Legendary investor Warren Buffett suggests investors put their faith and capital in companies with “wide moats” that give these businesses sustainable competitive advantages. Therefore, today’s article introduces seven wide-moat Warren Buffett stocks to buy in June.
“The billionaire investor said one type of competitive advantage is when a company is the low-cost producer due to economies of scale or a better business model,” CNBC.com reported. “The second type of competitive advantage is when a company owns a powerful product franchise or brand that consumers are willing to pay up for…”
In addition to the seven stocks discussed later, there are also several exchange-traded funds (ETFs) that Buffett could like. These funds include:
- The VanEck Vectors Morningstar Wide Moat ETF (BATS:MOAT) – up 18% year-to-date (YTD), and all of the businesses come from the U.S.;
- VanEck Vectors Morningstar Global Wide Moat (BATS:GOAT) – up 12% YTD, and about 41% of businesses are located outside the U.S.;
- VanEck Vectors Morningstar International Moat ETF (BATS:MOTI) – up 11% YTD, and only 4% of firms come from the U.S.
Recent research by Srinidhi Kanuri of the University of Southern Mississippi in Hattiesburg, Mississippi, and Robert W. McLeod of the University of Alabama in Tuscaloosa, Alabama, suggests, “Companies that have sustainable competitive advantages should be able to create a barrier (Moat) to prevent or lessen competition from other firms. The wider the Moat the greater the barrier and the more secure the company’s profitability.”
With that information, here are seven stocks with strong moats:
- Bank of America (NYSE:BAC)
- BlackRock (NYSE:BLK)
- eBay (NASDAQ:EBAY)
- General Motors (NYSE:GM)
- Kellogg (NYSE:K)
- Lockheed Martin (NYSE:LMT)
- Nvidia (NASDAQ:NVDA)
Warren Buffett Stocks: Bank of America (BAC)
Leading the list of Warren Buffett stocks, Charlotte, North Carolina-based Bank of America is one of the largest financial institutions stateside, with more than $2.9 trillion in assets. It operates under four segments: consumer banking, global wealth and investment management, global banking and global markets.
The company announced its first-quarter results in mid-April. Total revenue was $22.8 billion. Net profit of $8.1 billion translated into earnings-per-share (EPS) of 86 cents. A year ago, these metrics had been $4.0 billion and 40 cents.
“While low interest rates continued to challenge revenue, credit costs improved and we believe that progress in the health crisis and the economy point to an accelerating recovery,” CEO Brian Moynihan said. “The strength of our balance sheet, our complementary and diverse set of businesses, and our talented teammates position us to perform well in that environment.”
YTD Bank of America shares returned more than 42% and recently hit a multi-year high. The stock’s forward price-to-earnings (P/E) and price-to-book (P/B) ratios stand at 15.20 and 1.45, respectively. The strengthening economic recovery is likely to provide further momentum to the shares. Potential investors could regard any decline toward $40 as a potential entry point.
BlackRock is the largest asset manager in the world, with more than $9 trillion in assets under management. The company’s iShares ETF platform maintains a leading market share domestically and on a global basis. More than one-third of managed assets come from investors living outside the U.S. and Canada.
In mid-April, BlackRock released Q1 results. BLK’s revenues reached $4.4 billion, up 19% year-over-year (YoY). Management cited strong organic growth, higher performance fees and 12% growth in technology services revenue. Net income grew by 16% YoY and came at $1.2 billion. Diluted EPS was $7.77. A year ago, it had been $6.60.
“We generated a record $172 billion of total net inflows in the quarter, our fourth consecutive quarter with over $100 billion of net inflows,” CEO Laurence D. Fink said. “Flows represented 8% annualized organic asset and a record 14% annualized organic base fee growth, as clients contributed $59 billion to BlackRock’s active platform and demand remained strong for ETFs and cash. Consistently strong results, including 14% organic base fee growth over the last twelve months, reflect the benefits of our investments over time.”
Analysts concurred that the results were impressive. So far in 2021, BLK stock is up 22%, hovering at an all-time high. Forward P/E and current P/B ratios of 23.64 and 3.78 point to a expensive valuation level by historic standards. A potential decline toward $860 would improve the margin of safety.
Warren Buffett Stocks: eBay (EBAY)
Global e-commerce platform eBay needs little introduction. Its segments include marketplace and classifieds. With $100 billion in marketplace gross merchandise volume generated in 2020, that segment facilitated more than 2% of the $4.3 trillion global online commerce market.
The company reported first-quarter results on April 28. Revenue was $3 billion, up 38% YoY. Adjusted net income was $758 million, representing a 45% increase from $522 million in the prior year period. Adjusted earnings per diluted share came at $1.09, an impressive 59% increase from 69 cents a year ago. The company generated $938 million of operating cash flow and $855 million of free cash flow from continuing operations.
“We delivered another strong quarter for the company and an excellent start to the year for our buyers and sellers,” CEO Jamie Iannone said. “We generated tremendous volume and earnings, with revenue growth the highest it has been since 2005.”
Investors were impressed with the results, cash flow generated, and the overall strength of the balance sheet. YTD, the shares are up 27.5% and hit a record high in April. EBAY stock’s forward P/E ratio and price-to-sales (P/S) ratios are 15.04 and 3.74, respectively. Any potential decline toward $60 would improve the risk/return profile for long-term investors.
General Motors (GM)
Legacy automaker General Motors has had a great year during the months of the pandemic. It is the market leader in the U.S. with 17.3% share in 2020. As most InvestorPlace.com readers would well know, it manufactures vehicles under the Buick, Cadillac, Chevrolet, GMC, Baojun and Wuling brands.
The group also plans to launch 30 electric vehicle (EV) models globally by 2025. Analysts concur that its autonomous vehicle subsidiary Cruise also carries significant long-term potential. The move toward an electric future is likely to become a secular shift in the coming quarters.
General Motors reported strong first-quarter results in early May. Revenue was roughly flat YoY at $32.5 billion, largely due to production constraints related to the semiconductor shortage. Adjusted net income was $4.4 billion, compared to $1.2 billion in the prior year quarter. Adjusted earnings per diluted share was $2.25.
“These strong results demonstrate once again the underlying strength of our business, especially in North America and China, and at GM Financial,” CEO Mary Barra said. “We continue to execute our strategy and make significant progress on our transition to an all-electric future with the growth opportunities it creates.”
YTD, General Motor shares have returned more than 50% and saw a record high in recent days. Strong consumer spending provided tailwinds for the stock. GM’s forward P/E and P/S ratios stand at 11.07 and 0.69, respectively. Interested investors could consider buying the dips in price.
Warren Buffett Stocks: Kellogg (K)
Kellogg is one of the leading names in the consumer staples industry. It manufactures cereal, cookies, crackers and other packaged foods. Its products are marketed in more than 180 countries. Several of the well-known brands include Special K, Frosted Flakes, Froot Loops, Pringles, Rice Krispies and Pop-Tarts.
The group announced its Q1 figures at the beginning of May. Net sales rose 5.1% YoY to $3,584 million. Currency adjusted diluted EPS was $1.07, showing a 8.1% YoY growth. Operating cash flow was at $235 million.
“The quarter featured continued momentum in major brands and categories, accelerated growth in emerging markets,” CEO Steve Cahillane commented said. “This strong start to the year enables us to raise our full-year financial outlook, and underscores confidence in our ability to sustain balanced financial delivery.”
Hence, management revised its full year guidance. Kellogg now expects flat organic sales growth in 2021 versus a decline of 1% in previous guidance. Currency adjusted diluted EPS is estimated to increase by approximately 1% to 2% YoY at the end of 2021.
Analysts found the results and levels of cash generated impressive. Since the start of the year, K stock returned more than 7%. Forward P/E and current P/S ratios are 16.34 and 1.62, respectively. Those investors looking for dividend shares might want to put Kellogg on their radar screen. The company has enough cash to potentially increase dividends as well as to reduce debt in future years.
Lockheed Martin (LMT)
Bethesda, Maryland-based Lockheed Martin is one of the most important global security and aerospace companies. It operates in four business segments: aeronautics; missiles and fire control (MFC); rotary and mission systems (RMS); and space.
Over decades, management invested in technological innovation, giving it a significant barriers-to-entry competitive advantage. The company has strong relationships with the Department of Defense that provide long-term contract cycles.
Lockheed Martin announced its Q1 figures on April 20. LMT’s top line grew by 4% YoY to $16.26 billion. Net profit of $1.85 billion meant an increase of 2.82%. Diluted EPS improved from the Q1 2020 level of $6.08 to $6.56 in Q1 2021.
“Lockheed Martin continues to deliver vital next generation technologies that will help keep our nation and its allies safe, and advance space exploration, while providing long-term value for the U.S. taxpayers and our shareholders,” CEO James Taiclet said.
Following the earnings release, the company revised its 2021 outlook upward. Net sales are now expected to be in the $67,300 to $68,700 million range versus the 2020 number of $65,398 million. Diluted EPS guidance for the full year is at $26.40 to $26.70 band versus the 2020 figure of $24.30.
YTD, shares of the defense giant have returned close to 10%. Forward P/E and current P/S ratios are 14.39 and 1.62, respectively. I believe an investment in LMT stock around these levels could provide significant long-term upside.
Warren Buffett Stocks: Nvidia (NVDA)
Chip giant Nvidia’s development of the graphics processing unit (GPU) in 1999 sparked the growth of the PC gaming market. Since then, its products have been part of computer graphics, high performance computing and artificial intelligence (AI). The developments in AI are reshaping many industries, including transportation, healthcare and manufacturing. As a result, Nvidia’s chips are highly sought after.
In late May, the group released its first-quarter results for fiscal 2022. For financial reporting, the company’s fiscal year ends on Jan. 30. Revenue grew by 84% YoY to $5.66 billion. Net income was up 107% YoY and came at $2.31 billion. Diluted EPS more than doubled YoY, and increased from the $1.80 level achieved in Q1 FY21 to $3.66 in Q1 FY22. Cash and equivalents stood at $978 million.
“We had a fantastic quarter, with strong demand for our products driving record revenue,” CEO Jensen Huang said.
For the second quarter of fiscal 2022, the company expects to generate around $6.30 billion in revenue.
YTD, Nvidia stock is up 30% and hit an all-time high in June. Forward P/E and current P/S ratios of 42.74 and 21.28, respectively. Although the valuation is on the frothy side by historical measures, investors are willing to pay for the company’s growth prospects. After all, its products are part of the global digital transformation we’re witnessing.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
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