 2022.”
Despite supply chain difficulties due to the pandemic, the growth in e-commerce continues to fuel the company’s earnings. FDX shares have returned 79% in the past 12 months, and surged around 14% so far this year. FDX stock currently trades slightly above $295, down from its 52-week high of $319.90 hit in late May. Additionally, the company has increased the quarterly dividend to 75 cents per share, currently offering a 1% yield.
FedEx seems to be an attractive buy at its current share price. Its trailing P/E ratio is 16. On the other hand, the ratio for its main rival United Parcel Service (NYSE:UPS) is 35.86. FDX shares currently trade at 0.93 times current sales.
Marsh & McLennan (MMC)
52 week range: $102.11 — $149.30
Dividend yield: 1.45%
Insurance broker and consultancy giant Marsh & McLennan offers clients advice and solutions in risk, strategy, and people. The Great Chicago Fire of October 1871 was what prompted the initial founders to set up an agency writing fire insurance.
Over the past 150 years, it has grown to become the parent company of four important names: Marsh, the insurance broker; Guy Carpenter, the risk and reinsurance specialist; Mercer, which provides human resource and investment related financial advice and services; and Oliver Wyman, the management and economic consultancy.
Marsh & McLennan issued Q2 earnings numbers in mid-July. Revenue was $5 billion, an increase of 20% YOY. Net income was $820 million vs. $572 million. Diluted EPS was $1.60 vs $1.12 for the prior year period.
CEO Dan Glaser remarked, “We grew underlying revenue by 13%, adjusted operating income by 24%, and adjusted EPS by 33%.”
In addition, CFO Mark McGivney announced that the company plans to deploy $3.5 billion in capital through dividends, acquisitions, debt reduction, and share repurchases. The company recently announced the acquisition of PayneWest Insurance in April, one of the largest independent agencies in the industry.
Marsh & McLennan has a strong foothold in the brokerage and advising space and is a solid performer worth considering for exposure to the financial sector. MMC stock recently hit an all-time high of $149.30. It currently hovers slightly above $146.
The stock has increased around 25% so far this year. Forward P/E and current P/S ratios are 27.10 and 4.10, respectively. Potential investors could find better value between $140 and $142.
SPDR S&P 500 ETF Trust (SPY)
52-Week Range: $319.64 — $440.30
Dividend Yield: 1.27%
Expense Ratio: 0.09% per year
The SPDR S&P 500 ETF Trust was the first exchange-traded fund listed stateside and holds companies across all eleven GICS sectors. It is also one of the leading assets that Buffett recommends retail investors buy and hold forever.
SPY tracks the returns of the S&P 500 Index. These businesses are among the largest and most robust firms in the nation. The fund started trading in January 1933 and has around $380 billion in assets.
The fund takes the stock-picking guesswork out of the equation for retail investors. In terms of the sub-sectoral breakdown, the information technology sector makes up the highest portion with 27.93%, followed by the health care and consumer discretionary sectors with 12.99% and 12.28%, respectively.
The fund’s top 10 holding account for 28% of all holdings in the fund. Tech darlings Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), and Alphabet (NASDAQ:GOOGL,GOOG) lead the names in the fund.
So far in 2021, the fund has surged almost 18% and hit a record high in recent days. Over the past several decades, the S&P 500 has returned an average of 10% a year. Long-term investors may consider any dip in SPY stock as an opportunity to invest for the long term.
Teva Pharmaceutical Industries (TEVA)
52 week range: $8.24 — $13.30
Israel-based Teva Pharmaceutical Industries focuses on generics, specialty and over-the-counter (OTC) products. Investors follow sales of the growth driver, Austedo, prescribed for the treatment of Huntington’s disease and Tardive Dyskinesia. Another important name is that Ajovy, used for adult migraines. Teva’s generic drug sales represent slightly over half of total revenue, with branded drug revenue making up the balance.
Teva released Q1 results at the end of March. Revenue came at $4 billion, down 9% YOY. Non-GAAP net income and diluted EPS were $699 million and 63 cents, respectively, compared to $835 million and 76 cents in the prior-year quarter. Free cash flow stood at $59 million.
CEO Kare Schultz remarked:
“We have improved our profitability and reduced our net debt to $23.2 billion. We have also seen solid performance from our key growth drivers: the biosimilar Truxima increased its market share to 26%, Austedo continued its YOY growth, and Ajovy solidified its market share in the U.S. and continues to expand in Europe.”
On top of a significant level of long-term debt, Teva is also facing major lawsuits tying the company to the opioid crisis. The uncertainty related to potential fines has restrained TEVA stock. It’s therefore not surprising that it is a cheap healthcare stock. TEVA stock hovers around $9, down almost 8% YTD. It has declined by more than 22% over the past 12 months.
Teva is poised to benefit from an aging population in the U.S. as well as around the globe. In addition, as brand-name therapies continue to surge in price, demand for generic drugs is expected to grow in the coming years. TEVA stock, therefore, has significant upside potential for long-term investors. Forward P/E and current P/S ratios stand at 3.37 and 0.59, respectively.
Verisign (VRSN)
52 week range: $184.60- $234.56
When one mentions Internet domain names, the Reston, Virginia-based Verisign is one of the first stocks to remember. It provides domain name registry services and Internet infrastructure worldwide. Over the years, the company has enjoyed the growth in demand for domain names. It now maintains close to 170 million names.
Verisign issued Q2 figures in late July. Revenue was $329 million, up 4.8% from the same quarter in 2020. Net income was $148 million; a year ago, it had been $152 million. Diluted EPS came at $1.31 vs $1.32 in Q2 2020.
Cash flow from operating activities was $143 million. A year ago, it had been $215 million. During the quarter, the group bought back 0.8 million shares of its common stock for an aggregate cost of $172 million. In fact, over the years, investors have regarded Verisign as the king of buybacks.
CEO Jim Bidzos cited, “Last week we reached a new milestone for our critical internet infrastructure by marking 24 years of 100% availability in the .com/.net domain name resolution system.”
VRSN stock hit a 52-week high of $234.56 in mid-July and currently hovers around $223. The shares shares have only gained 3% so far this year. Forward P/E and current P/S ratios stand at 41.49 and 19.59, respectively. Interested readers could consider buying the dips.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.