When it comes to investing, there’s perhaps no better known or more revered investor than Warren Buffett. The man behind Berkshire Hathaway‘s (NYSE:BRK-A)(NYSE:BRK-B) success built his fortune practically from scratch. In roughly six decades, Buffett has turned nearly $10,000 into a fortune that’s worth about $77 billion today.
What’s most intriguing about Buffett is how he’s accomplished this feat. Buffett hasn’t perfectly timed any of the stock market’s corrections or recessions, nor has he waltzed in and out of his positions over the short term with success. Buffett’s strategy has been to buy high-quality companies with clear-cut competitive advantages and time-tested business models and hang on to them for the long run. It may sound completely boring, but the growth in Berkshire Hathaway’s book value has outpaced the growth in the broad-based S&P 500‘s book value in roughly four out of every five years over the past five decades. That’s not luck. That’s a smart investing strategy at work.
The great news is what Buffett has been doing for decades is something you can do as well. Since great companies tend to increase in value over time, adding a few Buffett stocks to your portfolio this July could put you on a path to outperform the broader market over the long term. Here are four Warren Buffett stocks to consider buying this July.
One of the most exciting Buffett stocks you can consider buying in July is payment-processing facilitator Visa (NYSE:V). Despite only being valued a few percent below its all-time high, Visa remains a compelling buy candidate because it offers double-digit growth potential for years to come.
For instance, 85% of the world’s transactions are still being conducted in cash, which gives Visa an opportunity to expand its infrastructure and merchant presence in the Middle East, Southeast Asia, and Africa for years or decades down the road. But it’s also expanding in emerging and developed markets. Last year it scooped up Visa Europe, which increased its global merchant outlet count to 40 million, boosted its cards in worldwide circulation to about 3 billion, and increased its global payments volume to approximately $6.8 trillion a year. Expansion and inorganic growth give Visa a real chance to thrive.
Visa also has a number of unique protections that make it an attractive investment opportunity. For one, the barrier to entry into the payment processing industry is fairly high. It takes a lot of money to lay the infrastructure, and a lot of time to earn merchant rapport, in the payment-processing industry. As a result, Visa has a wide moat to keep newcomers out. It’s also free of lender risk. Since Visa focuses only on processing, not lending, credit delinquencies won’t adversely affect the company.
With high-single-digit or low-double-digit growth rate and a burgeoning dividend payout that’s doubled since August 2013, Visa should be given a strong look.
Buffett has always been a stickler for value, and there’s just about no large-cap stock around that you can consider buying with a lower forward P/E than automaker General Motors (NYSE:GM). Buying GM now would allow investors to get in on a company valued at less than six times Wall Street’s projected profit per share for 2018.
Why so cheap? A lot of pundits foresee a near-term peak in U.S. auto sales, as well as a slowdown in China, primarily related to a tax increase on small-engine vehicles. More specific to GM, it’s also been overcoming recall costs and brand-image issues as a result of those recalls. But the good news is these appear to be short-term concerns, which means you can potentially nab a brand-name automaker on the cheap.
General Motors has a very substantial opportunity in China to expand its market share in the years to come. China’s middle class is still developing, meaning the country isn’t even remotely close to auto saturation yet. This influx of new wealth has led to a surge in sales of Cadillac in China, which surpassed Lexus to become the fourth best-selling luxury brand in the country in 2016. The company is planning to invest about $12 billion in new Cadillac models between now and 2020, including a number of SUVs, that it believes will boost sales of the brand globally, and especially China.
Commodities are also working in GM’s favor. Lower prices at the pump have been partially responsible for hurting sedan sales in the United States. However, light-duty trucks and SUV sales are up a whole for the U.S. industry as a whole year to date. For GM, truck sales are up nearly 6%, which is great news, since trucks and SUVs generate higher margins for the company.
If you want a cheap Buffett stock with a market-topping 4.4% dividend yield, GM could be your go-to this July.
Sirius XM Holdings
I admit it. For a really, really long time I didn’t like Sirius XM Holdings (NASDAQ:SIRI) as an investment. The company was debt-riddled and facing a pretty substantial annual churn rate in its earlier days. But I’ve finally come around, and I do believe this Buffett stock could make for a nice long-term hold for investors.
The first thing to obviously like about Sirius XM is its niche: satellite radio. There are plenty of terrestrial and online radio providers, but when we’re talking about satellite radio providers, Sirius XM is it.
Even so, there’s more to like than simply its satellite-radio monopoly. I tend to focus more on how the company generates its revenue. Most of its competitors in terrestrial and online radio rely on advertisement revenue to keep the lights on. When the economy is running on all cylinders, this strategy works like a charm. However, when recessions inevitably hit, the ad-heavy revenue model creates some serious pain among terrestrial and online radio providers. On the other hand, Sirius generated only $36 million, or 2.8% of its revenue, from ads in the first quarter. Subscriber revenue accounted for 83.3% of Sirius XM’s top line in Q1 2017, and subscribers are a lot easier to hang onto than advertising companies.
With Sirius XM you also get a company that’s worked out deals with shock jock Howard Stern and the National Football League. Need I say more? Considering that cash flow per share and EPS are heading in the right direction, Sirius XM’s rebound could still have a long way to go.
Johnson & Johnson
Johnson & Johnson’s business model and diversity have long been the primary reasons investors flock to this rock-solid healthcare stock. J&J consists of more than 265 subsidiaries, which makes divesting slow-growing assets, or adding complementary and fast-growing businesses, pretty simple. It also has three operating segments — pharmaceuticals, medical devices, and consumer health products — that each serves a purpose. Pharmaceuticals pack the margin punch and high growth for J&J. Meanwhile, medical devices acts as a long-tail growth opportunity for an aging population, and consumer health generates predictable cash flow and strong product pricing power.
Of late, the allure of J&J, and the reason its stock has become pricier, is the company’s push into pharmaceuticals. The upside of relying more heavily on brand-name drugs as a percentage of total sales is that branded drugs have very high margins and can help the company generate rapid sales and EPS growth. The downside is that branded medicines have a finite period of exclusivity, meaning revenue recognition and profitability could get lumpy perhaps five to 15 years down the road for J&J, unless it can replace its mature drugs with new therapies.
Nevertheless, you’ll have a hard time finding a more stable company with a 55-year streak of increasing its annual dividend. That alone makes this Buffett stock worth checking out.
Sean Williams has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Johnson & Johnson, and Visa. The Motley Fool has a disclosure policy.