3 Companies Buffett Could Favor

Prominent title pickers are often asked to name a few of their favorites, with most pointing to some of their most successful picks. After all, who doesn’t want to look smart on TV or in the press?

While I personally own Buckingham in my portfolio and have recommended in the pages of The cautious speculator big winners in 2022 as a refinery operator HF Sinclair

DINO
agricultural giant Archer Daniels Midland (ADM) and pharmaceutical titan Merck (MRK), I take a different approach to media queries.

I think those interested in what I have to say would prefer to know the names that haven’t had their day in the sun yet. After all, as Warren Buffett says, “Whether it’s socks or stocks, I like to buy quality merchandise when it’s marked down.

Unsurprisingly, the backlash to Q2 earnings reports has driven the price of some already cheap stocks down, often by orders of magnitude well beyond what I think is warranted. The rush for some of these names and the general lack of cash to absorb the selling pressure often creates tremendous opportunities for patient long-term investors.

Once this business is a major credit card issuer Capital one

COF
. Shares have lost about a third of their price over the past year as high marketing spend has weighed on results, even as period-end loans rose 6% in the second-fastest quarter. recent.

COF continues to prey on what it sees as “spend-thru” customers, who enjoy compelling long-term savings, according to CEO Richard Fairbank, despite higher upfront costs. Mr. Fairbank says the growth of this segment “has quietly and incrementally changed several national card financial metrics and results,” including customer behaviors such as higher payment rates and lower loss rates.

The stock price can be volatile, but Capital One’s infrastructure and technology capabilities have allowed it to spend more on advertising than traditional overhead. Higher spending in the coming years should support continued loan growth on the other side of Federal Reserve tightening.

Trading at 6x forward earnings estimates, well below the historical norm, while yielding 2.2%, I believe COF is worth much more than its current price.

Even companies with more stable business models have come under pressure, with telecom provider shares Verizon Communications

VZ
slipping by double digits so far this year.

Much of that decline came after Verizon released second-quarter results that included weaker wireless subscription additions for consumers and reports that customers of competitor AT&T had begun deferring their phone payments. invoices. VZ’s chief financial officer, Matthew Ellis, replied, “We haven’t seen any noticeable change in customer payment habits.”

To be sure, competition is intensifying in the space, making Verizon’s historically better network increasingly marginal as the field consolidates and other major players invest more in their own services. Nevertheless, the company’s brand positioning remains favorable, as the gap between Verizon and the rest imposes significant execution risk on the competition despite the latest pressure.

And, more importantly, VZ trades for just 9 times next 12-month EPS estimates and boasts a rich dividend yield of 5.6%.

Finally, data storage manufacturer Seagate Technology Holdings PLC

STX
is very attractive, trading for just 11 times Street’s forward EPS estimate, with those earnings currently under pressure, temporarily I think, due to COVID lockdowns in Asia, non-HDD component shortages and inflation world.

Yes, storage has always been a very volatile industry, but I think there is still a long track to the positive trends underpinning the space, while the 30% drop in share price this year creates another great entry point.

For investors with a multi-year time horizon, I like what Seagate CEO Dave Mosley recently said, “The strong secular tailwinds driving demand for mass capacity storage remain intact, providing confidence in the fact that growth will resume once supply constraints and the COVID lockdown. facilitated impacts.

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