[The Motley Fool]
Riding the Oracle of Omaha’s coattails has long been a moneymaking strategy.
- Since taking over as CEO in 1965, Warren Buffett has overseen a greater than 3,600,000% increase in Berkshire Hathaway’s share price.
- Among Berkshire’s 43 holdings are a mix of five growth and value plays that stand out as no-brainer buys.
Few investors have a more illustrious track record of making money than Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett. Including the nearly 30% gain in Berkshire’s Class A shares in 2021, Buffett has overseen the creation of more than $600 billion in market value, averaged an annual return on Berkshire’s stock of over 20%, and delivered an aggregate return on shares in excess of 3,600,000% since the beginning of 1965.
In other words, riding the Oracle of Omaha’s coattails can be quite profitable. In 2022, five Buffett stocks, among Berkshire Hathaway’s 43 holdings, stand out as exceptional values that can be bought hand over fist.
Though Buffett’s portfolio is predominantly built around the idea of owning value stocks, e-commerce giant Amazon (NASDAQ:AMZN) is the perfect example of a growth stock that’s still an incredible deal.
As many people are likely aware, Amazon is the kingpin of online retail. Last year, eMarketer estimated the company would draw a 41.4% share of all online spending in the United States. The next-closest competitor is Walmart, more than 34 percentage points behind Amazon.
But what’s made Amazon’s marketplace special is the company’s 200 million Prime subscribers. Prime members receive shipping, price, and content perks. Meanwhile, Amazon nets subscriber fees from these 200 million global members that help lift margins and allow it to undercut traditional brick-and-mortar retailers on price.
Amazon also benefits from its leading position in cloud infrastructure services. As of the third quarter, Amazon Web Services (AWS) held a 32% share of global cloud infrastructure spending. More importantly, cloud profit margins are considerably higher than the e-commerce segment. In the third quarter, Amazon generated 62% of its $21.4 billion in operating income from AWS, yet AWS only accounted for 13% of net sales.
With rapidly expanding operating cash flow in Amazon’s future, it’s a good bet to head higher in 2022 and beyond.
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Bristol Myers Squibb
With inflation rising and the Federal Reserve not subtly hinting that it plans to begin raising rates this year, pharmaceutical stock Bristol Myers Squibb (NYSE:BMY) is a Buffett stock value investors can buy hand over fist.
Bristol Myers’ success is built on both organic and acquisitive growth. In terms of the former, the company developed oral anticoagulant blockbuster Eliquis in cooperation with Pfizer. The expectation is for Bristol Myers to recognize more than $10 billion in sales from its leading blood thinner in 2021.
Perhaps the more exciting drug is cancer immunotherapy Opdivo, which has been approved in 10 indications by the U.S. Food and Drug Administration, and likely brought in close to $7 billion last year. With Opdivo being examined in dozens of additional clinical studies as both a monotherapy and combination treatment, there are multiple avenues for label expansion and new revenue streams.
In terms of acquisitions, Bristol Myers Squibb made a genius move buying immunology and cancer-drug developer Celgene in late 2019. Though this deal added numerous blockbusters, it’s the addition of multiple myeloma drug Revlimid that’s most important. Revlimid has a long history of growing sales annually by a double-digit percentage, and looked to be on track for $13 billion in net sales last year.
At only eight times Wall Street’s estimated 2022 earnings, and sporting a dividend yield well over 3%, Bristol Myers looks like a steal.
THE ALL-ELECTRIC HUMMER IS ONE OF 30 ELECTRIC VEHICLES GM PLANS TO LAUNCH BY 2025. IMAGE SOURCE: GENERAL MOTORS.
Another Warren Buffett stock that’ll get investors’ engines revving in 2022 is auto stock General Motors (NYSE:GM).
Despite the auto industry being a slow grower for decades, GM has a multi-decade massive growth opportunity on its doorstep with electric vehicles (EVs). Pretty much every developed country worldwide is coercing or incentivizing automakers to switch production to EVs in an effort to combat climate change. This vehicle replacement cycle will take decades and provide General Motors with steady sales and profit growth potential.
For its part, GM upped its spending forecast on EVs, autonomous vehicles, and batteries in June. The company anticipates spending $35 billion through 2025 to roll out 30 new EVs worldwide. It’ll also have two battery production plants up and running by 2023.
Keep in mind that while all eyes are on the domestic market, General Motors has become a brand name in China, too, with annual deliveries nearing the 3 million mark. China is the No. 1 auto market globally. Considering GM’s brand name and existing infrastructure, it should have a path to gobble up market share.
Although auto stocks trading at single-digit price-to-earnings ratios are nothing new, it’s perhaps no longer warranted given GM’s growth prospects.
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Teva Pharmaceutical Industries
For deep-discount value stock investors, brand-name and generic-drug producer Teva Pharmaceutical Industries (NYSE:TEVA) is the Buffett stock to buy hand over fist in 2022. By “deep discount,” I mean a company valued at close to three times forecasted earnings per share this year.
To be clear, Teva has had its fair share of troubles. The company grossly overpaid to acquire generic drugmaker Actavis, shelved its dividend, settled bribery charges, and is facing a number of state-level lawsuits over its role in the opioid crisis. There are valid reasons the stock is inexpensive.
However, Teva has a turnaround specialist as CEO who has a track record of success. Since Kåre Schultz took the reins in late 2017, Teva has shed billions in annual operating expenses, and the company’s net debt has been reduced from more than $34 billion to around $22 billion. Schultz has jettisoned noncore assets, as well as used the company’s operating cash flow, which usually tops $2 billion annually, to reduce the company’s debt and improve its financial flexibility.
Schultz could also play a key role in resolving Teva’s litigation. If he’s able to orchestrate a deal that involves free or reduced-price medication and a minimal cash component, Teva could soar overnight.
In other words, even though Teva is incredibly profitable, what you’re really investing in is turnaround specialist Kåre Schultz continuing to better the company.
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Bank of America
A fifth and final Buffett stock to buy hand over fist in 2022 is Bank of America (NYSE:BAC). BofA is Berkshire Hathaway’s second-largest holding.
The first thing to understand about bank stocks is they’re highly cyclical. This is to say that they perform well when the economy is growing and struggle when recessions rear their head. However, recessions and economic contractions typically last no longer than a couple of quarters. Comparatively, periods of economic expansion are measured in years. Buying Bank of America and simply allowing time to be your ally is often a smart strategy.
Something else to know about Bank of America is that it’s the most interest-sensitive of the big banks. In the third quarter, BofA noted that a 100-basis-point parallel shift in the interest rate yield curve would bring in an estimated $7.2 billion in added net interest income. If the Fed does begin raising rates this year, BofA should reap the biggest rewards on its variable-rate outstanding loans.
Bank of America deserves credit for its digitization campaign, too. Nearly 41 million people were banking digitally with BofA at the end of September, with 43% of all sales being completed digitally. That’s up from 27% in the comparable quarter three years prior. Digital transactions are considerably cheaper for BoA than in-person or phone-based interactions.
With Bank of America on the cusp of an earnings growth explosion, it looks like a solid buy for 2022.
By Sean Williams