Warren Buffett has built a track record of investing success going back 60 years. Despite his advanced age and the increased influence of other investors at Berkshire Hathaway, investment decisions made by his company carry significant weight with average investors.
Indeed, some of Berkshire’s current holdings are not necessarily buys under current conditions. Moreover, it has become a net seller of stocks in recent quarters, taking its liquidity to an unprecedented $325 billion.
Still, some Buffett investments could still bring market-beating returns for shareholders, and investors should look to these three names to deliver those market-beating returns.
1. Amazon
Few stocks have become more adept at positioning themselves to capitalize on growth than Amazon (AMZN 1.30%). Although its lead in e-commerce is likely not driving significant growth today, investors continue to take an interest in its other businesses.
Within its e-commerce-driven North America and international segments, Amazon has continued to drive growth through subscriptions, third-party seller services, and digital advertising.
Moreover, its launch of Amazon Web Services (AWS) sparked the emergence of the massive cloud industry. Additionally, AWS has helped Amazon become an essential artificial intelligence (AI) stock since the cloud plays a key role in the technology.
Thanks in large part to these competitive advantages, the stock is up about 50% over the last year.
Furthermore, despite those gains, the stock sells at a P/E ratio of 51. While that may sound high, the stock sold at an average P/E ratio of 85 over the last five years. Thus, it likely remains priced at a level that can pay off for investors as its various businesses continue to grow.
2. Kroger
In one sense, the choice of Kroger (KR 0.98%) may seem counterintuitive. The grocery business is well known for intense competition and razor-thin profit margins, two factors not conducive to stock price growth.
Also, the recently canceled merger with Albertsons arguably cost Kroger the opportunity to cement its dominance among stand-alone grocery stores.
Nonetheless, Kroger’s appeal as a value play remains. To drive growth, it has pivoted heavily into digital sales. With almost 2,800 locations in 35 states, it is better positioned to capitalize on omnichannel sales than most competitors.
Moreover, its dividend will probably appeal to investors who want to follow Buffett’s lead. Kroger now pays shareholders $1.28 in annual payouts, and the dividend yield of 2.1% is well above the S&P 500 average of 1.2%. Also, the nearly $1.3 billion in free cash flow in the first nine months of 2024 covered the $651 million in dividend costs, making it more likely annual payout hikes will continue.
Finally, Kroger stock rose 30% over the last year, and with a P/E ratio of 16, it provides a low valuation that will likely draw more value investors to Kroger stock.
3. DaVita
DaVita (DVA -0.17%) provides dialysis services. An estimated 36 million adults suffer from chronic kidney disease, meaning the company plays a key role in delivering a life-saving service.
Thanks to higher awareness of chronic kidney disease and Medicare’s coverage of it, DaVita offers these services to more than 200,000 patients. It is also the largest provider of home dialysis services in the U.S. and one of the largest providers of kidney care services.
Additionally, Berkshire’s 36 million shares of DaVita make up 44% of all outstanding shares. Buffett’s team was likely drawn to the stock by the never-ending demand and relatively low cost of the stock, characteristics the Oracle of Omaha often looks for in an investment.
Fortunately, this is likely still a buy for new investors. The stock rose more than 60% over the last year. Despite that gain, the P/E ratio is just 19. That is above the five-year average of 16, so investors will probably need to buy through dollar-cost averaging if they invest in DaVita.
However, about 10,000 American age into Medicare daily, and that increasing client base should keep DaVita in a growth mode. When one also factors in the ties to Berkshire and its relatively low P/E ratio, DaVita should continue to profit its shareholders.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Amazon and Berkshire Hathaway. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.
