Berkshire Hathaway (BRK.A 0.20%) (BRK.B 0.15%) CEO Warren Buffett has, arguably, cemented himself among the investing greats. In the 57 years he’s held the reins at Berkshire, he’s led his company’s Class A shares (BRK.A) to an aggregate return of a scorching 3,641,613%, through Dec. 31, 2021. The Oracle of Omaha’s company has outperformed the broad-based S&P 500 by so much that it’s share price could fall 99% tomorrow and it would still be handily outpacing the S&P 500 since 1965.
While there’s a laundry list of reasons for Buffett’s success, including his love of cyclical businesses and companies that pay dividends, packing Berkshire Hathaway’s portfolio full of relatively safe companies can’t be overlooked as a foundational element to his company’s superior long-term returns.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Among the more than four dozen securities currently held in Berkshire Hathaway’s portfolio are five exceptionally safe Warren Buffett stocks that patient investors can confidently buy right now.
Johnson & Johnson
The first exceptionally safe Warren Buffett stock investors can scoop up right now is healthcare conglomerate Johnson & Johnson (JNJ -0.01%). Although it’s not a large holding in Berkshire Hathaway’s portfolio, it’s proven to be a steady moneymaker over the long run.
Perhaps the best aspect of healthcare stocks is that they’re defensive. No matter how well or poorly the U.S. economy and stock market perform, or how high inflation flies, people will still need prescription drugs, medical devices, and healthcare services. People don’t stop getting sick just because Wall Street hits a bump in the road. This places a minimum level of demand beneath most healthcare stocks.
One of the factors that makes Johnson & Johnson such a special company is its operating continuity. J&J has been in business for 136 years, and in that time has only had 10 CEOs. Having continuity in key leadership positions has ensured that strategic visions have been met.
Johnson & Johnson’s operating segments play an important role in its success, too. While selling brand-name pharmaceuticals accounts for most of J&J’s growth and operating margins, brand-name drugs only have a finite period of sales exclusivity. To counter these patent cliffs, the company can, as an example, lean on its leading medical device segment that’s perfectly positioned to take advantage of an aging global population. When one door closes with J&J, one or more tends to open.
Lastly, Johnson & Johnson is about as financially sound as any publicly traded company on the planet. It’s increased its base annual dividend in each of the past 60 years, and is one of only two publicly traded companies to receive the highest credit rating (AAA) from Standard & Poor’s, a subsidiary of S&P Global.
Visa and Mastercard
The second and third extremely safe Warren Buffett stocks to confidently buy right now are payment processors Visa (V -1.43%) and Mastercard (MA -1.60%). I’ve arbitrarily chosen to discuss both companies at once since their operating models, and therefore catalysts, are virtually identical.
Like most financial stocks, Visa and Mastercard are cyclical businesses. With U.S. gross domestic product declining in back-to-back quarters (most investors would refer to this as a “recession“), you might be wondering why buying into payment processors would be a wise move. The simple answer is time. While recessions and economic contractions are inevitable, they don’t last very long. By comparison, economic expansions are usually measured in years. Disproportionately long periods of expansion are what allow Visa and Mastercard to thrive.
These payment-processing kingpins are also No.’s 1 and 2 in the U.S., the largest market for consumption in the world. As of 2020, Visa and Mastercard respectively controlled 54% and 23% of U.S. credit card network purchase volume. Yet, with most global transactions still being conducted using cash, the opportunity to sustain double-digit growth through acquisitive or organic expansion is also there.
As one final note, Visa and Mastercard have shunned lending and strictly stuck to payment processing. In doing so, both companies are avoiding the loan delinquencies and losses that would typically accompany recessions. Not having to set aside capital for bad loans is what allows Visa and Mastercard to bounce back faster than most financial stocks.
A fourth Warren Buffett stock that’s extraordinarily safe and can be gobbled up by long-term investors right now is U.S. Bancorp (USB 0.49%), the parent company of the more familiar U.S. Bank.
Like Visa and Mastercard, bank stocks are cyclical. This means the recent economic downturn and rapidly rising inflation have generally increased loan delinquencies and encouraged banks to set aside more capital for loan losses. However, because economic expansions last considerably longer than contractions, banks like U.S. Bancorp benefit from the long-term growth in loans and deposits — i.e., the “bread and butter of banking,” as I like to call it.
Speaking of the bread and butter of banking, regional banking giant U.S. Bancorp has regularly stood out for its superior return on assets, relative to other big banks. Whereas most money-center banks were lured by riskier derivative investments prior to the financial crisis more than a decade ago, U.S. Bancorp’s relatively conservative management team avoided these pitfalls. Translation: It’s bounced back from recessions quickly, and often in better shape than other large banks.
U.S. Bancorp also deserves credit for its top-tier digital engagement push. As of the end of May 2022, 82% of the company’s active customers were banking digitally. More importantly, 64% of loan sales were completed online or via mobile app. For some context, only 45% of loan sales were completed digitally at the beginning of 2020. Because digital transactions are substantially cheaper for banks than in-person or phone-based interactions, this digital push is allowing U.S. Bancorp to consolidate some of its branches and lower its noninterest expenses.
The fifth and final especially safe Warren Buffett stock that investors can confidently buy right now is oil and gas major Chevron (CVX 1.30%).
Understandably, the idea of buying an oil stock simply won’t be palatable to some investors. It was just a little over two years ago that the initial lockdowns tied to the COVID-19 pandemic sent crude oil and natural gas demand off a cliff, which ultimately pummeled drilling and exploration companies. However, Chevron is a different breed of oil company that was able to successfully navigate its way through a rough patch for the oil industry.
Chevron’s greatest asset might be its integrated operating model. Although it generates its juiciest margins from its upstream drilling operations, the company also owns transmission pipeline, refineries, and chemical plants. Midstream assets, such as pipelines and storage, almost always operate with fixed-fee or volume-based contracts. In other words, operating cash flow tends to be highly predictable and transparent. Meanwhile, Chevron’s downstream refineries and chemical operations typically act as a hedge to falling energy prices.
Additionally, Chevron is in excellent financial shape, compared to other global oil and gas giants. Chevron’s debt-to-equity ratio is below 20%, and the company is well positioned to further pay down debt, boost its already lofty dividend, and repurchase up to $10 billion in common stock this year.
If this still isn’t enough to convince you that Chevron is a safe long-term investment, consider this: Due to reduced capital investment during the pandemic and Russia’s invasion of Ukraine, global oil and gas supply should remain constrained for years. That’s a positive development for energy commodity prices, and ultimately drillers.