Don’t Worry About the Market: 3 Stocks Where Buffett’s Got Your Back
With the stock market rolling over, it seems that investors are becoming nervous. There is political tension in the middle East and in Eastern Europe, and while the 2nd quarter GDP figure came in strong the Federal Reserve is threatening to eliminate its quantitative easing program, which has been supportive of stocks for the past several years.
It is prudent to take profits, but it is equally prudent to look for opportunities. One way to find them is to look at what Warren Buffett, chairman and CEO of Berkshire Hathaway, has been buying recently. The reason for this is that if these stocks decline in value, there is a chance that he will step in and pick up some shares. After all, he has $50 billion in cash just waiting to be deployed.
Now, like with the entire market, pretty much all of Buffett’s holdings are declining. So which ones is he most likely to try to pick up on the cheap? Chances are they will be names that he has been buying recently, and names that he doesn’t own too much of (this can be a regulatory nightmare for the Oracle of Omaha).
With this in mind, I have pointed out three stocks that investors should be looking at that Buffett could end up buying more of if their prices fall too low.
1. Exxon Mobil (NYSE:XOM)
Exxon Mobil is a new Buffett holding. He owns over 41 million shares, or just under 1 percent of the oil giant, and he bought most of these shares last year in the mid-high $80s. Right now they sit at $99/share after peaking out at just under $105/share last week, and previously in June. Exxon Mobil released earnings that beat analyst expectations, but it was a “poor” earnings beat that came from asset sales and rising oil prices instead of organic production growth. This has been a problem that has kept the light on Exxon Mobil shares recently.
However, the company recently started producing at its Papua New Guinea LNG project earlier than expected. Furthermore, the company has the best return on invested capital of any company in the industry, which means that Exxon Mobil — for the most part — only makes investments that work. With this in mind, I wouldn’t be surprised to see Buffett step into the market if we see a decline back to the high $80s, or even in the low $90s. Given that the company trades with a low double digit price to earnings ratio, and given that has been an excellent long term conservative investment, investors should consider following his lead.
2. Wal-Mart (NYSE:WMT)
Wal-Mart has been in Buffett’s portfolio for a while, but he’s been buying more of it recently despite the company’s recent woes. While investors were taking profits, Buffett increased his position to 58 million shares in the first quarter. Now the stock is trading down at $73.50 and I think Buffett may continue buying.
Wal-Mart, like most retailers, has been struggling this year as consumers are having trouble making ends meet. But Wal-Mart is extremely well positioned to weather the storm. Investors should recall that Wal-Mart was one of the few stocks that actually rose in 2008 when it seemed that nothing was safe. Wal-Mart offers low prices and it caters to struggling lower and middle income consumers. It also has a burgeoning international business, especially in emerging markets such as China, India, and Mexico. Shares trade at just 15 times earnings, which is 30 percent cheaper than the S&P 500 and management is very shareholder friendly. With this in mind, I wouldn’t be surprised to see Buffett continue to buy up shares of Wal-Mart, and perhaps you should as well.
3. IBM (NYSE:IBM)
Warren Buffett has been buying shares of IBM more aggressively than these other companies. It has become one of his largest positions, and he now owns a 6.8 percent stake in the software and IT services giant. This is unusual for Buffett, who doesn’t like to own technology companies, and so I wouldn’t necessarily follow him in. Nevertheless, if the stock gets weak he could add to his position, and given that IBM is aggressively buying back stock this demand could create a nice pop for traders.
IBM is suffering from a secular decline in its hardware business. The company has been diversifying out into software and cloud computing, but it hasn’t stymied the revenue and earnings declines that have plagued the company over the past couple of years. Longer term, the company’s plans should work out, but for now it is struggling, and I think investors should stay away and wait for a better entry point. However, as I said, there could be a compelling trading opportunity if the stock gets too low and Buffett decides to add more shares.
Disclosure: Ben Kramer-Miller is long Exxon Mobil.