This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Warren Buffett is well known as one of the world's all-time great investors. He made his fortune as a value-focused investor -- someone who looks to buy stocks when they're cheap and profit as they recover. As the recent market downtrend reminds us, that's often easier said than done, as falling stocks tend to make it feel like your money is evaporating with every down day.
Still, if Buffett's success shows us anything, it's that a strong company that survives a down market can often come out the other side in a much better spot to deliver solid long-term returns for its shareholders.
With that in mind, we asked three successful investors to pick strong Warren Buffett stocks that are worth considering in today's volatile market. They picked Coca-Cola (NYSE: KO), Visa (NYSE: V), and Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). Read on to find out why and decide for yourself whether those companies deserve a spot in your portfolio.
Volatility goes better with Coke
Barbara Eisner Bayer -- Coca-Cola (NYSE: KO): If anyone knows how to make money in all markets, including volatile ones, it's Buffett, the famous nonagenarian who has an approximate net worth of $114 billion. And one of the Oracle of Omaha's favorite stocks is his oldest stock position, which he started purchasing 34 years ago -- The Coca-Cola Company.
Buffett is so in love with the company that he's known to consume five cans of Coke each day. He even joked to Fortune magazine back in 2015 that his body is made up of "one-quarter Coca-Cola". It's no surprise, then, that Berkshire Hathaway owns about $22 billion worth of its shares, or 10% of the company.
It's great that Buffett is so fond of Coke, but that in and of itself doesn't make it a great buy for a volatile market. So let's look at what does.
First, Coca-Cola's products are consumed worldwide and embrace more than its fizzy namesake drink. Its portfolio of beverages has expanded to include changing and healthier tastes, and according to the company, includes "200 brands and thousands of beverages around the world from soft drinks and waters, to coffee and tea." You've probably heard of many of them: Dasani, Fairlife, Fanta, Fuze Tea, Schweppes, Powerade, Smart Water, and Minute Maid. Because these drinks are worldwide staples, people aren't going to stop drinking them when the stock market goes on a wild ride.
The company has survived extreme volatility in the past. Back in October 2018, during an extremely turbulent period, Coca-Cola was up 2% while the S&P 500 was down 9%. This happened because the company was, and continues to be, a huge, stable conglomerate with a solid dividend and continuing growth prospects.
While the company struggled during the coronavirus pandemic, it has finally returned to growth. During its recent fourth-quarter 2021 earnings report, Coca-Cola said net revenue had grown 10% year over year and earnings per share (EPS) were up 65% per share. And management sees brighter days ahead: 2022 revenue growth of 7.5% and EPS growth of 9% are numbers investors can get excited about for such a stable company.
But the cherry on top of these reasons why Coca-Cola is a great Buffett stock to own during volatile times is its dividend, which currently offers investors a 3% dividend yield. Coca-Cola is also a Dividend Aristocrat and has been raising its payout for 59 years in a row. If stocks start plummeting, investors will still be earning income from the dividend, which is vital when all you're seeing is red every day in your portfolio.
If Buffett put down his bottle of Coke and spoke directly to you, he might just say that Coca-Cola -- with its stable business, continuing growth prospects, and mighty fine dividend -- may be the perfect stock to survive and even thrive through volatile times.
The power of plastic
Eric Volkman --Visa (NYSE: V): One of Buffett's favorite sectors -- if not the favorite -- is finance. Witness Berkshire's immense stakes in banks Wells Fargo and Bank of America, for example.
Among this crowd, one company that should continue to thrive no matter how wild global volatility becomes is one of Berkshire's many finance industry holdings, Visa. The payment card processor has a brand that is ubiquitous throughout the world and a business model that continually produces oversize profits.
To understand why, we first have to make the distinction between open-loop card processors and their closed-loop peers. Visa and Mastercard fall into the former category, which essentially means they are payment network operators only, and not card issuers (i.e., the entities such as banks that actually extend the credit on a credit card, or draw funds from an existing account in the case of a debit card).
This contrasts with closed-loop card companies, most prominently American Express (a longtime Buffett favorite, by the way). These entities act as both the issuer and the network operator.
There are pluses and minuses to both business models, but I tend to favor the open-loopers. By sticking to facilitating transactions only, a company like Visa is basically a huge middle man, collecting a small piece of every purchase effected through its network. It assumes no credit risk while doing so; that's for the issuer to worry about.
Like any effective middle man, Visa's profitability is sustainably and consistently high (lately it's boasted 50%-plus net margins).
And as the world keeps moving away from cash into plastic and digital means of payment, the company's growth engine keeps humming. The card giant's first quarter was typical of its recent performance -- net revenue surged 24% higher year over year, to $7.1 billion, while non-GAAP (adjusted) net income enjoyed a 25% rocket ride to $3.9 billion.
No matter how jittery the world economy gets, people are always going to need to buy things. One of the most popular instruments in doing so, in this increasingly cashless environment we shop in, is a Visa card. This company is going to continue to thrive; you can bet on that.
Why not buy Buffett's business?
Chuck Saletta -- Berkshire Hathaway (NYSE: BRK.A): Imagine a company that was built from the ground up to be exactly the fortress-like investment that Warren Buffett likes to own. Now imagine that with one purchase, you can not only buy shares in a company like that but also hire Buffett and his hand-picked successors to manage it for you.
Believe it or not, you can do just that, with an investment in Berkshire Hathaway stock. Berkshire Hathaway is the insurance and investment conglomerate that Buffett runs. Between the strong insurance businesses, the wholly-owned subsidiaries, and the substantial stakes in solid public companies, it is built like a fortress to withstand tough times.
In addition to the great collection of businesses and world-class investment management team at the helm, you can buy your shares at a reasonable price. Berkshire Hathaway stock recently traded hands at less than nine times trailing earnings and only around 1 1/2 times its accounting book value. That means Buffett's company can be purchased at a reasonable price, making it the sort of thing Buffett himself would be interested in owning.
Of course, even with a great business run by one of the greatest investors of all time, there are risks. In particular, Berkshire Hathaway trades at what looks like a cheap valuation in part because of something known as the conglomerate discount. In essence, large and diversified companies are viewed as less focused and nimble than smaller ones. As a result, the market doesn't often put a rich valuation on companies structured like Berkshire Hathaway.
Still, that's a small price to pay for a chance to own an incredibly strong company at a reasonable valuation in incredibly volatile times.
Great companies in troubled times
Regardless of whether Coca-Cola, Visa, or Berkshire Hathaway ever make their way into your portfolio, they are all certainly strong businesses that are built to survive a tough market and emerge stronger on the other side. That makes them worth considering as investments to help you navigate these volatile times. And with a stamp of approval from no less an investor than Warren Buffett, they certainly deserve every bit of that consideration.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
