Top Warren Buffet investments worth considering with a $1,000 budget at present
Warren Buffett, the longtime boss of Berkshire Hathaway (BRK.A -1.29%) (BRK.B -1.41%), has provided an exceptional nearly 20% annualized return for shareholders since 1965, surpassing the S&P 500's benchmark return by twice. These stunning results are attributed to Buffett and his late partner Charlie Munger's keen business acumen and Berkshire's knack for strategically investing funds generated from its insurance business.
Given Buffett's remarkable track record, let's explore a few of his preferred stocks and address whether you ought to invest in them for the long term.
1. Berkshire Hathaway
Let's delve into Buffett's favorite enterprise: Berkshire Hathaway, whose Class B shares are traded around $475 per unit. This conglomerate holding company holds a majority stake in over 60 companies, including Dairy Queen and GEICO. Moreover, the company possesses a portfolio of over 40 stocks valued at over $300 billion, with its significant investments in Apple, American Express, and Bank of America.
Berkshire reported third-quarter earnings for 2024, showing minor declines in revenue and operating earnings compared to Q3 2023. Specifically, Berkshire reported an income of $93 billion and an operating income of $10.1 billion, marking a 0.2% and 6.2% decrease, respectively.
While these numbers might appear uninspiring at first glance, it's crucial to mind that Berkshire's insurance business may display cyclical trends, which impacted the company negatively in its recent quarter. Notably, insurance losses reached $15.2 billion, higher by 10.5% compared to the previous year, and underwriting expenses cost the company $4.9 billion, an increase of 41.1% compared to the previous year.
Berkshire's biggest bull case revolves around its $325 billion stash of cash and cash equivalents, making it one of the most prepared companies for a market downturn and an attractive hedge play for individual investors. When the optimal time for deploying Berkshire's cash hoard will emerge remains uncertain, but as Buffett awaits the right moment, the company generates approximately $14 billion annually at the current 4.5% Treasury bill rate.
2. Chubb Limited
Berkshire recently acquired a 6.7% stake in Chubb Limited (CB -2.12%). This Switzerland-based company, renowned for providing property and casualty insurance, is traded around $285 per share and has surged by 25% in 2024 after posting record revenue and operating income.
During Q3 2024, Chubb recorded $14.9 billion in revenue and $2.3 billion in operating income, representing increases of 14.3 billion and 7.2%, respectively, compared to the same quarter the previous year. Notably, Chubb suffered an increase in pre-tax catastrophe losses of $765 million during the quarter, amounting to a $95 million increment, including $250 million attributable to Hurricane Helene.
Chubb's balance sheet is robust, boasting $23.8 billion in net cash, even after acquiring Healthy Paws, a popular pet insurance provider, for an undisclosed sum, and increasing its influence in Huatai Group, a Chinese-based insurance and financial services company.
In addition, management actively returns capital to shareholders through dividends and share repurchases. Chubb has consistently paid and raised its dividend for 15 consecutive years and pays a quarterly dividend of $0.91 per share, resulting in an annual yield of 1.3%. Furthermore, management has reacquired 10.8% of its outstanding shares over the past five years.
In a recent shareholder letter, Buffett discussed the stockholder benefits of the capital allocation strategy, stating, "The mathematics isn't complex: When the share count goes down, your influence in our numerous businesses grows up."
Chubb is valued at a hefty price-to-book value of 1.75, which is near the high end of its five-year median. However, given its strong revenue and earnings, sound balance sheet, and loyal track record of returning capital to shareholders, the stock appears deserving of its high valuation.
3. DaVita
Berkshire holds a 44% stake in the final stock on the list, DaVita (DVA -1.37%), a healthcare company specializing in outpatient kidney dialysis services. Traded around $164 per share, it has delivered an astounding 54% return in 2024.
As of Sept. 30, DaVita provided dialysis services to approximately 265,400 patients across 3,113 outpatient centers, 85% of which were situated in the United States. In its latest reported quarter, the company achieved remarkable financial results, generating $3.3 billion in revenue and $535 million in operating income.
The company does have some balance sheet concerns, given it holds a net debt of $8.5 billion and a market capitalization of $13.5 billion. The interest on this debt continues to rise with each passing quarter as interest rates remain elevated, amounting to an expense of $134.6 million for Q3 2024, an increase of $37 million from Q2 2024.
However, with its trailing-12-month free cash flow of $1.4 billion, the management could pay down the debt if it so chooses. Instead, management is aggressively purchasing back its stock, reducing its shares outstanding by 36% over the past five years, suggesting it believes the company is undervalued at a price-to-free-cash-flow ratio of 10.4.
Certainly, DaVita possesses the capability for prolonged development as it aims to break into fresh market territories. In truth, not too long ago, it revealed intentions to fortify its presence in Brazil and Colombia, and initiate procedures in Chile and Ecuador for the very first time.
- If you're considering long-term investments, you might be interested in strategic areas that Warren Buffett and Berkshire Hathaway, with its vast portfolio of over 40 stocks, have heavily invested in. One of these investments is Apple, a tech giant known for revolutionizing the industry with its innovative products.
- Chubb Limited, another company where Buffett has a significant stake, has been performing well despite facing increased catastrophic losses. Its robust balance sheet and consistent return of capital to shareholders through dividends and share repurchases have earned it a high valuation, making it an attractive option for investors looking to invest in the insurance sector.
