Following the announcement of the invasion of Ukraine by Russia, the S&P500 the index fell more than 10% from its peak, marking an official entry into correction territory. The benchmark level has recently regained some ground, but is still down around 9% from last year’s peak and 8% on all 2022 trading.
As turmoil rocks the market, three Motley Fool contributors have identified three stocks backed by legendary investor Warren Buffett and his company Berkshire Hathaway ( BRK.A 3.73% ) ( BRK.B 3.55% ) that are worth buying right now. Read on to see why they think that Amazon ( AMZN 1.61% ), Bank of America (BAC 3.26% )and UPS (UPS 1.33% ) are the best companies to invest in amid recent market turbulence.
This tech giant is built to win the future
Keith Noonan (Amazon): E-commerce and cloud computing leader Amazon is a relatively small stake in Berkshire Hathaway’s portfolio. The investment conglomerate only started building a position in the business in 2019, and Buffett went so far as to describe himself as an “idiot” for not getting in on the action sooner. Even the man who earned the moniker Oracle of Omaha has investment regrets, and it’s not hard to see why he was disappointed to miss out on much of the Amazon’s incredible rise. .
Amazon is one of the most successful companies of all time, and there’s a good chance it’ll go on to land more big wins. With the stock having retreated amid recent turmoil in the broader market, long-term investors have another attractive opportunity to build positions in this world-shaping company.
The stock is trading down about 9% in 2021 trading, and it’s down about 19% from the high it hit last year. With incredible, pandemic-focused performance, Amazon admittedly faces some tough growth comparisons. Heavy investments in technology and infrastructure are also putting some pressure on near-term earnings, but the company remains perfectly positioned to win the future, and it will almost certainly be one of the most influential companies in the next decade.
In addition to its industry-leading online retail and cloud services business, Amazon has also benefited from its fast-growing digital advertising unit. With its expertise in data analytics and its incredibly valuable e-commerce marketplace, the company has the foundation to create an even more phenomenal advertising business, and this kind of cross-segment synergy will likely continue to be an advantage in a wide variety of other emerging markets. categories of products and services.
Unexpected earnings growth ahead
James Brumley (Bank of America): I’ve long been a fan of Berkshire’s second-largest publicly traded holding company, Bank of America. But I’m even more of a fan now than usual.
Yes, the stock’s recent pullback related to Russia’s invasion of Ukraine will likely only be a short-term setback. That’s not my motivation to mention it now, though…nor is it the reason Berkshire owns a $44 billion stake in the megabank. I suspect Buffett and his cronies like the same thing I do here, which is the stock dividend.
Investors watching the stock closely will likely know that its current dividend yield is just under 2% after last week’s drop, which is healthy but hardly impressive. Take a step back and look at the big picture. The Federal Reserve projects that about eight quarter-point interest rate hikes will be imposed by the end of 2024. This is important for banks because the higher interest rates rise, the more loans become profitable. Clearly, there is a possibility that the Fed could go too far, too fast, stifling loan demand and even stifling the economy. Assuming Fed Governors pace their rate hikes responsibly, however, I can see B of A’s net interest income rising more than most people currently expect.
At the very least, stepping in now means you’re stepping into a low-cost, high-quality blue chip name at a time when quality and value are likely to be rewarded.
UPS is at the top of its game
Daniel Foelber (UPS): With Berkshire Hathaway holding just under 60,000 shares, United Parcel Service represents less than 0.1% of its portfolio. But UPS has the makings of a stock of Buffett textbooks. It cares about strong fundamentals – so let’s highlight some of the main reasons why UPS is a good buy now.
UPS expects to generate an operating margin of 13.7% in 2022 on revenue of $102 billion. The forecast represents lower revenue growth but even higher profitability. UPS generated a return on invested capital (ROIC) of 30.8% in 2021. It expects the ROIC to be over 30% in 2022.
Like operating margin, ROIC is a good indicator for determining the efficiency of a business. While operating margin shows how well a company is able to convert sales into profit, ROIC shows how well a company is able to deploy capital to profitable ventures. Before Carol Tomé took over as CEO in March 2020, UPS was a big business with overgrown routes, slow growth, poor operating margin and low ROIC. Since then, UPS has streamlined its capital expenditure (capex) to focus on profitable businesses. Despite record revenues, profits and free cash flow in 2021, UPS has only spent $4.2 billion in capital expenditures and plans $5.5 billion in capital expenditures in 2022, which is lower than expected. he spent in 2019.
All this to say that UPS uses its profits to deliberately grow its business. It also passes profits on to shareholders through its dividend and stock buybacks. UPS has just increased its dividend by 49% to $6.08 per share per year, which represents an annual return of 2.9%. It plans to buy back at least $1 billion of its own shares in 2022 and distribute $5.2 billion to shareholders in the form of dividends.
Additionally, UPS has a price-to-earnings ratio of just 13.9, which makes it absurdly cheap given its strong fundamentals.
Great management, a high dividend yield, a massive moat that shields competition, good value, and a growing business are all traits Buffett is looking for. And UPS has them all in spades.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.