Warren Buffett is well known for his long-term investment perspective, and Berkshire Hathaway's portfolio includes a number of stocks worth consideration for retail investors' buy-and-hold portfolios. We asked three Foolish investors which Buffett or Buffett-like stocks jumped out at them to buy today. Below, they explain why they recommend two Berkshire holdings -- cloud leader IBM (NYSE: IBM), iEverything maker Apple (NASDAQ: AAPL) -- and one company Buffett doesn't own, but should look into: oil refining giant Valero Energy (NYSE: VLO).
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Long-term value and income
Tim Brugger: (IBM): Much was made of it when word came that Warren Buffet had sold some IBM stock earlier this year. The tech giant's shareholders have had a rough 2017, with the stock down 12%. Thing is, Berkshire Hathaway still owns more than 54 million shares of IBM for the same reasons Buffett's fans should consider buying in: value and income.
Even as an IBM bull, I'll be the first to admit last quarter was not pretty for Big Blue. Setting aside its 5% drop in total revenue to $19.3 billion -- the 21st straight quarter of top-line declines -- the relatively slow growth from IBM's all-important strategic imperatives units was disconcerting.
Though revenue from each of those four strategic imperative businesses improved, analytics and security climbed just 4%. However, IBM's cloud business continued to shine, ending the second quarter with a $15.1 billion annual run-rate, and a 30% jump in 12-month trailing service sales to $8.8 billion. For mobile, the final arrow in IBM's strategic imperatives quiver, revenue jumped 27% year-over-year. Combined, those units generated 43% of total sales.
In addition to its strategic imperatives gains, IBM is also becoming more efficiently run; it cut operating expenses in the first half of 2017 by 11% to $12.7 billion. After years of spending heavily to bolster its strategic imperatives units, IBM is coming through on its promise to cut expenses.
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Investing in IBM requires patience, but its 4.1% dividend, outstanding value, and long-term growth potential make it worth the wait.
Even cheaper than Buffett's favorite oil refiner
Matt DiLallo (Valero Energy): While Warren Buffett owns a significant stake in oil refiner Phillips 66, his fans might want to consider rival Valero Energy instead. That's because Buffett is a value investor at heart, which means Valero would be right up his alley.
Currently, Valero sells for 18.3 times earnings, the lowest ratio in its peer group. By comparison, Phillips 66 sells for around the sector average of 23.7 times earnings. In part because of that lower valuation, Valero also offers investors a dividend yield of 3.9%, higher than the 3.1% they'd get by investing in Phillips 66.
More often than not, if a stock has a cheap valuation, it's for a good reason. However, that doesn't appear to be the case at Valero since it has a top-tier balance sheet, near industry-leading margins, and is the leader in returns on capital. Further, it has clear growth drivers on the horizon. The company expects to invest $1 billion per year in high-return growth projects through 2021, which it anticipates will add an incremental $1.2 billion to $1.4 billion to its bottom line by 2021.
Because of all these factors, it's more likely that Valero will outperform Buffett's current favorite refiner over the next few years, which is why his fans might want to consider its stock instead.
One of tech's strongest brands
Keith Noonan (Apple): Buffett and Berkshire Hathaway have been gobbling up shares of Apple recently, and fans of the Oracle of Omaha's investing style might want to follow suit.
At the end of August, Buffett said that he has never sold a share of the tech company -- a notable endorsement even given his famous penchant for long-term investing. In light of market concerns that sales of the company's iPhone 8 and Apple Watch 3 lines won't live up to the expectations, it's not unreasonable to think the famed investor will seize on sell-offs as opportunities to add to his position.
It's also worth noting that Buffett isn't the only one buying up the stock. Apple is in the midst of an aggressive share-repurchase initiative, having reduced its shares outstanding by more than 21% over the last five years and still planning to buy more. Buybacks should help pave the way for long-term EPS growth, and are a good sign that the company believes it's shares are still undervalued.
Despite tremendous capital appreciation over the last decade, the stock presents substantial upside opportunity for the long-term investor today. Apple is valued at a reasonable 17 times forward earnings estimates, and also offers a growing dividend. Shares currently yield roughly 1.7% and Apple's low payout ratio of just 28% leaves room for big payout increases down the line.
With one of the strongest brands in tech, and a synergistic hardware and software ecosystem that gives it a formidable moat, it's not hard to see why Buffett loves Apple.
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Keith Noonan has no position in any of the stocks mentioned. Matthew DiLallo owns shares of Apple, Berkshire Hathaway (B shares), and Phillips 66. Tim Brugger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.