Three Warren Buffett Stocks Poised for Strong Performance in April and Beyond

Three Warren Buffett Stocks Poised for Strong Performance in April and Beyond

For nearly six decades, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett beat the benchmark S&P500. While the S&P 500 has gained just over 34,300%, including dividends, since he became CEO of Berkshire in the mid-1960s, Class A shares (BRK.A) of Omaha-based Oracle have gained over 5,086,000%, as of the closing bell on March 27!

The “secret” to Warren Buffett’s success really isn’t a secret.. He and his investment team primarily look for profitable branded companies with strong management teams and let time work its magic.

Three Warren Buffett Stocks Poised for Strong Performance in April and Beyond

Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.

But even as Wall Street’s three major stock indexes hit new all-time highs, current values ​​can still be found in the 45-stock, $374 billion investment portfolio that Warren Buffett oversees at Berkshire Hathaway.

What follows are three Warren Buffett stocks that scream buy in April and have the potential to deliver results for investors for a long time.

Chevron

The first Warren Buffett stock you can confidently add to your portfolio for April (and beyond) is energy company Chevron (NYSE: CVX). This integrated oil and gas giant happens to be one of only two stocks in Berkshire’s investment portfolio that Buffett and his team added during the quarter ended in December.

If there’s a downside to investing in oil stocks, it’s that they’re cyclical. In other words, they fluctuate depending on the health of the American economy. As we saw during the early stages of COVID-19 lockdowns, the demand cliff can strain the underlying raw materials these businesses depend on. Fortunately, a combination of macroeconomic and company-specific factors suggest that Chevron is well-positioned for success.

For starters, Chevron stands to benefit from limited global oil supplies. After about three years of capital underinvestment by major energy companies (including themselves) during the pandemic, coupled with Russia’s invasion of Ukraine, the supply of crude oil is in surplus in the near future. When the supply of an essential product is limited, it is normal for the price of that product to increase. This is great news for Chevron’s upstream drilling segment.

Another reason Chevron has proven invincible is that it is an integrated energy company. Although it generates its best margins from drilling, it also operates transportation pipelines, chemical plants and refineries. Pipelines produce very transparent and predictable cash flows, while chemical plants and refineries hedge against falling crude spot prices – i.e. a lower spot price reduces costs inputs and generally leads to higher demand from consumers and businesses. Chevron is perfectly covered in the event of a drop in the spot price of crude oil.

It also has one of the most enviable balance sheets among integrated energy companies. A higher crude oil spot price allowed Chevron to significantly pay down debt and close 2023 with a net debt ratio of just 7.3%. It has the financial flexibility to complete acquisitions, fund a strong capital return program and reinvest in its high-margin drilling operations.

The final piece of the puzzle with Chevron is that it is historically cheap. The shares can be acquired now by long-term opportunistic investors for less than 11 times the coming year’s earnings. That represents a 27% reduction from its annual earnings multiple over the past five years, and quite a bargain for an oil titan that pays a 4.2% yield and has increased its payouts for 37 consecutive years.

Sirius XM Holdings

A second Warren Buffett stock that’s a screaming buy in April (and beyond) is the satellite radio operator. Sirius XM Holdings (NASDAQ:SIRI). Coincidentally, Sirius XM is the other company, besides Chevron, that Buffett and his team bought during the fourth quarter.

The main reason Sirius XM stock has performed so poorly recently is due to concerns about the health of the advertising industry. Some monetary figures and recession forecasting tools suggest difficulties for the American economy. It is completely normal for companies to reduce their advertising budgets at the first signs of economic difficulties.

However, Sirius XM is not like traditional radio operators, and it is a big agreement.

While terrestrial and online radio operators make the bulk of their sales through advertising, Sirius XM made only 20% of its revenue in 2023 from advertising (primarily through Pandora, acquired in 2019). The lion’s share of Sirius XM’s revenue (nearly 77% of net sales) last year can be attributed to subscription services. Sirius XM subscribers are significantly less likely to cancel their service than advertisers are to cut spending during times of economic uncertainty. In short, it positions Sirius XM better than its peers to thrive in any economic climate.

This is probably a good time to mention that Sirius XM is also the only licensed satellite radio operator. Although it still faces competition from terrestrial and online radio stations for listeners, being the only licensed satellite radio operator gives it strong pricing power, which it has been able to use to exceed the current inflation rate.

Another reason why Sirius XM is a great buy is the transparency of some of its expenses. Although royalty and talent acquisition costs will change from quarter to quarter, equipment and transmission costs tend to be relatively fixed, regardless of how many subscribers the company adds. business. This is a recipe for long-term margin expansion.

The final piece of the puzzle is Sirius XM’s historically cheap valuation. Sirius last years.

Two siblings lying on a rug and watching TV, with their parents sitting on a couch in the background.Two siblings lying on a rug and watching TV, with their parents sitting on a couch in the background.

Image source: Getty Images.

Paramount Worldwide

The third Warren Buffett stock that stands out as a screaming buy in April, and likely well beyond, is the media titan. Paramount Worldwide (NASDAQ:PARA).

These are two culprits for Paramount’s abysmal stock performance. First, it suffers from the same advertising problems that hold back Sirius XM. The traditional TV divisions of traditional media operators like Paramount Global are still quite dependent on advertising revenue.

Paramount Global’s other concern is the company’s debt. With declining advertising sales and haphazard film productions following the pandemic, concerns were raised about the company’s ability to service the $14.6 billion in long-term debt it had course at the end of 2023.

While these are tangible concerns that have rightfully weighed on Paramount’s stock, the risk/reward ratio now favors investors with a long-term view.

One factor working in Paramount’s favor is that we are in an election year. According to GroupM, political ad spending in the United States is expected to increase 31% this year to $15.9 billion compared to the previous election cycle (2020). While this may not be a panacea for Paramount’s former television segment, it will provide a nice boost after a rough patch for many advertising-focused companies.

Paramount’s streaming segment also gives reason to be optimistic. Although investors would prefer to experience significantly lower losses in the current year, what is important is that Paramount has maintained strong subscription pricing power. Being able to raise prices without losing many (if any) of its 67.5 million Paramount+ subscribers is this segment’s key to hitting the recurring profit milestone.

I’d be remiss if I didn’t also note that Paramount is behind Pluto TV, the country’s leading free, ad-based streaming platform. If the U.S. economy fell into recession, “free” would become an incredibly attractive option for consumers looking to save money.

Patient investors can accumulate these Buffett stocks right now for less than 9 times the coming year’s earnings, which can turn out to be quite a bargain.

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Sean Williams holds positions at Sirius XM. The Motley Fool ranks and recommends Berkshire Hathaway and Chevron. The Motley Fool has a disclosure policy.

3 Warren Buffett Stocks That Scream Buy in April (and Beyond) was originally published by The Motley Fool

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