Warren Buffett: Top 5 Picks to Buy Now
Like most investors, one of your top goals is to achieve financial freedom.
That could mean funding a lavish retirement, the flexibility to have time
with loved ones, or having a career based on your values, not necessarily
the largest paycheck.
So, it stands to reason that your wealth should be invested in stocks that
ideally generate above-market returns with below-market risk.
One of the best ways to do that is to follow the Warren Buffett model.
In fact, if you want to invest in companies attractive to the billionaire, make
sure they are:
- Simple companies that are easy to understand
- Companies with predictable, proven and growing earnings
- Companies that can be bought at a reasonable price
- Companies with an “economic moat,” or a unique advantage over its competition.
“I look for companies that have a business we understand; favorable long-term economics; able and trustworthy management; and a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%,” says Warren Buffett.
So, which stocks have been favored by the billionaire? Here are five.
Opportunity No. 1 – Occidental Petroleum (OXY)
Starting in 2022, Buffett’s Berkshire Hathaway aggressively bought shares
of Occidental Petroleum. Further buys throughout 2023 and 2024 have
totaled 255.3 million shares, or about 28.8% of the company.
Oil giants like OXY have been whipsawed in recent years amid energy price
volatility. From their 2020 lows, oil prices soared into 2022, following
Russia’s invasion of Ukraine. Since then, the oil market has calmed down
significantly, bringing prices down with it.
But energy companies have been focusing on generating cash, rather than
investing in questionable oil projects given the price volatility. As a result,
oil giants have been returning excess cash to shareholders through
buybacks and dividends, which Buffett loves.
In addition, according to Kiplinger, “cash in trash when inflation runs hot,
and oil is an inflation hedge.” Best of all, Occidental is a leading producer in
the U.S. Permian Basin, which holds about 105.7 billion barrels of oil. That
avoids the political risk of investing in energy projects overseas.
Opportunity No. 2 – Verisign (VRSN)
While Buffett is famously averse to investing in technology stocks, if a
business has an easy-to-understand model, Buffett may invest even if it’s
better known as a technology play.
One such investment is Verisign. Berkshire took a $2.6 billion stake in the
company at the end of 2023. Verisign provides domain name registry
services for internet navigation. That essentially makes the company a
“switchboard” for those navigating the internet.
That’s the kind of business that doesn’t require any manufacturing costs.
Data-driven companies are capable of tremendous profits, as indicated by
Verisign’s impressive 52% profit margin. The company’s financials are also
attractive right now, with nearly $1.2 billion in cash on the balance sheet.
With a market cap of less than $18 billion, this is one of Berkshire’s smaller
holdings, but it’s one that could lead to higher returns for patient investors
today.
Opportunity No. 3 – Chubb (CB)
At its core, Berkshire Hathaway is an insurance company. The business
model is heavily regulated, and premiums received by the insurance
subsidiaries can be deployed in the stock market or to acquire businesses
entirely.
Buffett often has his eye on other insurance plays, such as Chubb. Buffett
paid $5.98 billion to buy 6.7% of the company in May 2024. The insurer has
been expanding globally, notably with life insurance policies in Asia, and has
been growing its earnings by double-digits for the past few years.
That fast growth in the typically slow-growth insurance industry suggests
that shares have more upside in the years ahead. Chubb’s growth includes
both increased underwriting of new insurance policies, and improved
investment returns in its insurance portfolio.
Opportunity No. 4 – Pool Corp (POOL)
Warren Buffett is a value investor, uncovering stocks that trade at less than
intrinsic value that should trade at a higher multiple. One of the stocks
fitting that mold is Pool Corp.
Pool provides supplies and equipment to the pool industry, in everything
from pre-packaged pool kits to filters, heaters, and pumps. Berkshire’s $152
million buy in late 2024 represents about a 1% stake in the company.
The brand fits in well with some of Berkshire’s wholly-owned subsidiaries,
including manufactured housing and paint. With a market cap of about $14
billion, Berkshire could easily acquire the entire company and add it to its
stable of businesses, if Buffett likes what he can see now that he’s a
shareholder.
Opportunity No. 5 – Domino’s Pizza (DPZ)
Warren Buffett is no stranger to the food business. Berkshire Hathaway
owns Sees Candies and Dairy Queen. In late 2024, Buffett added to his food
holdings with a stake in Domino’s Pizza.
Domino’s is one of the few players in the pizza market, and operates both
company-owned and franchised stores. Berkshire bought about $550 million
in shares, for a 3.6% stake in Domino’s.
As consumers have cut back on dining out or ordering out, pizza seems to
be an exception to that rule. Domino’s grew its earnings per share by 6%
year-over-year in 2024, at a time when restaurant bankruptcy filings surged
50% or more. Buffett likes buying during periods of fear, and the fear is
rampant in the restaurant sector right now.