With a net worth of more than $80 billion as of October 2020, Warren Buffett is one of the wealthiest men in the world. He is one of the biggest proponents of value investing, but sometimes he picks growth stocks. Buffett is undeterred by the stock market’s ceaseless gyrations. A company’s sales growth, profit margins and debt levels are some of the key factors that he considers before making an investment decision. Basically, Buffett picks companies in which to invest based the strength of their business model and their financials and primarily employs a buy-and-hold strategy.
Buffett’s Berkshire Hathaway investment portfolio grew at a CAGR of 20.3% between 1965 and 2019, compared to S&P 500’s 10.2% returns during the period. There are innumerable investing lessons that the Oracle of Omaha has shared over the decades. One of which is that he typically lays special emphasis on portfolio optimization, which he recalibrates on a regular basis.
One of the biggest takeaways from Warren Buffett’s investing style is to view a portfolio objectively and to never allow emotions to hold sway. Apple Inc. (AAPL) is one of his favorite stocks and forms a sizable chunk of his portfolio. However, he nonetheless trimmed his stake in AAPL by 6% in the fourth quarter of 2020. Buffett continues to be very optimistic about AAPL.
General Motors Company (GM), Kroger Company (KR), DaVita Inc. (DVA), and Axalta Coating Systems (AXTA) are four of the stocks that Buffett currently holds due to their sterling growth potential. Here’s a look at what impressed Buffett about these names and how they are placed.
General Motors Company (GM)
Berkshire (BRK.B) first bought GM in 2012 and slowly increased its stake to 80 million of its shares by September 2020. Buffett raised his investment at a juncture when the auto industry was faced with difficult challenges. GM was going through tough times at that time due to a United Auto Workers’ strike and weakness in Chinese demand during the initial outbreak of the COVID-19.
Electric vehicles are one of the hottest growth sectors now and Buffett identified GM’s potential in this area. The stock also had an extremely low valuation at that time t and was an ideal pick for Buffett. He was also quite optimistic about GM’s futuristic auto offerings, such as self-driving and flying cars. Experts believe that Buffett’s Berkshire Hathaway has gained $1.5 billion through its GM investment in less than four months.
During the fourth quarter, ended December 31, 2020, GM’s net revenue climbed 21.7% year-over-year to $37.5 billion. Its EPS was $1.93 compared to a loss per share of $0.16 in the prior year period. The company’s adjusted EBIT rose to $3.7 billion from $105 million in fourth quarter of 2019, driven by the exceptional performance of the North American automotive segment. GM ended the quarter with an adjusted automotive free cash flow of $3.4 billion. Its total vehicle sales rose 6.9% year-over-year to one million.
Analysts expect GM’s revenue for the quarter ending March 31, 2021 to be $33.8 billion, representing a 3.4% year-over-year increase. Its EPS is expected to grow at the rate of 6.6% per annum over the next five years.
GM advanced 29.1% on a year-to-date basis to close Friday’s trading session at $53.75. Over the past six months, the stock gained 79.2%.
GM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
GM has a B grade for Growth, Value and Momentum. Of the 52 stocks in the B-rated Auto & Vehicle Manufacturers industry, it is ranked #20.
In addition to the POWR Ratings grades I’ve just highlighted, you can see GM ratings for Quality, Sentiment and Stability, here.
Note that GM is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
Kroger Company (KR)
In February 2020, Berkshire Hathaway purchased 18.9 million of the shares of the largest supermarket chain in the United states, Kroger Company, for $549 million. Through this, Berkshire became a 2.3% ownership stakeholder in the grocery store giant. Buffett has long had a penchant for consumer-oriented companies because of their “infallible” business model. One of his oldest holdings is Coca-Cola (KO), which he has been accumulating over the past 57 years.
KR has also evolved with the times It reinvented itself to ward off increasing competition from Amazon (AMZN) and Walmart (WMT). Its home delivery and curbside pickup models worked wonders during the COVID-19 pandemic. KR’s consistent performance and cheaper valuations also convinced Buffett to take a stake in the company.
During the fourth quarter ended December 31, 2020, KR’s sales climbed 6.9% year-over-year to $30.7 billion, led by its Our Brands segment. Its loss per share for the quarter was $0.10 compared to EPS of $0.40 posted in the prior-year period. KR expanded to 2,223 pickup locations and 2,472 delivery locations, representing 98% of KR households.
Analysts expect KR’s revenue for the quarter ending April 30, 2021 to be $39.2 billion, representing a 3.7% year-over-year increase. Its EPS is expected to grow at the rate of 4% per annum over the next five years.
KR ended Friday’s trading session at $34.44, rising 8.4% year-to-date. During the past six months, KR has retreated 2.9%.
KR’s fundamentals are reflected in its POWR Ratings. It has a grade of A for Value, and B for Quality. It is ranked #31 among 39 stocks in the A-rated Grocery/Big Box Retailers industry.
In total, we rate KR on eight different levels. Beyond what we stated above, we also have given KR grades for Stability and Momentum. Get all the KR ratings here.
DaVita Inc. (DVA)
In 2011, Warren Buffett began acquiring a stake in DVA, a leading healthcare company that specializes in kidney health. Today, BRK.B is a majority stakeholder in the company. According to a recent regulatory filing, BRK.B’s stake in DVA has increased to 33%. Berkshire’s National Indemnity Company and its GEICO subsidiary are holding this stake. With daily dialysis patients at nearly 240,000 in the U.S. as well as other countries, DVA appears to have a resilient business model.
DVA’s revenue for the fourth quarter, ended December 31, 2020 rose 0.2% year-over-year to $2.9 billion, driven by increases in government revenue per treatment and in hospital inpatient dialysis services. Its EPS for the quarter fell to $1.50 from $1.88 posted in the prior year period. During the fourth quarter, DVA acquired 30 dialysis centers outside of the U.S. It also made an entry into the United Kingdom during the quarter.
Analysts expect DVA’s revenue for the quarter ending March 31, 2021 to be $2.8 billion, representing a 0.5% year-over-year decline. Its EPS is expected to grow at the rate of 2.2% per annum over the next five years.
DVA ended Friday’s trading session at $105.54, declining 10.1% year-to-date. During the past six months, DVA declined 21.2%.
DVA’s fundamentals are reflected in its POWR Ratings. It has a B for Value, Stability, and Quality. It is ranked #25 out of 77 stocks in the Medical – Services industry.
In total, we rate DVA on eight different levels. Beyond what we stated above we also have given DVA grades for Growth, Sentiment, and Momentum. Get all the DVA ratings here.
Axalta Coating Systems (AXTA)
Berkshire currently owns approximately 10% of AXTA’s total business into which it began investing in 2015. AXTA is one of the lesser-known companies among Buffett’s investments. The company manufactures, sells and distributes costing solutions in Europe, North America, Asia Pacific, and Latin America. It provides water and solvent borne products and systems for repair and functional and decorative liquid and powder coatings for industries. Transportation coatings and performance coatings are the two segments through which it operates. AXTA has a dominant position in the refinish and industrial coatings market.
During the fourth quarter, ended 31 December 2020, its net sales declined by 2.2% year-over-year to $1 billion, due to 3.8% lower volumes and a 0.2% lower average price. The product mix also suffered due to the pandemic. Its diluted EPS climbed to $0.30 from $0.18 posted in the same period last year.
A consensus revenue estimate for the quarter ending March 31, 2021 is $1 billion, representing a 4.5% increase year-over-year. Meanwhile, its EPS is likely to increase at the rate of 12.6% per annum for the next five years.
Year-to-date, AXTA rose 1.1% to end Friday’s trading session at $28.86. Over the past six months, the stock climbed 25.1%.
AXTA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. AXTA has a B Grade for Growth and Quality. In the A-rated Chemicals industry, it is ranked #27.
Click here to see the additional POWR Ratings for AXTA (Stability, Sentiment, Momentum, and Value).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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GM shares were trading at $54.93 per share on Monday afternoon, up $1.18 (+2.20%). Year-to-date, GM has gained 31.92%, versus a 2.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More…