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An investment style that some like to use is to follow the example of big investors. For those looking to buy and hold stocks, there is probably no better investor in the steps you should follow than Warren Buffett. Returns to Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) have been undeniably excellent, and much of this has to do with Buffett's ability to detect good stocks.
We asked three of our contributors, Motley Fool, to review Berkshire's portfolio of securities and propose three choices to buy today. Here's why two of them have chosen Capital Store (NYSE: STOR) and Synchrony Financial (NYSE: SYF) while one argued that you'd better buy Berkshire Hathaway himself.
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This new Buffett stock pulls on all the cylinders
Neha Chamaria (Capital of the store): In the middle of last year, Berkshire Hathaway added another industry to his portfolio – real estate – when she bought shares in Real Estate Real Estate Investment Trust (REIT). This is the only real estate stock that Berkshire currently owns, but that's not what caught my eye. The growth potential of the company has rather done.
Store Capital owns and leases more than 2,000 properties (mainly one tenant) to nearly 400 tenants in 105 industries. They are primarily in the retail and service sectors such as restaurants, furniture stores, health clubs and movie theaters. A diversified portfolio like this one can weather storms better than a niche portfolio.
In addition to this, Store Capital enjoys a dual benefit as a net leasing REIT: its leases are truly long-term (the average lease term is about 14 years) with integrated rent indexing or clauses expenses such as maintenance, property tax and insurance are the responsibility of tenants. In short, by its very nature, a net leasing REIT can earn a stable income that also increases over time.
In the last quarter, Store Capital recorded a 99.7% occupancy rate, 15% revenue growth and a 19% increase in adjusted cash flow. The company expects to earn $ 1.78 – $ 1.84 AFFO per share in 2018, or 6% more than in 2017. Since its IPO in 2014, Store Capital has increased its flows operating cash and its dividends per share. yielding 4.3%. So, yes, with Store Capital, you can also expect sustainable and growing dividends, supported by rent indexing of its leases, which provide a solid foundation for growth in adjusted operating cash flow. . This should maintain the momentum of the stock.
In-store credit cards are not good deals, but they can be a great deal
Matthew Frankel, CFP (Synchrony Financial): There are several bank securities in Berkshire Hathaway's portfolio, and one of the smaller ones in the group, Synchrony Financial, is often overlooked.
Synchrony Financial is one of the leading credit card issuers of stores and also has a major online bank. Now, in-store credit cards are generally not good business for consumers because they often have an APR well above the industry average. However, they have the makings of an excellent company.
On the one hand, although the compensation rate of nearly 6% of Synchrony is quite high compared to other credit card issuers as American Express (NYSE: AXP) and Capital One (NYSE: COF), the high APR character of the products largely offsets it. In fact, Synchrony's net interest margin is 15.3% after recognition of expenses and interest expense. The bank's asset yield is about three times higher than the benchmark 1% benchmark, and its 31% efficiency ratio is impressive even for a remote bank.
In addition, Synchrony has had great success recently after announcing that it would lose Walmart (NYSE: WMT) co-branding partnership. However, this may be more of a temporary retreat than a permanent problem. Think of it in the same context as when American Express lost its Costco (NASDAQ: COST) Partnership; a few years later, the revenue losses were offset and even more. With good management and a solid growth plan, I think the same thing will happen here.
STOR data by YCharts
Save yourself from trouble and buy the whole sacred thing
Tyler Crowe (Berkshire Hathaway): There are many Berkshire portfolio stocks that are worth being owned by themselves, but I think investors would miss the forest for the trees they did not envision. to put that money in all of Berkshire's stock. choose one or two. For me, there are three reasons why investors should seriously consider buying Berkshire Hathaway right now.
- It's much more than its stocks: As a result of the company 's latest quarterly reports, the Berkshire equity portfolio had a market value of approximately $ 190 billion. It's probably huge, but Berkshire's total assets are valued at $ 711 billion and includes some of the country's largest railroads, utilities and insurance companies. These operating companies are those that generate the mountains of liquidity that Buffett and Charlie Munger have deployed in equities over the years.
- This is a great capital allocator with a lot of money: I challenge you to find a better tandem of capital allocators to give $ 111 billion in cash and in equivalents to those of Buffett and Munger … I'll wait.
- Stocks are pretty cheap right now: Berkshire shares have risen an impressive 19% over the past year, but the stock seems relatively cheap. The shares are at 1.46 times the book value. This exceeds the threshold of 1.2 times that Buffett used to determine when to buy back shares, but keep in mind that $ 111 billion of this book value is in cash. The underlying assets of the company are valued at a price lower than this one.
Buffett and his lieutenants have chosen all the stocks in his wallet for a reason, so why try to beat them when you can join them? Management implying that it would buy back shares, it seems that this is the right time to buy shares of Berkshire.
Matthew Frankel, CFP, owns shares in American Express and Berkshire Hathaway (B shares). Neha Chamaria has no position in the mentioned actions. Tyler Crowe owns shares of Berkshire Hathaway (B shares) and Costco Wholesale. The Motley Fool recommends Berkshire Hathaway (B shares) and Costco Wholesale. Motley Fool has a disclosure policy.
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