The world’s most admired investor, Warren Buffet, made headlines as the price of class A shares of his holding company Berkshire Hathaway (BRK.A) crossed the algorithmic limit of $424,840 on May 5. BRK.A continued to rally to hit its $445,000 all-time high on May 7, making it the most expensive stock to date. BRK.A has gained 25.2% year-to-date, surpassing the broader S&P 500 index’s 10.8% returns over this period.
With a net worth of $109.90 billion, Buffett is one of the most successful investors of all time and is known for his fundamental value investing strategy. He preaches a long-term investing strategy in which investors should commit to holding a stock for extended periods, despite “investment noise” that may cause short-term fluctuations.
With rising inflation and the Treasury yields, the stock markets look less attractive now. The “Buffett indicator,” which is the Wilshire 5000 index to GDP, grew more than 25% from its all-time high in 2000 (during the dot-com bubble) in March this year. Despite the broader market overvaluation, Buffett is betting on several stocks from multiple industries that possess significant upside potential, backed by sound financials and industry tailwinds. Thus, we think Warren Buffett’s all-time favorite stocks—Apple Inc. (AAPL), The Goldman Sachs Group, Inc. (GS), DaVita Inc. (DVA) and Axalta Coating Systems Ltd. (AXTA) — could be solid bets now.
Apple Inc. (AAPL)
AAPL has been dominating the technology sector for decades. With a $2.13 trillion market capitalization, it is the most valuable company in the world and is ranked #4 in the Fortune 500 list. As of December 31, Buffett held 907.56 million shares of AAPL, representing a 5.4% stake in the company, as stated in Berkshire Hathaway’s latest 13K filing. Buffett had sold a portion of AAPL shares last year, which he deems as a mistake, as per reports from Berkshire Hathaway’s shareholder meeting earlier this month.
AAPL’s net sales increased 53.6% year-over-year to $89.58 billion in the fiscal second quarter ended March 27, 2021. This can be attributed to a 61.6% rise in revenues from its “Products” segment. Its operating income improved 114% from the same period last year to $27.50 billion. Its net income came in at $23.63 billion, representing a 110% rise from its year-ago value. Its EPS stood at $1.40, up 118.8% year-over-year. Shares of AAPL have gained 64.7% over the past year. However, the recent tech industry slump has seen the stock to decline 4% year-to-date.
AAPL has been expanding its operations to capitalize on the various industry tailwinds, including the electric vehicle (EV) boom and rising semiconductor demand. The company began using its customized M1 semiconductor chip in electronics such as laptops and iPads, which has reportedly improved their performance. As more and more people switch to Apple products given their higher efficiency, sales are expected to rise further in the future.
Also, AAPL has formally announced its plans to launch EVs with autonomous driving features in 2024. This allows the tech company a direct entry into the trillion-dollar EV industry, which is expected to grow at a 41.5% CAGR over the next six years. Because internal combustion vehicles are gradually being phased out, the EV industry is expected to be the next “big” thing in the automobile industry. On May 5, the company, in collaboration with II-VI, announced a $410 million additional investment in optical technology and LIDAR.
A $5.19 consensus EPS estimate for its fiscal year 2021 indicates a 58.2% improvement year-over-year. The company has an impressive earnings surprise history also; it beat the Street’s EPS estimates in each of the trailing four quarters. Analysts expect AAPL’s revenues to rise 29% from the same period last year to $354.10 billion in the current year.
It’s no surprise that AAPL has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor with each factor weighted to an optimal degree.
The stock has a grade of A for Sentiment, and B for Quality. Of the 48 stocks in the B-rated Technology – Hardware industry, AAPL is ranked #21.
Beyond what we’ve stated above, one can view additional AAPL Ratings for Growth, Stability, Value and Momentum here.
The Goldman Sachs Group, Inc. (GS)
GS is one of the world’s biggest financial services companies, with approximately $2.20 trillion in assets under supervision, as of March 31, 2021. GS has been a long-time favorite stock of Buffett. He acquired a $5 billion stake in the company in 2008. Berkshire Hathaway holds preferred shares of GS, which have a 10% annual dividend payout rate. However, Buffett sold off his stake during the pandemic last year as part of his plan to reduce exposure to the financial services sector. Buffett reduced his financial services company holdings by 16 percentage points to 27% in 2020.
As the financial services industry recovers at an accelerated pace in-part due to many companies going public in response to bullish stock markets, Buffett might increase his holdings in this sector again. GS’ business resiliency amid the notorious Archegos margin call earlier this year make it one of the most stable investment banks internationally. The company is currently scaling its operations in China and is in the process of hiring more than 300 new employees. China’s booming stock markets and several high-profile IPOs scheduled later this year should allow GS to boost its revenues significantly.
GS’ revenues came in at $17.70 billion for the first quarter, ended March 31, 2021, up 102% year-over-year. This can be attributed to a 105% rise in revenues from its investment banking segment, and 60% rise in revenues from its market making segment. Its net earnings and EPS improved 498% from the same period last year to $6.71 billion and $18.60, respectively, over this period.
The Street expects GS’ EPS to rise 78.9% from its year-ago value to $44.25 in the current year. Furthermore , GS beat consensus EPS estimates in three of the trailing four quarters. The company’s annual revenue is expected to increase 11.9% year-over-year to $49.86 billion in its fiscal year 2021.
GS gained 111.4% over the past year, and 39.8% year-to-date. The stock hit its $376.98 all-time high on May 10, 2021.
GS has a grade of B for Growth. It is ranked #7 of 24 stocks in the B-rated Investment Brokerage industry.
We have also rated GS on Value, Momentum, Stability, Quality and Sentiment. Get all GS’ Ratings here.
DaVita Inc. (DVA)
DVA specializes in kidney dialysis services for chronic kidney failure or stages of renal diseases. It facilitates both in-patient and out-patient dialysis services across the country. As Buffett amplified its holdings in the healthcare industry amid the pandemic, he has invested heavily in DVA stock. As of September 21, 2020, Buffett had a 33% stake in the company, indicating a 130 basis points increase. As of February 16, he held nearly 37 million shares, implying a 1.57% weighting in Berkshire Hathaway.
DVA’s “Dialysis patient service” segment revenues increased slightly year-over-year to $2.71 billion for the quarter ended March 31, 2021. Its operating income improved 4.9% from the year-ago value to $291.55 million. Its EPS came in at $2.09, up 10.6% from the same period last year. Shares of DVA have gained 60.5% over the past year, and 6.8% year-to-date.
DVA is one of the leading companies specializing in renal healthcare, as evidenced by its $13.33 billion market capitalization. With 15% of the adult population, or 37 million people, estimated to have chronic kidney disease, as per latest CDC reports, DVA’s state-of-the-art dialysis services is projected to see high demand in the future. DVA has been expanding its operations to strengthen its out-patient care by facilitating home dialysis. On March 23, the company partnered with Fresenius Medical care North America to provide home hemodialysis machines and related supplies to patients across the United States. Earlier this month, the company expanded this in-home kidney care program to offer HomeChoice Claria Automated Peritoneal Dialysis system.
Also, the many people suffering from long-term damage to their kidneys as a complication of coronavirus might require periodic dialysis at least in the short term, which, in turn, should raise demand for DVA’s services.
Analysts expect DVA’s EPS to rise 17.6% from the same period last year to $8.54 in its fiscal year 2021. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. DVA’s revenue is expected to rise marginally in the current year to $11.58 billion.
DVA has an overall B rating, translating to Buy in our POWR Ratings system. It has a B grade for Value, Stability and Quality. Of 80 stocks in the Medical – Services industry, DVA is ranked #15.
Click here to view additional DVA Ratings (Growth, Momentum and Sentiment).
Axalta Coating Systems Ltd. (AXTA)
AXTA manufactures and sells high-performance coatings systems through two segments–Performance Coatings and Transporting Coatings–across the Americas, Europe, Middle East and Asia. Warren Buffet held 23.42 million shares of AXTA, as of December 31, 2020, indicating a 0.25% weighting in Berkshire Hathaway.
AXTA has immense growth potential because the demand for industrial coatings will likely rise in tandem with the global economic recovery. Surging price levels and a shortage of raw materials, coupled with hefty projected infrastructure spending, should help the company to report a substantial rise in financials in the coming months. Against this backdrop, the company looks relatively undervalued, making it a top holding for Buffet. The stock’s 0.94 non-GAAP forward PEG ratio is 44.4% lower than the 1.69 industry average.
AXTA’s net sales for the quarter ended March 31, 2021 stood at $1.06 billion, up 8.1% year-over-year. Its cash from operating activities came in at $39.60 million, representing a substantial improvement from the negative year-ago value. Its cash balance as of March 31 stood at $12.70 billion, representing a 92.4% rise from the prior year quarter.
A $2.05 consensus EPS estimate for its fiscal year 2021 indicates a 54.1% rise year-over-year. AXTA surpassed consensus EPS estimates in three of the trailing four quarters. The Street expects the company’s revenues to come in at $4.45 billion, representing a 19.2% rise from the same period last year. Shares of AXTA have risen 67% over the past year, and 14.3% year-to-date.
AXTA’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which equates to Buy in our proprietary rating system. The stock has a B grade for Quality. Also, it is ranked #51 of 97 stocks in the A-rated Chemicals industry.
Additionally, we have graded AXTA for Momentum, Stability, Sentiment, Growth and Value. Get all AXTA Ratings here.
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AAPL shares fell $0.10 (-0.08%) in after-hours trading Monday. Year-to-date, AAPL has declined -4.53%, versus a 11.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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