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Here’s How You Can Buy the Buffett Way Ahead of Q1 Earnings


If you are an avid investor, you must also be a diehard fan of the Oracle of Omaha. Warren Buffet has consistently beaten the markets for decades by accumulating positions in some of the world’s sought-after companies. These companies have reliable business models that have stood the test of time, while they also generate plenty of cash and provide dividends, which are indicators of a strong and sustainable business.

Thus, let us focus on Buffet’s favorite companies that are likely to make the most of the first-quarter earnings season. Such companies are positioned to report upbeat earnings results, which could eventually lead to an uptick in share price. But before we do so, let us look at his top stock holdings from his darling sectors:

Financials Scoops Up Top Spot

Buffett has huge stakes in several financial stocks. He has, particularly, liked American Express since the 1960s. Buffett’s Berkshire Hathaway Inc. BRK.B holds around 151.6 million shares of the credit card giant, valued at $15 billion. When it comes to banks, Berkshire has a sizeable position in Bank of America, which is nearly $20.4 billion. Buffett’s second-largest holding is America’s second most profitable bank, Wells Fargo & Company WFC. Berkshire holds 452.8 million shares of Wells Fargo, which indicates that Buffett is quite optimistic about the current financial environment.

A recent move by the Fed to raise rates bodes well for banks. Needless to say, ultra-low interest rates have weighed on their margins in the last decade. But, this time around, higher interest rates can boost bank profits as they increase the spread between what banks earn by funding longer-term assets, such as loans, with shorter-term liabilities (read more: Banks Set for Blockbuster Q1 Earnings: 5 Top Picks).

Consumer Goods Comes Second

Buffett has a sizeable position in consumer stocks like The Coca-Cola Company KO and Kraft Heinz. Coca-Cola is much trusted as Buffet has assured that he will never sell shares in the renowned beverage company. Berkshire held around 400 million shares of Coca-Cola, making it the company’s fourth-largest holding. Kraft Heinz is another consumer staples firm where Buffett and his company has 325.6 million shares, worth $25.3 billion.

Consumer staples seems to be the safest option at a time when markets are plagued with widespread uncertainty. Trump talk of Syria bombing, unabated trade tensions, high profile departures in the Trump administration and midterm election year spell a rough phase for stocks. Staples, on the other hand, is generally non-cyclical, or companies whose business performance and sales are not highly correlated with the state of the larger market.

Tech Takes Third Spot

The Trump administration’s initiative to cut tax rates, in the meantime, has already provided the much-needed windfall to computer and software makers. Any income brought back from overseas will be taxed 8-15.5%, instead of the current 35%, per the latest tax law.

The lowering of the tax rate will encourage big tech companies to bring back funds held overseas. This in turn will let these companies carry out share buybacks, pay dividends, and engage in M&A activities. Apple Inc. AAPL will make the most of the positive tax overhaul initiative by repatriating hundreds of billions of dollars in cash. It is also the most valuable holding in the Berkshire Hathaway portfolio.

Industrials & Airlines in Focus

Buffett has the fourth-largest stake in the Industrials sector. And why not? Improving global economies and firm business investment helped factories expand at a record pace. Manufacturers are also on a hiring spree and are paying more than other jobs, reflecting sustained strength in the sector.

But, Buffet has started to show keen interest in airlines which he earlier used to steer clear of. He believes that planes being more efficient and relationships between unions being better will certainly help airlines fly high. Buffett holds several airlines, but, Southwest Airlines is the most valuable.

3 Warren Buffett Stocks to Consider in Q1 Earnings

As mentioned above, American business magnate Warren Buffet’s preferred sectors are poised to gain in the near term. But, not all of his choices from the aforesaid sectors will report a significant uptick in Q1 earnings.

We have, thus, figured out three of his top stocks that have a positive Earnings ESP. This is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter. These stocks also flaunt a Zacks Rank #2 (Buy).

Moody's Corporation MCO is a leading provider of credit ratings, research, and analysis covering debt instruments and securities in the global capital markets.

Buffett particularly likes Moody’s as the company continues to post strong numbers, so there’s some real money-making potential there. The company, in the most recent quarter, declared an operating income of $462.8 million.

The company is expected to report earnings results for the quarter ending in March on Apr 27. Moody's has an Earnings ESP of +0.85%. The company’s expected earnings growth rate for the current year is 26.9%, better than the industry’s estimated growth of 21.4%.

Mastercard Incorporated MA is a leading provider of credit ratings, research, and analysis covering debt instruments and securities in the global capital markets.

Buffett favors Mastercard as an increasing number of customers are switching to cashless payments, as it is preferred by most businessmen.

The company is likely to report earnings results for the quarter ending in March on May 2. Mastercard has an Earnings ESP of +2.39%. The company’s expected earnings growth rate for the current year is 29.7%, well ahead of the industry’s projected growth of 15%.

Visa Inc V is a payments technology company that connects consumers, merchants, financial institutions, businesses, strategic partners and government entities to electronic payments.

Buffett likes Visa as the company has the same competitive advantages and business qualities that Mastercard possesses.

Visa is expected to report earnings results for the March quarter on Apr 25. The company has an Earnings ESP of +0.25%. The company’s expected earnings growth rate for the current year is 26.2%, above the industry’s projected growth of 15%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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