In this article, we discuss the 12 best Warren Buffett stock picks for beginners. If you want to skip the details about Warren Buffett’s strategy and his hedge fund performance, go directly to the 5 Best Warren Buffett Stock Picks for Beginners.
Warren Buffett was born in 1930 and is one of the most successful investors in the world. His investment strategies have made him the world’s fifth richest man with a net worth of $106 billion. Warren Buffett started investing in the stock market at the age of 11.
Warren Buffett’s Investment Ideas for Beginners
According to Buffett, diversification is something inexperienced people do. Investors who gain a little experience in the stock market should choose and hold on to their stocks for the long term. When it comes to diversification, Warren Buffett said:
“Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
Moreover, Warren Buffett tends to pick stocks that are trading below their intrinsic value and looks for a margin of safety. According to Buffett, paying a high price for an excellent company’s stock can undo the effects of favorable business developments following in the coming decade.
Finally, Buffett advises investors not to follow the crowd and calls for buying into quality companies. He avoids struggling businesses, as he said:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Berkshire Hathaway Inc.
Warren Buffett acquired the majority share of Berkshire Hathaway Inc. in 1962 when its textile business was failing. Buffett turned its focus to insurance. The firm now primarily operates as an insurance company with multiple investments in other businesses. It is really an evolved version of a hedge fund that doesn’t charge management or performance fees.
According to Berkshire Hathaway’s Q3 13F filings, the fund owned 13F securities worth $296.097 billion. The top ten holdings of the firm cover over 87% of Berkshire’s 13F portfolio. In the quarter, the firm purchased three new stocks, added additional shares to five stocks, and sold out of one stock. In the last decade, the fund’s 13F portfolio has recorded 84% gains and has had a 7.8% average annual rate of return in the last three years.
Amazon.com, Inc. (NASDAQ:AMZN), Visa Inc. (NYSE:V), and Mastercard Incorporated (NYSE:MA) are some of the best Warren Buffett stock picks for beginners that we highlighted in this article.
Our Methodology
After assessing Berkshire Hathaway’s third-quarter 2022 13F portfolio, we selected the 12 stocks fit for beginners to invest in. These stocks were chosen from Berkshire’s portfolio based on their hedge fund sentiment which was taken from Insider Monkey’s database of 920 elite hedge funds.
12 Best Warren Buffett Stock Picks for Beginners
12. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 74
General Motors Company (NYSE:GM) is America’s largest and the world’s second-largest automaker. The company is keen on setting a footprint in the EV market with the launch of several vehicles in the next 12 to 18 months. Thus, it is one of Warren Buffett’s stock picks for beginners.
In the third quarter of 2022, 74 hedge funds had a stake worth $3.32 billion in General Motors Company (NYSE:GM). Berkshire Hathaway held 50 million of the company shares, valued at $1.6 billion, making it the hedge fund with the most prominent stake in the quarter. The firm added General Motors Company (NYSE:GM) to its portfolio in the first quarter of 2012.
In the last three months, 14 analysts have covered General Motors Company (NYSE:GM) with an average price target of $43.25 and a Moderate Buy rating. As of December 27, the company was trading at a price of $33.52 at market open time.
General Motors Company (NYSE:GM) is one the best Warren Buffett’s stock pick for beginners, just like Amazon.com, Inc. (NASDAQ:AMZN), Visa Inc. (NYSE:V), and Mastercard Incorporated (NYSE:MA).
Diamond Hil Capital made the following comment about General Motors Company (NYSE:GM) in its Q3 2022 investor letter:
“Most recently, we initiated a position in General Motors Company (NYSE:GM), one of the largest automakers in the United States. Over the past several years, GM has taken steps necessary to focus the company on the most profitable segments and move into position to compete in an electrified and autonomous world. With the recent rise in interest rates there was a meaningful selloff in the auto industry, which presented us an attractive entry point to a name we know well.”
11. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 74
Occidental Petroleum Corporation (NYSE:OXY) is an American hydrocarbon exploration company. Berkshire Hathaway increased its holdings in the company by 23% to 194.35 million shares worth $11.94 billion in the third quarter of 2022. Moreover, the hedge fund sentiment for Occidental Petroleum Corporation (NYSE:OXY) was quite positive in Q3 with 73 hedge funds holding a stake in the company, up from 66 in the previous quarter.
On December 19, Piper Sandler analyst Ryan Todd maintained an Equal-Weight rating on Occidental Petroleum Corporation (NYSE:OXY) shares and set his price target at $69, down from $76. The analyst remains optimistic about the energy complex in 2023, despite the two-year outperformance.
Occidental Petroleum Corporation (NYSE:OXY) is a dividend stock with a yield of 0.81% as of December 27. The company’s next quarterly dividend of $0.13 is payable by January 17th to the shareholders of record on December 12. Moreover, Occidental Petroleum Corporation (NYSE:OXY) repurchased shares worth $1.725 billion in the third quarter.
In its Q3 2022 investor letter, Smead Capital Management, an asset management firm, highlighted a few stocks and Occidental Petroleum Corporation (NYSE:OXY) was one of them. Here is what the fund said:
“Our top-performing stocks in the quarter include Occidental Petroleum (NYSE:OXY). Oil and gas have been the best game in the stock market town this year and it was a pleasant surprise to see home builders pick up even with dour news on interest rates and the economy. For the first three quarters of the year, we should change the name of our fund to the Jed Clampett Fund. Occidental Petroleum (NYSE:OXY), was one of the standouts. Up through the bear market came a “bubblin’ crude!”
10. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 85
Johnson & Johnson (NYSE:JNJ) is an American pharmaceutical, medical technology, and consumer healthcare company. The company and its subsidiaries operate in 60 countries and serve customers worldwide.
Johnson & Johnson (NYSE:JNJ) is one of Warren Buffett’s stock picks for beginners as it has a 60-year history of dividend increases. As of December 27, it has a yield of 2.54% and a payout ratio of 43.61%.
Berkshire Hathaway has owned Johnson & Johnson (NYSE:JNJ) share’s since the first quarter of 2006. In Q3 2022, the firm owned 327,100 of the company shares worth $53.435 million, representing 0.01% of Berkshire’s portfolio. According to the Insider Monkey database, 85 hedge funds were bullish on Johnson & Johnson (NYSE:JNJ) in Q3 2022.with Fisher Asset Management as the top stakeholder with 5.9 million shares, worth $$967.26 million.
Here is what Mayar Capital had to say about Johnson & Johnson (NYSE:JNJ) in its Q2 2022 investor letter:
“J&J is currently our largest position and a long-standing holding. The majority of the group’s sales comes from its collection of pharmaceutical franchises, but a large majority (~45%) comes from its collection of medical device businesses and its consumer brands.
Here’s how JNJ make and spend a dollar of revenues: As of 2021, about 55 cents of that dollar comes from its pharmaceutical sales – sales of drugs to pharmacies and distributors – while 30 cents come from the sale of medical devices, such as surgery equipment and orthopaedics. The rest of that dollar in sales comes from sales of JNJ’s consumer brands such as Listerine mouthwash, Nicorette nicotine tablets and Neutrogena cosmetics.
To make that dollar, however, JNJ typically spends about 25 cents to make the products themselves and another 27 cents on marketing and general administrative functions. This leaves JNJ with about 48 cents on the dollar in profit…” (Click here to see the full text)
9. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 85
Citigroup Inc. (NYSE:C) is one of the largest banking institutions in the United States. It offers asset management, banking, equities trading, investment management, wealth management, and mortgage loans along with other financial services.
Citigroup Inc. (NYSE:C) was held by 85 hedge funds in the third quarter of 2022, up from 82 in the prior quarter. Berkshire Hathaway had the most significant stake in the company with over 55 million shares, valued at $2.298 billion.
On December 8, Piper Sandler analyst R. Scott Siefers assumed coverage on Citigroup Inc. (NYSE:C) with a Neutral rating and a $58 price target. Siefers noted that he is attracted to the stock’s “discount valuation.” At the end of the third quarter, Citigroup Inc. (NYSE:C) had a book value of $92.71, compared to the share price of $44.38 at the time of writing.
8. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 87
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the world’s largest semiconductor companies. It is headquartered in Taiwan and is the first company to commercialize extreme ultraviolet lithography technology in high volume.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is a dividend stock and has a dividend yield of 2.31% on December 27. The latest quarterly dividend was November 11, payable by April 13, 2023, to the shareholders of record on March 17, 2023.
Berkshire Hathaway added Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) its portfolio in Q3 2022. The company’s stock price went up by 7% when the news hit the market on November 14. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) takes over 1.39% of Berkshire Hathaway’s portfolio with over 60 million shares, worth $4.1 billion. Furthermore, according to the Insider Monkey database, 87 hedge funds had a stake in Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) at the end of Q3 2022, compared to 72 in the previous quarter. The significant rise in the hedge fund sentiment toward the company made it a part of our Warren Buffett’s stock picks for beginners list.
Baron Funds made the following comment about Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q3 2022 investor letter:
“Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) detracted from performance due to the global macroeconomic slowdown and softening demand for consumer electronics. We retain conviction that Taiwan Semi’s technological leadership, pricing power, and exposure to secular growth markets, including high-performance computing, automotive, and IoT, will allow the company to deliver strong revenue growth over the next several years.”
7. Activision Blizzard, Inc. (NASDAQ:ATVI)
Number of Hedge Fund Holders: 96
Activision Blizzard, Inc. (NASDAQ:ATVI) is a video game holding company that operates the world’s most used gaming engine. Moreover, the company also produces motion pictures and hosts e-sports competitions. Activision Blizzard, Inc. (NASDAQ:ATVI) is the creator of some famous games like Call of Duty, Warcraft, and the Overwatch series.
The hedge funds holding a stake in Activision Blizzard, Inc. (NASDAQ:ATVI) went from 84 in the second quarter of 2022 to 96 in the third. Berkshire Hathaway remained to be the most significant stakeholder in the company with over 60.14 million shares, worth $4.47 billion, representing 1.5% of the hedge fund’s portfolio.
Earlier in February, Microsoft Corporation (NASDAQ:MSFT) made the acquisition of Activision Blizzard, Inc. (NASDAQ:ATVI) for $95 per share, which holds a significant upside from the stock price of $75.79 per share on December 27 at the time of market close. If the former walks away from the deal, Activision Blizzard, Inc. (NASDAQ:ATVI) is set to receive $3 billion from Microsoft Corporation (NASDAQ:MSFT).
Here is what FPA U.S. Core Equity Fund had to say about Activision Blizzard, Inc. (NASDAQ:ATVI) in its Q1 2022 investor letter:
“One of the Fund’s biggest winners in the first quarter was Activision Blizzard. On January 18, 2022 Microsoft (NASDAQ:MSFT) agreed to purchase ATVI for $95.00 per share in an all-cash transaction. The Fund has been invested in ATVI since the second quarter of 2018.
The investment thesis was threefold. First, the greater than $200 billion gaming industry is the largest and fastest growing form of entertainment in the world. More than three billion people play games currently and the population of global gamers is expected to grow faster than global population growth this decade.14 Second, ATVI has some of the best intellectual property in the gaming industry including Warcraft, Diablo, Overwatch, Call of Duty and Candy Crush in addition to global eSports activities through Major League Gaming. Third, ATVI has had a pristine balance sheet with net cash over the past four years, generated robust free cash flow and traded at an undemanding valuation.
ATVI closed the quarter at $80.11—a nearly 16% discount to the acquisition price. Assuming it takes about a year for the deal to close, a 18.6% return seems to be good upside relative to the risk of a deal not closing due to anti -trust concerns. If the transaction closes it would make Microsoft the third-largest company in gaming by revenue behind Tencent and Sony. There is plenty of competition from these larger players as well as smaller competitors such as EA, Take-Two Interactive, Roblox and Epic Games’ Fortnite. The Fund remains invested in ATVI given the significant discount, but should the discount narrow in the coming quarters the Fund could reduce or eliminate the position.”
6. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 97
Bank of America Corporation (NYSE:BAC) is one of the Big Four banks in the United States. It holds close to 11% of the country’s bank deposits. It operates from 4600 locations and also operates globally. Bank of America Corporation (NYSE:BAC) is headquartered in North Carolina, US. It takes the 6th spot on our list of Warren Buffett’s stock picks for beginners.
Bank of America Corporation (NYSE:BAC) is a dividend stock with a 2.70% dividend yield at the time of writing and a payout ratio of 23.91%. Additionally, the firm bought over $4 billion worth of shares in the first three quarters of 2022, with $450 million worth of repurchases made in the September quarter.
Bank of America Corporation (NYSE:BAC) is the second largest company in Berkshire Hathaway’s profile by weightage. The firm owned over 1 billion company shares worth $30.5 billion in the third quarter. Berkshire Hathaway first acquired Bank of America Corporation (NYSE:BAC) shares in the third quarter of 2017.
Amazon.com, Inc. (NASDAQ:AMZN), Visa Inc. (NYSE:V), and Mastercard Incorporated (NYSE:MA) are some of the best Warren Buffett stocks for beginners along with Bank of America Corporation (NYSE:BAC).
Ariel Investment made the following comment about Bank of America Corporation (NYSE:BAC) in its Q3 2022 investor letter:
“We initiated three new positions in the quarter. We added leading financial institution Bank of America Corporation (NYSE:BAC) which serves individual consumers, small and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services. The current company was formed through various mergers including NationsBank, FleetBoston, US Trust, Countrywide Financial, and Merrill Lynch with the legacy commercial bank to form a national banking powerhouse and bulge bracket investment firm. As one of the ‘Big Four’ U.S. banks it enjoys scale driven cost advantages and economies of scale which provide meaningful competitive advantages and potential for strong returns in the largely commoditized banking industry. A survivor of the financial crisis, BAC has emerged with a solid capital base and stands to benefit from a rising interest rate environment.”
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Disclosure: None. 12 Best Warren Buffett Stock Picks for Beginners is originally on Insider Monkey.
