The billionaire investor is almost certainly buying stocks during the stock market crash. Here are three top candidates for his shopping list.
Warren Buffett’s net worth has dropped by a number that’s hard to fathom in just a matter of weeks. But the legendary investor isn’t worried. One of Buffett’s goals is “to be fearful when others are greedy and to be greedy only when others are fearful.” He also once stated, “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
There are certainly a lot of investors who are very fearful right now. But the Oracle of Omaha undoubtedly sees the current coronavirus-caused market meltdown as one of those rare opportunities where it’s raining gold.
We won’t know for another couple of months which stocks Buffett and his investment managers are buying for Berkshire Hathaway’s (NYSE:BRK.A) (NYSE:BRK.B) portfolio. But I suspect that there are at least three stocks Warren Buffett is probably buying during the coronavirus market crash.
Buffett simply loves Apple (NASDAQ:AAPL). He stated in a recent interview that “it’s probably the best business I know in the world.” In 2018, the billionaire even said that he’d “love to own 100%” of Apple if he could.
The problem, of course, is that even a company the size of Berkshire Hathaway couldn’t take too big of a bite out of Apple. But with Apple stock down nearly 30% off its highs, it’s a lot cheaper now. It wouldn’t be surprising at all if Buffett is taking the opportunity to scoop up more shares.
Buffett firmly believes that the coronavirus outbreak presents only a short-term risk for Apple. He remains confident about the company’s prospects over the next decade, stating, “All kinds of things are going to happen to Apple over the next 10 years.”
Remember that Buffett likes to buy wonderful companies at a fair price. He clearly thinks that Apple is a wonderful company. The big question is if he thinks the price is fair now. I suspect the answer to that question could be “yes.”
2. Bank of America
The banking industry has been one of Buffett’s favorites for a long time. Berkshire Hathaway currently owns shares of more than half a dozen bank stocks. Its biggest bank position is in Bank of America (NYSE:BAC). I think that Berkshire’s stake will grow even bigger as a result of the market crash.
Shares of Bank of America have fallen more than 40% off of their highs. The stock is now a bargain, trading at less than its book value. Buffett was mentored by value investing legend Ben Graham, who relished finding stocks of high-quality companies with book values higher than their market caps.
Thanks to the major stock decline, Bank of America’s dividend is also the most attractive it’s been in more than a decade. Although Berkshire doesn’t pay a dividend, Buffett loves them.
My hunch is that Buffett is looking at Bank of America’s growth prospects as much as he is its valuation and dividend. The company was already generating stronger growth than most of its rivals. It has also invested heavily in technology to become more competitive. Sure, Bank of America will suffer for a while, but it will bounce back. And Buffett knows it.
3. Southwest Airlines
Berkshire owns stakes in three major airlines. Warren Buffett stated in a recent interview that he “won’t be selling airline stocks.” I think it’s much more likely that he could be buying airline stocks instead — especially Southwest Airlines (NYSE:LUV).
While all three airline stocks in Berkshire’s holdings have taken a shellacking, Southwest has held up the best of the group. Its shares are down 45%. That could be enough of a drop to tempt Buffett to pick up more shares, especially with U.S. government financial assistance potentially on the way.
Of course, Buffett once called the airline industry “a death trap” for investors. But he started buying airline stocks once he saw that they were operating with increased fiscal discipline. No airline has consistently demonstrated such discipline than Southwest.
Berkshire currently has a bigger position in Delta Airlines than it does in Southwest. Don’t be surprised if the next regulatory filing showing the company’s holdings reveals that its stake in Southwest has caught up to the position in Delta.
Author: Keith Speights