Warren Buffett's Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) is one of the world's biggest conglomerates. It owns a slate of large companies, including GEICO, and it invests about $200 billion in publicly traded companies. Buffett's significant success over the past four decades suggests following in his footsteps is wise, but that doesn't necessarily mean now's the right time to buy every stock he owns.
To figure out which holdings might be the best stocks to buy today, we asked three Motley Fool contributors to take a closer look at Berkshire's holdings and then give us their ideas. Here's why they think Suncor Energy (NYSE: SU), Delta Air Lines (NYSE: DAL), and Apple (NASDAQ: AAPL) could be top stocks to buy now.
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Todd Campbell (Suncor Energy): Buffett is best known for his long-term, buy-and-hold philosophy, but that doesn't mean he plans to own forever everything he buys. For instance, he has a history of opportunistically buying and selling cyclical companies, like energy stocks, rather than owning them through thick and thin.
In the fourth quarter, Suncor Energy showed up in Berkshire Hathaway's portfolio as a new buy. It's a relatively small position at $300 million, but it could become a bigger position in the future.
A Canadian company that explores, produces, transports, and refines crude oil and natural gas into gas and chemicals, Suncor Energy's stock tumbled significantly in the fourth quarter of 2018 as a decline in crude oil prices took a toll on the industry. The company's shares have bounced back from their low of $26 in December, but they are still significantly below their $42 peak last August and there's reason to be optimistic that additional gains are coming.
First, the company's Fort Hills oil sands play began producing last year and its expected 40-year life span should help Suncor deliver steady, investor-friendly cash flow for the foreseeable future. Fort Hills was in part responsible for Suncor's production reaching a record 831,000 barrels of oil equivalent per day (BOE/D) in the fourth quarter, up from 736,400 BOE/D last year.
Second, the company still delivered fourth-quarter revenue of $8.94 billion, despite weak commodity prices. Fair-value writedowns caused the company to lose money last quarter, but Suncor still generated over 3 billion Canadian dollars in operating cash flow in the period so it has plenty of financial flexibility.
Finally, despite the headwinds, Suncor was still able to increase its dividend by 17% recently, and it added CA$2 billion to its share repurchase program, too. Clearly, management's confident about its prospects.
Admittedly, there's no knowing if Buffett will continue buying Suncor Energy, but this company's 5% plus dividend yield and the fact that oil prices have rebounded from last quarter's lows make me think this stock is a buy.
Airlines won't be grounded forever
Nicholas Rossolillo (Delta Air Lines): Shares of Delta Air Lines were humbled over the last few months. The stock is down 10% since the beginning of 2018, and investors were underwhelmed after the company reported full-year results. The top Buffett holding fell hard on an increasingly gloomy economic outlook, and flattish guidance for the first quarter of 2019 seemed to back up evidence that the global economy is slowing down. Add to the mix Amazon.com's (NASDAQ: AMZN) launch of its own air delivery system -- a key area of growth for passenger airlines -- and it all equated to a bloody nose for Delta at the end 2018.
For value investors, though, all of that angst means a buying opportunity is nigh. While the company expects revenue per average seat mile (RASM) to grow by only 1% to 3% in the year ahead, it does forecast earnings-per-share growth of 15%. It's a much slower pace than what was set last year (4% and 19%, respectively), but growth is growth. For the first quarter, results should be even lower than that as a result of a strong U.S. dollar weighing down income overseas and the U.S. government shutdown impacting passenger travel. But Delta management was confident that the negativity will subside.
Nevertheless, Wall Street's worries that a stale first quarter will carry over into the rest of 2019 is all the rage right now, and as a result, the stock trades at a lowly 7.1 forward price to earnings. That's pricing in quite a bit of risk that may or may not transpire. But if Delta is able to manage its headwinds and deliver another year of growth -- even a modest year of growth -- shares could be a real bargain. Along the way, shareholders also get a decent 2.8% dividend payout. Now's the time to add this Buffett stock to your watchlist.
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Buffett proves rules are made to be broken
Jamal Carnette, CFA (Apple): Buffett has often said he has an aversion to investing in tech, even quipping, "If there's lots of technology, we won't understand it." Buffett's been true to his word, only owning a few tech companies in his portfolio.
However, there's one exception to this rule: Apple. And it's rather notable considering the size of the investment. Berkshire Hathaway owns 5% of Apple's outstanding shares and the stock is approximately 22% of Berkshire's portfolio value. Buffett has rapidly increased Berkshire's investment in Apple, from 9.8 million shares in early 2016 to 250 million as of Dec. 31.
Buffett's rationale is simple: He considers Apple less of a tech stock and more of a consumer stock. Apple's massive installed base will allow the company to sell services for years to come. We're starting to see just how important services are becoming to Apple's bottom line. Not only is services revenue growing at 19% per year, but it's nearly twice as profitable due to significantly higher gross margins (62.8% vs. 38%).
CEO Tim Cook continues to look for ways to monetize that installed base, recently working with publishers to offer a subscription-based news service and content providers for a streaming service while growing Apple Music and transactions under Apple Pay. Despite Buffett's legendary discipline, he's smart enough to know when rules should be broken -- Apple stock has more gains in store.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jamal Carnette, CFA owns shares of Amazon and Apple. Nicholas Rossolillo owns shares of Apple and Berkshire Hathaway (B shares). Todd Campbell owns shares of Amazon and Apple. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, and Berkshire Hathaway (B shares). The Motley Fool owns shares of Delta Air Lines and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.