3 Warren Buffett Stocks Still Worth Buying

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There are worse investment strategies than copying the stock picks of investing legends. Following the lead of Warren Buffett can offer especially rich returns because he has a buy-and-hold philosophy that means you can expect these stocks to grow immensely in value over the years. 

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While many times Buffett employs tactics unavailable to the average investor, Moody's (NYSE: MCO), Apple (NASDAQ: AAPL), and Costco (NASDAQ: COST) are stocks the Oracle of Omaha owns that are still worth buying.

This cash-printing machine is trading for a fair price

Brian Feroldi (Moody's): Warren Buffett is infinitely quotable, but one of my all-time favorites is the following: 

It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. 

When I dig through Buffett's portfolio, I can't help but think that Moody's easily qualifies as a "wonderful" business.

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Moody's is a credit rating agency and financial services provider that has been a market leader for decades. When a company or government wants to issue a bond, one of their first steps is to get the bond rated. More often than not, that causes them to give Moody's a call. Moody's then rates the bond and collects a healthy fee for its trouble.

Given that the world is awash in debt, there is a huge (and recurring) need for Moody's services. That's wonderful news for investors because the company does not need to invest heavily in itself in order to generate more business. That allows the company to crank out huge amounts of cash flow that management uses to grow the dividend and knock down the share count.

Looking ahead, Wall Street projects that Moody's EPS will continue to grow by double-digits over the long term thanks to acquisitions, margin improvements, and stock buybacks. While shares might not be a steal today, at 23 times forward earnings, I can't help but feel that this is a wonderful business trading for a fair price.

Silicon Valley's cash king

Travis Hoium (Apple): Believe it or not, Warren Buffett's third biggest holding within Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) is Apple. The stake is relatively new, acquired in only the past two years, but Buffett currently controls $18.8 billion of Apple stock, or 2.5% of the company. Only stakes in Kraft Heinz and Wells Fargo are bigger. 

What makes Apple such a good Buffett stock that's worth buying is the company's wide moat and huge cash hoard. At the end of the fiscal third quarter, Apple had $261.5 billion in cash and investments and a net cash level of $171.7 billion. On top of that stable balance sheet, Apple generated $51.2 billion in free cash flow over the past year and is paying a $0.63 dividend per share, or 1.6% dividend yield. 

While the balance sheet is great, the moat is arguably more important to Buffett. Apple's iPhone business is at the center of its operations and creates a platform that Macs, iPads, and Apple Watches are sold from. With the easy interoperability and lock-in of things like iTunes, the App Store, and iCloud, Apple can keep customers in the ecosystem for years. And regular new product launches drive a profitable upgrade cycle that keeps cash coming in. That's exactly the kind of company Warren Buffett loves.

A stalwart still standing against the onslaught

Rich Duprey (Costco): Shares of warehouse retailer Costco are getting crushed despite beating analysts estimates on the top and bottom lines. At a time when most retailers are feeling the impact on their business from Amazon.com (NASDAQ: AMZN), Costco continues putting up stellar numbers.

Yet the market is clearly worried about the effect Amazon is having on Costco membership numbers, which slowed in the latest period. While Costco attributes that more to no longer accepting American Express and raising fees this year (something it does periodically), Amazon's acquisition of Whole Foods and deeper forays into online grocery shopping has investors worried.

Yet it's not as though Costco is completely ignoring the threat. Costco offers same-day delivery of dry and fresh goods via Instacart, and it just launched Costco Grocery, a new platform where members can get two-day delivery for non-perishables and sundries, with free shipping on orders over $75.

It's true that Costco largely ignored the e-commerce channel as it considered its business to be Amazon-resistant, if not Amazon-proof, but as many are learning, that's not the case. To its credit, management has woken up to that fact and is moving quickly to address it.

Buffett owns about 1% of Costco's outstanding shares, valued at around $670 million. At 26 times earnings, the warehouse retailer is trading at around the market multiple, and with a business that really hasn't been damaged by its online rival, it's a Buffett stock still worth buying.

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Brian Feroldi owns shares of Amazon and Apple. Rich Duprey has no position in any of the stocks mentioned. Travis Hoium owns shares of Apple and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), and Moody's. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends American Express and Costco Wholesale. The Motley Fool has a disclosure policy.