The recent rally out of the August lows has gotten everybody fired up again. The Magnificent 7 continue to push the markets higher while many of the rest of the S&P 500 stocks tread water. Artificial intelligence technology is real and groundbreaking and will appear in more and more applications as time goes on, but some of the exuberance is likely to mellow as the early glow fades.
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Traditionally September is the worst month of the year for stocks. Since 1945, the large-cap S&P 500 index has delivered an average monthly return of negative 0.73% in September, the worst average performance of any month, according to CFRA chief investment strategist Sam Stovall.
The softer ADP report and the weaker gross domestic product were cited by traders for the continued late August strength in the equity markets. Last week’s PCE inflation reading was in line with estimates but rose during the month to get there. The ISM manufacturing data on Friday and the August nonfarm payrolls report both loom big for those trying to handicap the Federal Reserve’s next move.
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We decided to screen the Berkshire Hathaway portfolio for more conservative mega-cap stocks that may be a good place to ride out what could be a stormy September. While the following five are Buffett favorites and rated Buy across Wall Street, remember that no single analyst call should ever be used as a basis to buy or sell a stock.
American Express
This stock has backed up recently and is offering the best entry point since late last year, despite posting solid second-quarter results. American Express Co. (NYSE: AXP | AXP Price Prediction) provides charge and credit payment card products and travel-related services worldwide. Its products and services include payment and financing products network services accounts payable expense management products and services, and travel and lifestyle services.
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The company’s products and services also include merchant acquisition and processing, servicing and settlement, point-of-sale marketing and information products and services for merchants, and fraud prevention services, as well as the design and operation of customer loyalty programs. It sells its products and services to consumers, small businesses, midsized companies and large corporations through mobile and online applications, third-party vendors and business partners, direct mail, telephone, in-house sales teams and direct response advertising.
Shareholders receive a 1.50% dividend. Morgan Stanley has a $188 price target on American Express stock. The consensus target is $181.31, and shares closed trading on Friday at $159.62.
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 Corp. (NYSE: CVX) engages in integrated energy and chemicals operations worldwide. The company operates in the following two segments.
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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.
Chevron posted strong first-quarter results and has a solid place in the sector when it comes to natural gas and liquefied natural gas. It remains one of the best ways to play energy safely.
Investors receive a 3.68% dividend. UBS’s $209 target price is well above the consensus target of $186.68, and Chevron stock closed on Friday at $164.30.
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Citigroup
Shares of this top bank are trading near 52-week lows, and Warren Buffett bought $2.5 billion worth of stock back in the summer of 2022. Citigroup Inc. (NYSE: C) is a leading global diversified financial service company that provides consumers, corporations and governments a broad range of financial products and services.
The company offers services such as consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. And it operates and does business in more than 160 countries and jurisdictions in North America, Latin America, Asia and elsewhere.
Trading at a still cheap 7.0 times estimated 2023 earnings, Citigroup stock looks quite reasonable in what remains a volatile stock market and in a sector that has dramatically lagged.
Citigroup stock comes with a 4.95% dividend. The $85 Oppenheimer price target is a Wall Street high. The consensus target is just $54.88, and the closing share price on Friday was $41.59.
Mondelez
This consumer sector giant makes good sense for conservative investors. Mondelez International Inc. (NASDAQ: MDLZ) manufactures and markets snack food and beverage products worldwide. It offers biscuits, including cookies, crackers and salted snacks; chocolates, and gums and candies; powdered beverages and coffee; and cheese and other grocery products.
The primary Mondelez brand portfolio includes LU, Nabisco and Oreo biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolates; Trident gum; Jacobs Kaffee; and Tang powdered beverages.
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The company sells its products to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value stores and other retail food outlets through direct store delivery, company-owned and satellite warehouses, distribution centers and other facilities, as well as through independent sales offices and agents.
The dividend yield here is 2.38%. Barclays has set its price target at $82, but Mondelez stock has a consensus target of $83.71. The shares closed on Friday at $69.69.
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Procter & Gamble
The company offers a very solid dividend and a host of recognizable products, and it posted great second-quarter results. Procter & Gamble Co. (NYSE: PG) is one of the world’s largest consumer products firms and one of the oldest companies 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 2.44% dividend. Procter & Gamble stock has a $175 price objective at BofA Securities. The consensus target is $166.24, and shares closed at $154.51 on Friday.
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These are five sensible ideas for investors concerned that we could be ready to hit a rough patch after the recent rally. While none of these top companies are likely to explode higher like AI semiconductor stocks, all have been around forever and will still be standing tall after a market sell-off. Bear market rallies can come in staggering sizes, and it will be interesting to see if the move higher this year turns out to be one.
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