3 Surefire Warren Buffett stocks to buy as the market plunges

It’s been a miserable year for Wall Street and investors. Since hitting a record high in the first week of January, the offshore S&P500 lost up to 24% of its value and posted its worst first-half performance in 52 years. Equity-driven growth Nasdaq Compound has done even worse, with a 34% drop from peak to trough since mid-November.

While big declines in major indices can be scary, history has shown that these declines are the perfect opportunity for investors to pounce. It’s something Berkshire Hathaway (BRK.A -0.22%) (BRK.B -0.28%) CEO Warren Buffett knows this all too well.

Image source: The Motley Fool.

Since every bear market and correction is eventually erased by a bull market rally, the Oracle of Omaha understands that over time as an ally, great companies can be bought at a discount. And what better place for investors to seek incredible bargains than Warren Buffett’s own portfolio?

What follows are three surefire Warren Buffett stocks you can buy with confidence as the market plunges.

Amazon

Warren Buffett’s first solid stock that can be bought by patient investors as the S&P 500 and Nasdaq Composite plunge is an e-commerce stock Amazon (AMZN -3.01%).

Like all retailers, Amazon faces headwinds that aren’t going away any time soon. Historically high inflation threatens to reduce discretionary spending by low earners and increase labor spending. Additionally, a visibly weaker US and global economy is likely to slow sales in its main online market.

However, none of these headwinds had any effect on Amazon’s enduring competitive advantages.

For example, Amazon continues to be the go-to source for online retail purchases. A March 2022 eMarketer report estimated that Amazon will account for just under 40% of all online retail sales in the United States this year. That’s more than eight percentage points ahead of its next 14 competitors on a combined basis. In other words, consumers are still flocking to the company’s online marketplace for deals.

But it’s not Amazon’s marketplace that’s critical to the company’s long-term success. Far more important is that growth is sustained in its significantly higher-margin operating segments: subscription services, advertising, and Amazon Web Services (AWS). To that end, it’s full steam ahead for Amazon.

As of April 2021, the company has signed up over 200 million people for a Prime membership globally. Since Amazon now owns the exclusive rights to Thursday Night Football, its Prime membership is likely much higher. Subscription services accounted for approximately $35 billion in annual sales as of June 30, 2022.

AWS is also the world’s leading provider of cloud infrastructure services, according to a Canalys report. Cloud growth is still in its infancy, but AWS has taken a 31% share of global cloud spending. Even though AWS accounts for just one-sixth of Amazon’s net sales, it regularly generates more than half of the company’s operating revenue thanks to juicy margins associated with cloud-related spending.

Relative to its future operating cash flow, Amazon shares have never been cheaper.

Bank of America

A surefire second Warren Buffett title to pile on as the market plunges is a financial giant Bank of America (BAC -2.37%).

With economic data indicating a growing likelihood of a recession, cyclical stocks took a hit. This includes just about every financial stock. When recessions hit, Bank of America typically sees an increase in loan delinquencies and a need to set aside more capital to cover loan losses. Setting aside this capital negatively affects its earnings per share in the short term.

However, there are two sides to being cyclical. Although recessions are an inevitable part of the business cycle, it is important to recognize that periods of expansion last much longer than periods of slowdown. While BofA is forced through a few difficult quarters, it is often rewarded with several years of economic expansion. This leads to growth in loans and deposits, which is how banks generally increase their profits.

What makes Bank of America such an attractive stock to buy right now is its interest rate sensitivity. No money center bank will see its net interest income rise or fall more due to changes in the yield curve than BofA.

Last week, the Federal Reserve continued its fight against historically high inflation by raising its target federal funds rate by 75 basis points. In total, the Fed has raised its target interest rate by 300 basis points (3 full percentage points) since the start of the year. That means Bank of America is generating more net interest income on its outstanding floating rate loans, and it doesn’t have to lift a finger for all that extra income to flow directly into its bottom line.

Additionally, Bank of America is not getting enough credit for its investments in digitization. The company ended June with 43 million active digital users and achieved 48% of total online or mobile loan sales in the second quarter, compared to just 29% in the comparable quarter of 2019. .

This digital push is significant as it helps the business reduce non-interest expenses. By encouraging users to bank online, it reduces costly face-to-face and telephone interactions. Ultimately, BofA was able to consolidate some of its branches and improve operational efficiency over time.

At less than nine times Wall Street’s projected 2023 earnings and with stocks trading near book value, Bank of America looks like a crying buy for patient investors.

A stopwatch with the words Time to Buy.

Image source: Getty Images.

Berkshire Hathaway

Warren Buffett’s third surefire stock to buy as the market plunges is (signall the dramatic music) Berkshire Hathaway! Although you don’t see any Berkshire Hathaway stocks in Buffett’s investment portfolio, there are no stocks the Oracle of Omaha and his right-hand man Charlie Munger have spent more money buying. over the past four years ($62.1 billion in cumulative redemptions).

Similar to Amazon and Bank of America, Berkshire Hathaway has recently been hit by the likelihood of the US entering a recession. The vast majority of Buffett’s investment portfolio is filled with cyclical companies in the technology, financials, energy and consumer goods sectors. In times of economic weakness, lower consumer and business spending tends to negatively affect these sectors.

But as I noted with BofA, time is on Berkshire Hathaway’s side. Instead of trying to predict when the inevitable recessions will occur, the Oracle of Omaha has filled Berkshire’s portfolio with proven companies that have weathered previous downturns and profit hugely from long periods of expansion. It’s a simple numbers game that strongly favors long-term investors.

Berkshire Hathaway’s success is also a reflection of the many dividend-paying stocks held in its investment portfolio. Over the next 12 months, Buffett’s company is on track to collect more than $6 billion in dividend income, much of which will come from a few core holdings. Dividend stocks have a rich history of outperforming companies that don’t pay dividends.

If you need another reason to consider buying Berkshire Hathaway stock, don’t forget Warren Buffett’s track record. While no investor is infallible, Buffett has overseen an average annual return of 20.1% for his company’s Class A shares (BRK.A) since becoming CEO in 1965. In 57 years, he outperformed the S&P 500 in overall return by a factor of 120. , including dividends paid (3,641,613% vs. 30,209%).

It’s been a while since Berkshire Hathaway shares have been priced at less than a 30% premium to book value, but that’s precisely where we are now. This makes Buffett’s company the ideal stock to buy during the bear market.

About Ernest Decker

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