Warren Buffett, renowned as the top stock investor globally, is currently not engaging in many stock purchases. For nine consecutive quarters, Buffett has been more of a net seller in the stock market. He exercises extreme caution and selects only a few stocks to invest in.
Buffett employs a two-step method to evaluate the potential of a stock. First, he assesses whether he can project the company’s earnings for a period of five years or more. If he finds it challenging to do so, he swiftly moves on to consider other stocks.
Secondly, Buffett only invests in a stock if its current trading price is reasonable when compared to the lower end of his earnings prediction. If the valuation does not align with his expectations, he decides to pass. While this two-part approach may appear straightforward, it can be quite challenging to implement in practice.
Predicting a company’s earnings over a five-year horizon can pose significant difficulties. Additionally, in certain market conditions, it can be hard to identify stocks that are attractively priced enough to meet Buffett’s criteria. Energy Transfer, a major player in North America’s midstream energy sector, could fulfill Buffett’s criteria by 2025.
The firm’s pipeline infrastructure is set to continue transporting natural gas, natural gas liquids, and crude oil for many years ahead. Energy Transfer also offers a distribution yield of approximately 6.5%. The company anticipates growing its distribution by about 3% to 5% annually.
Buffett’s prudent stock purchasing strategy
Occidental Petroleum is another stock Buffett considers to align with his investment strategy. He has consistently increased his holdings in this oil and gas company.
Berkshire Hathaway possesses warrants that grant it the option to purchase the stock at a fixed price, making this investment more appealing to Buffett compared to other investors. Even with elevated market valuations, there is one stock that Buffett always contemplates buying: shares of his own company, Berkshire Hathaway. The board of Berkshire revised the buyback policies in 2018, providing increased flexibility.
These updated rules permit stock buybacks as long as the company holds a minimum of $30 billion in cash and Buffett regards the shares as undervalued. For 24 straight quarters since the change in rules, Buffett has greenlit share buybacks. With an unprecedented cash reserve amounting to $325 billion, Berkshire is in an excellent position to keep repurchasing its own shares.
This ongoing buyback strategy benefits shareholders by proportionately enhancing their ownership interests. Analysts on Wall Street predict notable increases for many of Berkshire Hathaway’s investments in 2025. Analysts particularly have positive expectations for Liberty Latin America, forecasting that its stock will increase nearly 58% over the next year.
Atlanta Braves Holdings is anticipated to rise by 42%. Occidental Petroleum is projected to see growth exceeding 20% in the upcoming year. The oil and gas producer has experienced a 17% decline over the past year, making it a more enticing option for Buffett.
Analysts maintain a favorable outlook for the Coca-Cola Company, expecting a 20% increase.
