If you’ve ever wondered why Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett attracts nearly 40,000 investors to his company’s shareholders meeting every year, and let’s look at his track record. Since assuming the CEO position in the mid-1960s, the “Oracle of Omaha” has overseen a return of about 4,964,000% in his company’s Class A shares (BRK.A), which compares very favorably to a total return of about 36,000%. Including dividends paid, for broad-based stocks. Standard & Poor’s 500 On the same period.
For nearly six decades, Buffett and his elite investment team have been doing just that. He had a knack for picking time-tested trades that were hiding in plain sight..
Berkshire currently owns stakes in 44 stocks and two exchange-traded funds with $388 billion in assets under management. But among those holdings are three Warren Buffett stocks that represent buzzy buys for the second half of 2024, and perhaps much beyond.
Amazon
Warren Buffett’s first stock to stand out for all the right reasons for the second half of 2024 and Good Beyond that Pioneer of e-commerce Amazon (Nasdaq: AMZN).
Amazon’s biggest blow has always been its relatively “expensive” valuation, at least when using traditional fundamental metrics like the price-to-earnings ratio. While the time-tested price-to-earnings ratio works great when trying to value mature companies, it tends to fall short when analyzing fast-growing companies that regularly reinvest their cash flows back into their operations.
You’re likely familiar with Amazon because of its premium e-commerce platform. In 2023, Amazon is estimated to have captured roughly 38% of online retail sales in the United States. While this would, in theory, leave the company vulnerable if the U.S. or global economy fell into a recession, the important thing to realize about Amazon is that its operating cash flow and income come almost exclusively from its faster-growing ancillary operations.
For investors, nothing is more important than Amazon Web Services (AWS). AWS is the world’s leading cloud infrastructure services platform, and it recently surpassed $100 billion in annual sales run rate. What’s notable about this psychological run rate milestone is that companies are still in the relatively early stages of increasing their cloud spending. Because cloud margins are significantly more attractive than those associated with online retail sales, AWS typically accounts for 50% to 100% of Amazon’s operating income.
In addition to AWS services, Amazon also relies on advertising and subscription services to do some of the heavy lifting. Amazon attracts about 2.5 billion unique visitors to its site each month, too many to attract advertisers.
Meanwhile, the company surpassed 200 million global Prime subscribers in April 2021 and is likely to add to that total as its content library and e-commerce platform grow. Like AWS, advertising and subscription services are delivering sustained double-digit sales growth.
Despite recently hitting a new all-time high, Amazon is historically cheap relative to its cash flow projections. Throughout the 2000s, investors regularly paid between 23 and 37 times year-end cash flow to own Amazon stock. You can buy shares now for about 13 times the estimated cash flow per share in 2025.
Chevron
The second no-brainer stock that is begging to be bought for the second half of 2024 (and beyond) is the global energy giant. Chevron (NYSE: CVX).
The most obvious headwind that current and potential Chevron shareholders will have to contend with is the possibility of a recession in the United States or abroad. Oil and gas stocks tend to ebb and flow with the spot price of crude oil and natural gas. During periods of economic weakness, it is not uncommon for commodity-dependent businesses to suffer.
The good news for Chevron is that macro factors are working decisively in its favor. Even with selective predictors of a recession coming—for example, the first decline in the U.S. M2 money supply since the Great Depression—the U.S. economy has remained resilient.
To add to this point, the unprecedented demand uncertainty associated with the COVID-19 pandemic has led major global energy companies (including Chevron) to cut their capital expenditures for a good three years. Even as capital expenditures have increased again, the global supply of crude oil has remained tight. When the supply of a desired commodity is tight, it tends to have a positive impact on the spot price of that commodity. In simple terms, it boosts the price of oil, which in turn generates more operating cash flow for Chevron’s drilling business.
Perhaps one of the biggest catalysts for the second half of 2024 and into 2025 is Chevron’s pending acquisition of Hess In an all-stock deal worth $53 billion, if the acquisition gets the green light from regulators, Chevron will add 465,000 net acres to the oil-rich Bakken Shale region and significantly increase its exposure to Guyana’s oil equivalent. If oil prices stay high, that makes the deal even better.
While drilling is where Chevron gets its best margins, it’s also an integrated operator. The company’s pipelines, refineries and chemical plants act as a hedge against a decline in the price of spot crude oil. The steady operating cash flow from these ancillary operating segments has been a key factor in Chevron’s 37-year streak of annual core earnings growth.
What’s surprising here is that Chevron shares are historically cheap. The stock can now be bought for less than 11 times last year’s earnings, which is a 23% discount to its average one-year multiple over the past five years.
coca cola
The third Warren Buffett stock that’s a screaming buy for the second half of 2024, and likely much beyond, is the beverage giant coca cola (NYSE: KO).
While an economic slowdown is undoubtedly Amazon and Chevron’s biggest enemy, the potential for above-average inflation is typically seen as the most obvious headwind for consumer staples companies. When prices of goods and services rise at an above-average rate, there is always concern that consumers may have to cut back on their spending.
The good news for Coca-Cola is that they provide an essential product. No matter what happens to the US economy or Wall Street, consumers will still buy drinks. Due to the company’s strong brand, Coca-Cola rarely has any problem increasing its prices to offset higher expenses.
Speaking of strong branding, Coca-Cola has been named the “most chosen brand” by consumers for the 12th year in a row in Kantar’s latest Brand Imprint report. This dominance is a reflection of Coca-Cola’s high-profile marketing campaign, which includes using digital channels and artificial intelligence to reach younger audiences, while drawing on over a century of history and renowned brand ambassadors to connect with its mature consumers.
From an operating perspective, Coca-Cola is operating at full capacity. Although it is no longer the growth story it once was, it has the right pieces of the puzzle to deliver consistent mid- to single-digit growth in sales and profits. It has more than twenty brands with annual sales of at least $1 billion, and operates in all but three countries (Cuba, North Korea, and Russia). This gives Coca-Cola a steady stream of predictable cash flows in developed countries, and huge organic growth potential in emerging markets.
Coca-Cola is also known for its excellent capital return program. In February, the company increased its quarterly dividend by 5.4%, marking the 62nd consecutive year that it has increased its dividend. Berkshire Hathaway generates an annualized return of about 60% compared to the cost basis of Coca-Cola stock.
Finally—and to stay on topic—the valuation makes sense. Coca-Cola’s forward P/E ratio of 21 is about 10% below the average forward P/E multiple over the past five years.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams He has jobs at Amazon. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and Chevron. The Motley Fool has Disclosure Policy.
3 Warren Buffett Stocks That Scream to Buy for the Second Half of 2024 (and Beyond) Originally published by The Motley Fool
