Stocks and ETFs for Warren Buffett Fans

Stocks And ETFs For Warren Buffett Fans

By Zacks Equity Research of Zacks.com

Tuesday, November 24, 2015 6:10 AM EDT

Investors unnerved by the ongoing global growth issues and a likely upheaval in the markets post Fed lift-off, might hunt for safe and value stocks in the coming days.

But for that, one would need an investing guideline to pick the right value stock from a bunch of availabilities. In this regard, Warren Buffett’s classic value investing style can be a paradigm.

After all, this Wall Street guru has effectively parked his money in the right places and is continuing to reap huge returns. Buffett’s Berkshire Hathaway has enjoyed an average growth rate of about 20% annually.

While investing in Berkshire is always a good way of following Buffett, also called The Oracle of Omaha, there are numerous other ways of reproducing this stock market veteran’s investment theme to add a spark in one’s portfolio.

Buffett, presently, is taking interest in companies trading below what he believes is their intrinsic value. He is a fan of value investing and targets long-term outperformance even at the cost of short-term underperformance. We have analyzed a few stocks that are Buffett’s favorites and highlight the related ETFs for those who want to follow this investment veteran (read: Guide to Guru ETF Investing).

Following Buffett

Energy

The sector can be viewed as a contrarian bet especially given the persistent plunge in oil prices for about one and a half years. But, Warren Buffett added oil giant Phillips 66 (PSX) in the third quarter. As much as 10% of Berkshire is now invested in Phillips 66.

No wonder, a person who said, “most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well,” took a bold step like investing such a huge stake in a beaten down sector.

Phillips 66’s adjusted third-quarter 2015 earnings of $3.02 per share surpassed the Zacks Consensus Estimate of $2.27 and improved from the year-ago quarter level of $2.02. However, revenues of $26.42 billion were significantly below the Zacks Consensus Estimate of $32.9 billion.

Notably, our Zacks style score shows that PSX, with a Zacks Rank #3 (Hold), possesses a Momentum and Value score of A and Growth score of B. The industry PSX hails from and currently resides in, is in the top 14% of the Zacks Industry Rank, at the time of writing.

A mixed financial report and a glamorous Zacks style score along with a decent rank make PSX a lucrative bet, even if you are not a Buffett follower. And for those who are still terrorized by the ongoing energy sector risks, there is the basket approach.

The stock takes more than 8% share in Oil Refiners ETF (CRAK - ETF report). CRAK is up over 4.7% so far this year (as of November 18, 2015). Another energy ETF the stock has heavy exposure (around 8%) to is iShares U.S. Oil & Gas Exploration & Production ETF (IEO - ETF report). The fund is down 10.6% year to date.

Another energy stock that Buffett is high on is Suncor Energy (SU). It has Zacks Rank #2 (Buy) and its industry is in the top 39% portion. The stock has Momentum score of ‘B’, and Growth and Value score of ‘C’ each. The ETF route to SU includes Canadian Energy Income ETF (ENY) and SPDR S&P International Energy Sector ETF (IPW) both of which put about 5% weight in Suncor Energy.

Telecom

Buffett is fond of dividend stocks. This sentiment along with AT&T Inc.’s (T) ability to acquire the top-most position in the biggest U.S. pay-TV market by acquiring DIRECTV compelled Buffett to establish a fresh stake in it.AT&T yield is 5.65% annually as of November 18, 2015.
Investors can play this stock via the ETF form. AT&T has a Zacks Rank #2 and hails from an industry in the top 18% of the Zacks universe. The stock has Growth and Value scores of ‘B’ each and a momentum score of ‘C’.

Investors can play this stock via Telecom ETF (VOX - ETF report), MSCI Telecommunications Services Index ETF (FCOM) and iShares Global Telecom ETF (IXP). AT&T has a stake in the range of 17–23% in these three ETFs.

Auto

Berkshire Hathaway purchased 9 million new shares of General Motors (GM), which is a 21% additionfrom last quarter. This Zacks Rank #2 stock has a Value score of ‘A’ and Momentum score of ‘B.’ GM yields 4.09% annually and can be tapped via the pure play auto ETF NASDAQ Global Auto Index Fund (CARZ) (read: Impressive Auto Earnings Put This Car ETF in Focus).
Technology

International Business Machines (IBM) has perhaps lost 15.4% so far this year (as of November 18, 2015). Yet it hasn’t fallen out of Buffett’s favor. Berkshire beefed up its stake in IBM by about 2% in Q3. With a Zacks Rank #3, IBM has a Value Style score ‘A’. Since Buffett’s inclination for value investing is common knowledge, his profound love for IBM is self-explanatory.(read: Buffet Loves IBM: Should You Embrace These ETFs?).

However, investors still fearing IBM’s underperformance, can invest in NASDAQ Technology
Dividend Index Fund (TDIV), which is one of the best ETF routes to bet on IBM. TDIV has about a 7% stake in IBM and is also part of the soaring technology sector.
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