If any investor has stood the test of time, it is Warren Buffett, and with good reason. For years, the “Oracle of Omaha” has had a rock-star-like presence in the investing world His annual Berkshire Hathaway shareholders meeting draws literally thousands of loyal fans who are investors. Known for his long buy and hold strategies, and his massive portfolio of public and private holdings, he remains one of the preeminent investors in the world.
The April consumer price index came at 8.3% on an annual basis, and many investors have become worried. As well they should be with inflation still at 40-year highs. Mortgage rates are the highest since 2009, which at 5.27% for a 30-year fixed is still historically low, but that rate was 2.95% just last fall. Gasoline prices are at all-time highs, and food prices at the grocery store have jumped.
Worried investors should shift away from high-beta stocks and go into conservative, dividend-paying companies to ride out what may be the worst year in the stock market since 2008 and 2009. We screened Warren Buffett’s Berkshire Hathaway portfolio looking for quality defensive names that make sense now and found seven top stocks that are all rated Buy by major Wall Street firms.
It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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Bank of America
Bank of America Corp. (NYSE: BAC | BAC Price Prediction) is the second-largest holding at Berkshire Hathaway. The company is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
Bank of America has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.
Banks, almost regardless of size, are a solid idea as the potential for higher net interest income (NII) on portfolio loans to homeowners, farmers and small business owners. NII is one of the strongest tailwinds provided to financial firms in a rising-rate environment, as they can achieve better returns on their cash balances while achieving higher rates of returns from customers who come in for loans. Bank of America posted very solid first-quarter results.
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Bank of America stock investors receive a 2.35% dividend. The Goldman Sachs target price of $51 is higher than the $49.16 consensus target and Wednesday’s closing print of $35.57.
Chevron
This integrated giant is a safer way for investors looking to get positioned in the energy sector, as it has a solid position when it comes to natural gas. Chevron Corp. (NYSE: CVX) engages in integrated energy and chemicals operations worldwide.
The Upstream segment is involved in the exploration, development, production and transportation of crude oil and natural gas; processing, liquefaction, transportation and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage and marketing of natural gas, as well as operating a gas-to-liquids plant.
The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil, refined products and lubricants; manufacturing and marketing of renewable fuels; transporting crude oil and refined products by pipeline, marine vessel, motor equipment and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives. It is also involved in cash management and debt financing activities, insurance operations, real estate activities and technology businesses.
The company sports a 3.53% dividend. Raymond James has a $191 target price on Chevron stock. The consensus target is $170.11, and shares closed on Wednesday at $163.16.
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Coca-Cola
This is a top Warren Buffet holding, and he owns a massive 400 million shares. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands. It has an incredibly strong worldwide brand, with 40% overseas sales.
Led by Coca-Cola, one of the world’s most valuable brands, the company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.
Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.
Investors receive a 2.75% dividend. The Truist Financial target price is $75. The consensus target for Coca-Cola stock is $69.02, and the shares closed on Wednesday at $64.31.
Kraft Heinz
Even in tough times, everyone has to eat, and this company stands to benefit. Kraft-Heinz Co. (NASDAQ: KHC) was formed six years ago via the merger of H.J. Heinz and Kraft Foods. The company is a leading global food company, with $29 billion of annual revenues generated by well-known brands. It is the third-largest food and beverage manufacturer in North America, deriving 76% of revenues from that market and 24% internationally.
The company’s brands include not only Kraft and Heinz but also Oscar Meyer, Maxwell House, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon, Quero, Weight Watchers Smart Ones and Velveeta.
Buffett holds a massive position of this stock in the Berkshire Hathaway portfolio of 325 million shares.
Shareholders receive a 3.68% dividend. The $48 BofA Securities price target is well above the $40.79 consensus target, which is less than the $43.50 where Kraft Heinz stock closed on Wednesday.
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Kroger
This grocery chain giant is always a solid idea when the going gets rough, as people tend to go out less to eat. Kroger Co. (NYSE: KR) operates as a retailer in the United States. It operates combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses.
Its food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood and organic produce. Its multi-department stores provide apparel, home fashion and furnishings, outdoor living, electronics, automotive products and toys.
The company’s marketplace stores offer full-service grocery, pharmacy, health and beauty care, and perishable goods, as well as general merchandise, including apparel, home goods, and toys. The price impact warehouse stores provide grocery and health and beauty care items, as well as meat, dairy, baked goods and fresh produce items.
The company also manufactures and processes food products for sale in its supermarkets, and it sells fuel through 1,596 fuel centers. As of January 30, 2021, the company operated 2,742 retail food stores under various banner names in 35 states and the District of Columbia, as well as an online retail store.
Shareholders receive a 1.52% dividend. The Kroger stock price target at BofA Securities is $75. The consensus target is a much lower $54.92. The last trade on Wednesday was reported at $54.33.
Merck
This remains a leading health care stock for conservative investors. Merck & Co. Inc. (NYSE: MRK) offers therapeutic and preventive agents to treat cardiovascular issues, type 2 diabetes, asthma, nasal allergy symptoms, allergic rhinitis, chronic hepatitis C virus, HIV-1 infection, fungal infections, intra-abdominal infections, hypertension, arthritis and pain, inflammatory, osteoporosis, male pattern hair loss and fertility diseases.
The company also provides neuromuscular blocking agents for use in surgery, anti-bacterial products for skin and skin structure infections, cholesterol modifying medicines, non-sedating antihistamine and vaginal contraceptive products.
Investors in Merck stock receive a 3.14% dividend. Goldman Sachs has set a $101 target price. The $92.58 consensus target is also higher than Wednesday’s closing print of $89.19.
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Verizon
This top telecommunications stock offers tremendous value at current levels, and Berkshire Hathaway owns 158.8 million shares. Verizon Communications Inc. (NYSE: VZ) is one of the largest U.S. telecom companies. It provides wireless and wireline service to retail, enterprise and wholesale customers.
Verizon’s wireless network serves approximately 120 million mobile connections with 115 million postpaid subscribers. Its wireline business has undergone a period of secular decline due to wireless substitution and cable competition.
Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.
Investors receive a 5.32% dividend. The BofA Securities target price is $64. Verizon Communications stock has a consensus target of $60.64. The closing share price on Wednesday was $47.88.
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Given Warren Buffett’s proclivity for only owning the stocks of companies that he understands inside and out, these all make sense now for growth and income investors worried about the potential for a continued steep market decline. While they could sell off in a large correction, they will hold up far better than most.
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