It's easy to see why Warren Buffett, the founder and CEO of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) is one of the most admired investors in the world. He's made early investors in Berkshire millionaires thanks to his investing and business prowess, and his homespun aphorisms have taught many of us key lessons about investing and money management.
Though he's one of the richest people in the world, he still lives in a modest house in Nebraska and continues to work every day even as he approaches age 90.
Buffett fans probably already have a sense of what kind of stocks the Oracle of Omaha like, but you may not have thought of these three. Keep reading to see why our contributors recommend ExxonMobil (NYSE: XOM), Comcast (NASDAQ: CMCSA), and SodaStream International (NASDAQ: SODA).
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Bigger can be better
John Bromels (ExxonMobil): Buffett famously said, "It's better to invest in a wonderful company at a fair price than a fair company at a wonderful price." And ExxonMobil's price is looking more than fair right now, thanks to some questions about the company's oil production capacity.
For several quarters now, Exxon's upstream oil production has been falling. That's in large part because conservative Exxon didn't spend much money on new exploration during the oil price downturn of 2014 to 2017, and now older wells are drying up faster than the company can bring new production capacity online.
Thanks to the current high price of oil, though, Exxon is still making money -- and lots of it -- with net income up 16% year over year in its most recent quarter. And the company has begun working in earnest to start bringing production online. In particular, it's making swift progress in getting its promising offshore Liza oilfield in Guyana online. But even with an accelerated timeline, production isn't expected to begin until 2020.
However, that makes this a good time to invest like Buffett: Not only can you pick up shares at a bargain price, but you can avail yourself of the company's current 3.8% dividend yield while you wait for Exxon's production numbers to improve. After all, if you're investing like Buffett, you're keeping an eye on the long term, and Exxon is looking like a solid long-term investment at these prices.
A toll booth on the internet
Rich Smith (Comcast): What does Warren Buffett look for in a stock? Once again, here's a quote from Roger Lowenstein's biography, Buffett: The Making of an American Capitalist, to keep us focused on the ideal investment:
As they rocked on the Russells' front-porch glider in the stillness of the Midwestern twilight, the parade of Nashes and Studebakers and the clanging of the trolley car would put a thought in Warren's mind. ... "All that traffic," he would say to her. "What a shame you aren't making money from the people going by." As if the Russells could set up a toll booth on North 52nd Street. "What a shame, Mrs. Russell."
Buffett loves to own stocks that make money from doing actually very little -- just collecting money from people as they're passing by. And isn't that the very definition of Comcast's business model?
People these days love to talk about "cutting the cord" and ditching cable TV in favor of streaming online. On the surface, this trend sounds like bad news for Comcast. But how do you get online in the first place? Usually, by paying an internet service provider like Comcast to give you access to the internet. Comcast owns the "pipes," and you have to pay a toll to use them.
For all of the worrying about Comcast's future in the age of cord-cutting, this company is doing just fine, recording profits of $22.7 billion over the last year. At a trailing P/E ratio of just 6.5, Comcast is priced like a business that's going out of business. But it's really a toll booth business -- and business is booming.
Another Buffet-esque beverage play
Jeremy Bowman (SodaStream): Coca-Cola has long been one of Buffett's favorite stocks. Not only does he love the company's products, but he loves big brands like Coke, which, along with its distribution network and marketing muscle, give it an economic moat. But there's another smaller beverage company that may interest Buffett and his acolytes: SodaStream, the maker of countertop DIY soda machines.
SodaStream is by far the biggest player in its niche at-home soda-making market, dispatching competitors like Primo Water and Cuisinart, as the stock has skyrocketed since the company pivoted away from soda to a sparkling water brand. Over the last three years, the stock has jumped more than 300%.
However, there's good reason to believe the stock could bubble higher. Revenue surged 24% in its most recent quarter, growing in its three largest regions, and SodaStream continues build operating leverage as it gets bigger. That means profits are growing faster than revenue, something investors like Buffett see as a key sign of a sustainable competitive advantage. SodaStream's razor-blade model also gives it a moat as customers are locked into the system once they buy a starter kit, and purchases of consumables like CO2 refills and flavors generate higher margins for the company.
Finally, analysts have consistently underestimated the stock as it surged past estimates in nearly every report in the last three years. Considering its growth prospects, the stock looks very reasonable at a P/E ratio of 27.
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Jeremy Bowman owns shares of SodaStream. John Bromels owns shares of Berkshire Hathaway (B shares) and Coca-Cola. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool owns shares of SodaStream. The Motley Fool has a disclosure policy.