Some investors like to follow in the footsteps of Warren Buffett and buy the same stocks he does. It’s no surprise that one of the stocks he has been buying up the most this year, Occidental Petroleum, has also been one of the hottest — it is up 140% while the S&P 500 has fallen by 13%.
But rather than trying to ride Buffett’s coattails, investors can look for similar stocks that fit his investing strategy and that aren’t in Berkshire Hathaway‘s portfolio. By doing this and not following the crowd, you could set yourself up for better gains down the road.
1. UnitedHealth Group
Buffett is a fan of the insurance business and in 1996 he bought GEICO, which is now a subsidiary of Berkshire Hathaway.
UnitedHealth is the largest health insurance company in the U.S. and could complement Berkshire’s portfolio. Its business is broader than just insurance, however, as its Optum business focuses on providing health services, including OptumRx, which delivers medications to patients’ homes.
UnitedHealth has also been growing via acquisitions. Earlier this year, it announced plans to acquire home health company LHC Group for $5.4 billion. What might appeal to Buffett about the business is that amid that growth and expansion, UnitedHealth has consistently generated a profit.
This type of consistency makes it a whole lot easier to project where the business might be in the next 10 years. Stocks that lack such consistency and predictability, such as those involved in tech, often aren’t Buffett buys for that reason. UnitedHealth’s stable growth and its reliable, predictable business is why this could easily be a stock in Berkshire’s portfolio.
Although its valuation is a bit rich at nearly 30 times earnings (the average healthcare stock trades at 21 times its profits), with an aging U.S. population and an ongoing need for health coverage, it’s a safe assumption to make that UnitedHealth’s profits will continue growing over the years, which will make its earnings multiple look smaller in the future.
For long-term investors, UnitedHealth is the type of stock you can just buy and forget.
2. Anheuser-Busch InBev
Another area that is a Buffett favorite is consumer goods. And if Buffett wasn’t busy consuming Coca-Cola products, which he once stated account for one-quarter of his daily calories, it’s possible other beverage companies would find their way into Berkshire’s portfolio. But what’s clear is that Buffett values top brands, and Anheuser-Busch InBev owns some popular ones, including Budweiser, Bud Light, and Stella Artois.
The knock on Anheuser-Busch is that its business hasn’t always generated much in the way of growth. But the business is expanding into seltzers and canned cocktails as part of its beyond-beer products, in a way to diversify its business and stay on top of consumer trends. Anheuser-Busch’s consistent profits can help fuel that growth down the road.
The stock trades at 28 times earnings, which isn’t cheap, but the business should perform better as the economy returns to normal. The pandemic has negatively impacted its profits, especially in the early stages amid lockdowns and restrictions. When factoring in analyst projections, the stock is trading at a forward price-to-earnings multiple of 17 — that’s in line with the S&P 500 average of 18.
Anheuser-Busch’s financials look sound, and with the stock down 15% this year, it could make for an attractive buy on the dip.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and LHC Group. The Motley Fool recommends Anheuser-Busch InBev NV and UnitedHealth Group and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long January 2024 $47.50 calls on Coca-Cola, short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.