Warren Buffett’s Top 3 Super Stocks for January: Apple, OXY, and MasterCard
The Motley Fool, a U.S. investment specialist media, has selected and revealed three Warren Buffett super stocks to buy in January.
According to The Motley Fool on the 15th, the Warren Buffett super stocks to buy in January are Apple, Occidental Petroleum, and MasterCard.
Apple is the largest holding of Berkshire Hathaway, led by Warren Buffett. As of the end of the third quarter of last year, the stock size reached $156 billion. Apple’s stock price rose 12% after its last addition in the first quarter of last year.
Buffett has long been actively buying companies with a clear advantage over competitors. He particularly values companies that can reinvest in their businesses with high returns. Apple achieved a 56% return on invested capital, passing Buffett’s criteria.
Last year, Apple generated $99 billion in free cash flow (FCF). About 15% of this was distributed to shareholders as quarterly dividends and $77 billion was used to buy back its shares. Buffett highly values companies that generate a lot of FCF and use that cash to buy back their shares.
Over the past few years, Berkshire Hathaway has steadily increased its stake in Occidental Petroleum. In December last year, it also bought additional shares, raising its stake to 34%.
Despite the 8% drop in the spot price of West Texas Intermediate (WTI) crude oil over the past year, which has put pressure on Occidental Petroleum’s stock price, Berkshire Hathaway supports Occidental Petroleum’s direction. Despite the fall in oil prices, Occidental generated $6.9 billion in FCF in the last quarter, three times the figure five years ago.
Occidental has used its FCF for debt repayment, share buybacks, and dividend payments, all shareholder-friendly measures. It trades at a low price of eight times its trailing FCF, with a dividend yield of 1.25%.
MasterCard is considered an astonishing investment by Berkshire Hathaway. As of the end of September last year, it held more than $1.5 billion in shares, and its stock price has risen 119% since 2019. Berkshire Hathaway believes there is more potential for long-term gains.
MasterCard has consistently recorded double-digit growth rates in sales and profits over the past decade, thanks to the growth of the digital payment market. Its third-quarter revenue last year increased by 11% compared to the previous year’s period, continuing its robust growth.
Over the past decade, MasterCard has grown its FCF by 14% annually. This growth has led to increased dividends and share buybacks. Buffett expects MasterCard to have still many opportunities to expand the digital payment market worldwide.
By. Dong Yong Jung