If any investor has stood the test of time, it is Warren Buffett. For years, the “Oracle of Omaha” has had a rock-star-like presence in the investing world. His annual Berkshire Hathaway shareholders meeting draws 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 entire world.
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While investors were in an uproar last week over the potential for higher and longer terminal federal funds rates next year, the reality is we are closer to the end of the increases (at the most three 25-basis-point moves in 2023) than the beginning. While it is a good bet the ending rate will be above 5%, the good news is the market is pricing that into the mix now.

We screened the Berkshire Hathaway portfolio looking for stocks that appear poised to not only thrive in the higher interest rate environment but could very possibly benefit. While all seven are rated Buy across Wall Street, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Ally Financial

The bank with no buildings is poised to have a very solid fourth quarter and 2023. Ally Financial Inc. (NYSE: ALLY) is a digital financial services company that provides various digital financial products and services to consumer, commercial and corporate customers primarily in the United States and Canada.

Its Automotive Finance Operations segment offers automotive financing services, including providing retail installment sales contracts, loans and operating leases, term loans to dealers, financing dealer floor plans and other lines of credit to dealers, warehouse lines to automotive retailers and fleet financing. It also provides financing services to companies and municipalities for the purchase or lease of vehicles and vehicle-remarketing services.

The Insurance Operations segment offers consumer finance protection and insurance products through the automotive dealer channel and commercial insurance products directly to dealers. This segment provides vehicle service and maintenance contracts and guaranteed asset protection products, and it underwrites commercial insurance coverages, which primarily insure dealers’ vehicle inventory.

The Mortgage Finance Operations segment manages consumer mortgage loan portfolio that includes bulk purchases of jumbo and low-to-moderate income mortgage loans originated by third parties, as well as direct-to-consumer mortgage offerings.

The Corporate Finance Operations segment provides senior secured leveraged cash flow and asset-based loans to middle market companies, leveraged loans and commercial real estate products to serve companies in the health care industry. The company also offers commercial banking products and services. In addition, it provides securities brokerage and investment advisory services. The company was formerly known as GMAC and changed its name in May 2010.

Ally Financial stock investors receive a 4.89% dividend. Citigroup team has a $34 target price and the consensus target is $32.45. The stock closed on Friday at $24.55.

Bank of America

This is one of the biggest banks in the country, and Buffett owns a stunning 1.1 billion of its shares. Bank of America Corp. (NYSE: BAC) 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.

Shareholders receive a 2.78% dividend. The Deutsche Bank target price on Bank of America stock is $45. The consensus target is $41.03, and the shares closed on Friday at $31.70.
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Chevron

This integrated giant is a safer way for investors looking to get positioned in the energy sector and shares have backed up nicely. Chevron Corporation (NYSE: CVX), through its subsidiaries, engages in integrated energy and chemicals operations worldwide. The company operates in two segments, upstream and downstream.

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 operates 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 the cash management and debt financing activities; insurance operations; real estate activities; and technology businesses.

The company posted strong third-quarter results and remains one of the best ways to play energy safely.

The company sports a 3.37% dividend. Piper Sandler’s $206 target price compares with the $192.07 consensus target on Chevron stock. The shares closed on Friday at $168.72.

Coca-Cola

This remains a top Buffet holding, as he owns 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.

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 2.80% dividend. The $70 Wells Fargo target price is higher than the $66.88 consensus price objective. Coca-Cola stock closed at $62.75 on Friday.

One of the largest producers of alcoholic beverages in the world, Diageo PLC (NYSE: DEO) produces, markets and sells alcoholic beverages worldwide, including scotch whiskey, gin, vodka, rum, beer, Irish cream liqueurs, wine, Raki, tequila, Canadian and American whiskey, Cachaça and brandy, as well as adult beverages and ready to drink products. The company’s premium brands include Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray and Guinness.
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Its reserve brands include Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie Walker Gold Label 18-year-old, Johnnie Walker Gold Label Reserve, Johnnie Walker Platinum Label 18-year-old, John Walker & Sons Collection, Johnnie Walker The Gold Route, Johnnie Walker The Royal Route and other Johnnie Walker super-premium brands, as well as The Singleton, Cardhu, Talisker, Lagavulin and other malt brands.

The dividend yield here is 2.03%. Diageo stock has a $213 price target at BofA Securities. The consensus target is $206.38, and Friday’s close was at $178.86.

Kraft Heinz

Even in bad times, everybody has to eat, and this company always stands to benefit. Kraft Heinz Co. (NASDAQ: KHC) was formed via the merger of H.J. Heinz and Kraft Foods. The company is a leading global food company, with $29 billion in annual revenues generated by such well-known brands as Kraft, Heinz, Oscar Meyer and Maxwell House. Legendary investor Warren Buffett holds a big position in the stock at Berkshire Hathaway.

It is the third-largest food and beverage manufacturer in North America, deriving 76% of revenues from that market and 24% internationally. Additional brands include 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.

Kraft Heinz stock comes with a 4.01% dividend, and it is on the BofA Securities US 1 list of top picks. The firm’s $48 price target compares with a consensus target of $42.26 and the most recent close at $39.92.

Procter & Gamble

The company offers a very solid dividend as well as a host of recognizable products. Procter & Gamble Co. (NYSE: PG) is one of the world’s largest consumer products companies and one of the oldest in the Fortune 500. Its many brands include Pampers, Tide, Bounty, Charmin, Gillette, Oral B, Crest, Olay, Pantene, Head & Shoulders, Ariel, Gain, Always, Tampax, Downy and Dawn.

The company sells its products through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores, high-frequency stores and pharmacies. The company has been very innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors with years of steady growth and dividends.

Shareholders receive a 2.42% dividend. The Raymond James price objective is $165, while the consensus target is $148.60. Procter & Gamble stock ended Friday trading at $150.44.

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While 2023 will hopefully not be the trainwreck that this year has been, one thing is for sure. Playing it safe will not go out of style, and owning dividend-paying market leaders remains the best plan until the Federal Reserve decides it is time to pivot and lower rates. There is a very good chance that will not be until 2024.

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