Warren Edward Buffett is undoubtedly one of the most successful investors of all time. According to Forbes, Buffett has compounded his wealth at such a high rate that he is currently the world’s fifth-wealthiest person with a net worth of over $107 billion. He is the chairman and CEO of Berkshire Hathaway (BRK.A) (BRK.B), a diversified holding company.

Warren Buffett follows a value investing strategy. His company, Berkshire Hathaway, aims to “buy ably-managed businesses” possessing various characteristics, such as enduring competitive advantage, at extremely low prices.

Due to an impressive track record, Buffett’s investment portfolio has been a guide for investors for decades. Over the past year, BRK.A has gained 3.4%, while the S&P 500 index has declined 20.3%. Moreover, over the past six months, BRK.A has gained 13.5%, outpacing the S&P 500’s marginal gains.

Since the stock market is expected to remain under immense pressure due to the Fed’s hawkish stance, ongoing geopolitical turbulence, and growing recessionary fears, it might be wise to invest in top Warren Buffett holdings to garner high returns in the long run.

To that end, Johnson & Johnson (JNJ), The Coca-Cola Company (KO), and Diageo plc (DEO) could be good additions to your portfolio. However, given the weak financials and bleak growth prospects, Ally Financial Inc. (ALLY) is best avoided now.

Stocks to Buy:

Johnson & Johnson (JNJ)

JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. The company operates through three segments: Consumer Health; Pharmaceutical; and Medical Devices.

On December 22, 2022, JNJ completed the acquisition of Abiomed Inc. (ABMD), a world leader in breakthrough heart, lung, and kidney support technologies. Joaquin Duato, CEO of JNJ, said, “This acquisition marks another important step on Johnson & Johnson’s path to accelerating growth in our MedTech business and delivering innovative medical technologies to more people around the world.”

JNJ has raised dividends for 60 consecutive years. It pays a $4.52 per share dividend annually, which translates to a 2.56% yield on the current price. Its four-year average dividend yield is 2.60%. Its dividend payouts have grown at a 5.9% CAGR over the past three years and a 6% CAGR over the past five years.

In the third quarter of fiscal 2022, JNJ reported sales of $23.79 billion, a 1.9% increase year-over-year, while sales from the Pharmaceutical segment increased 2.6% from the year-ago value to $13.21 billion. The company’s net earnings rose 21.6% year-over-year to $4.46 billion. Also, its EPS grew 22.6% year-over-year to $1.68.

Analysts expect JNJ’s revenue to increase 1.4% year-over-year to $95.04 billion in the fiscal year ending December 2022. The company’s EPS is expected to grow 2.5% year-over-year to $10.05 in the current year. Moreover, it surpassed the consensus EPS estimates in all four trailing quarters.

Furthermore, the company’s revenue and EPS for the next fiscal year 2023 are expected to grow 2.7% and 3.2% year-over-year to $97.60 billion and $10.37, respectively. Over the past year, the stock has gained 3.9% to close the last trading session at $178.19.

JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

JNJ has an A grade for Stability and a B for Quality. In the Medical – Pharmaceuticals industry, it is ranked #6 out of 162 stocks.

Click here for the additional POWR Ratings for Value, Sentiment, Growth, and Momentum for JNJ.

The Coca-Cola Company (KO)

KO is a famous beverage company that manufactures, markets, and sells various nonalcoholic beverages worldwide. The company offers sparkling soft drinks, flavored and enhanced water, sports drinks, juice, dairy, plant-based beverages, and energy drinks. It operates through a network of independent bottling partners, distributors, wholesalers, and retailers.

On September 29, KO and Molson Coors Beverage Company (TAP) entered an exclusive agreement to develop and commercialize Topo Chico Spirited, a line of spirit-based, ready-to-drink cocktails inspired by the bright and refreshing taste of tequila and vodka-based beverages. It will be launched in more than 20 markets across the country in 2023 and might boost the company’s revenue stream.

For the fiscal 2022 third quarter ended September 30, KO’s net operating revenues increased 10.2% year-over-year to $11.05 billion. The company’s gross profit grew 7.1% year-over-year to $6.50 billion. Its operating income came in at $3.09 billion, up 6.6% year-over-year.

Furthermore, the net income attributable to shareholders of KO was $2.83 billion, up 14.3% year-over-year. Its non-GAAP net income per share grew 6.2% from the year-ago value to $0.69.

The company pays a dividend of $1.76 per share annually, which translates to a 2.77% yield at the current price. Its four-year average dividend yield is 3.07%. The company has raised its dividend for the past 60 years. 

Moreover, its dividend payouts have grown at a CAGR of 3.2% over the past three years and a CAGR of 3.5% over the past five years.

Analysts expect KO’s EPS to increase 7.3% year-over-year to $2.49 for the fiscal year ending December 2022. Likewise, the consensus revenue estimate of $42.75 billion represents a 10.6% growth from the previous year. Also, the company has surpassed the consensus EPS and revenue estimates in all four trailing quarters.

The stock has gained 6.2% over the past year to close its last trading session at $62.95.

KO’s POWR Ratings reflect this promising outlook. The stock is rated a B in Stability, Sentiment, and Quality. Within the A-rated Beverages industry, it is ranked #19 out of 35 stocks.

Beyond what we’ve stated above, we have also given KO grades for Value, Momentum, and Growth. Get all KO ratings here.

Diageo plc (DEO)

Headquartered in London, United Kingdom, DEO, with its subsidiaries, produces, markets, and sells alcoholic beverages. The company operates in North America, Europe, Turkey, Africa, Latin America, the Caribbean, the Asia Pacific, and internationally.

In December, DEO’s Orphan Barrel Whisky Co. introduced the third and final Single Grain Scotch Whisky in its series: Muckety-Muck 26 Year Old. The new launch is expected to boost the company’s revenue streams.

On November 2, DEO announced its acquisition of Balcones Distilling, a Texas craft distiller and one of the leading producers of American Single Malt Whisky in the United States. The company expects this acquisition to support further growth in its premium whiskey segment.

DEO’s net sales increased 21.4% year-over-year to £15.45 billion ($16.36 billion) in the fourth quarter ended June 30, 2022. The company’s adjusted EBITDA increased 26% year-over-year to £5.70 billion ($6.04 billion) for the same quarter. Its earnings per share before exceptional items stood at 151.40 pence, up 29.3% year-over-year.

As of June 30, 2022, the company’s total current assets stood at £12.93 billion ($13.69 billion), compared to £11.45 billion ($12.13 billion) as of June 30, 2021.

The company’s annual dividend of $3.63 per share translates to a 2.06% yield on the current price. Its dividend payouts have grown at a CAGR of 2.6% over the past five years. Its four-year average dividend yield is 2.17%.

The consensus EPS estimate of $8.47 for the fiscal year ending June 2023 indicates a 16.1% year-over-year improvement. The consensus revenue estimate of $20.55 billion for the same year represents a 9.3% increase from the prior year. 

Furthermore, the company’s EPS and revenue for the next fiscal year 2024 are expected to increase 10.4% and 5.1% year-over-year to $9.35 and $21.59 billion, respectively.

DEO has gained 2.5% over the past six months to close the last trading session at $175.95.

It’s no surprise that the stock has an overall rating of B, translating to Buy in our POWR Ratings system. DEO has an A grade for Sentiment and a B grade for Stability and Quality. It is ranked #15 out of 35 stocks in the A-rated Beverages industry.

Beyond what is stated above, we’ve also rated DEO for Value, Momentum, and Growth. Click here to get all DEO ratings.

Stock to Sell:

Ally Financial Inc. (ALLY) 

ALLY provides digital financial products and services to consumer, commercial, and corporate customers, mainly in the United States and Canada. The company operates through four segments: Automotive Finance Operations; Insurance Operations; Mortgage Finance Operations; and Corporate Finance Operations.

ALLY was primarily hurt by high funding costs, which narrowed its net interest margin (NIM). The company’s NIM was 3.8% during the third quarter, down from 4.04% in the second quarter of fiscal 2022. In addition, used car prices are dropping, which could significantly reduce loan volumes in the near term.

For the fiscal 2022 third quarter, ended September 30, ALLY’s net income from continuing operations declined 57.9% from the year-ago value to $300 million. The company’s net income declined 58% from the prior-year period to $299 million, and its EPS came in at $0.88, down 54% year-over-year.

As of September 30, 2022, ALLY’s total liabilities stood at $176.21 billion, compared to $165.06 billion as of December 31, 2021.

Analysts expect ALLY’s EPS for the fourth quarter (ended December 31, 2022) to decline 50.7% year-over-year to $1. The consensus revenue estimate of $2.03 billion for the current quarter indicates a 7.6% year-over-year decline. 

In addition, the company’s EPS for fiscal 2023 and 2024 is expected to decrease 29.8% and 29.6% year-over-year to $6.05 and $4.25, respectively.

Shares of ALLY have plunged 27.1% over the past six months and 49.7% over the past year to close the last trading session at $24.42.

ALLY’s poor fundamentals and bleak outlook are reflected in its POWR Ratings. The stock has an overall D grade, equating to Sell in our POWR Ratings system. Also, it has an F grade for Sentiment and a D for Momentum and Growth.

ALLY is ranked #40 out of 48 stocks in the D-rated Consumer Financial Services industry. Click here to access ALLY’s POWR ratings for Value, Stability, and Quality.

JNJ shares rose $0.64 (+0.36%) in premarket trading Wednesday. Year-to-date, JNJ has gained 0.87%, versus a -0.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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