2 Berkshire Hathaway Stocks to Buy Hand Over Fist, and 1 to Avoid

Are you a fan of Warren Buffett’s stock-picking approach? You could certainly do worse. Buffett’s Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) boasts a market-beating long-term track record, proving that his methods pay off for patient investors.

That doesn’t necessarily mean every Berkshire holding is a must-have name, however. Even the best of the best aren’t perfect. The Oracle of Omaha and his acolytes are guilty of the occasional misread, too.

With that as the backdrop, here’s a look at two Berkshire holdings you might want to scoop up for yourself and one name currently held by Berkshire Hathaway that you may want to steer clear of.

Buy Bank of America

It’s been a tough couple of years for banks and, by extension, for bank stocks. Although higher interest rates improve the profitability of lending, they also slow the economy, crimping demand for loans. Delinquencies and defaults are also on the rise.

Bank of America (NYSE: BAC) hasn’t been immune to this challenge. Share prices are down more than 30% from their early 2022 peak. However, you don’t buy stocks based on where their underlying company has been. You own stocks based on where that company is going. And where BofA is going is somewhere much better than most of the market at this time.

We caught a glimpse of this reality with the bank’s recently reported fourth-quarter numbers. For the three-month stretch that ended in December, revenue and income were both down year over year, but the bulk of that decline is linked to changes in interest rates and the current credit and lending environment. Income stemming from services like investment advice, trading, investment banking, and credit cards was healthy, even if it was lower than it’s been in recent quarters.

This slight improvement suggests the domestic and global economy is healing faster than it feels like it is. Bank of America’s CEO Brian Moynihan said he expects a relatively pain-free “soft landing” for the economy, easing back into sustained growth. The U.S. economy’s Q4 GDP growth rate of 3.3% underscores Moynihan’s optimism; economists predicted growth of 2%.

Buffett and his team are holding onto their shares as the economy recovers. Berkshire Hathaway holds a little over 1 million shares of BofA, collectively worth over $28 billion. If you jump now, you’ll get it while the stock’s priced at less than 11 times this year’s expected per-share earnings of $3.15. The dividend yield of 2.9% isn’t too shabby, either.

Buy Coca-Cola too

Warren Buffett has several well-known investment tips. Only invest in businesses you understand, limit your picks to high-quality companies, and look for real value — even if that value comes in the form of cash dividends.

The Oracle of Omaha practices what he preaches.

There’s arguably no Berkshire holding that better exemplifies Buffett’s advice than Coca-Cola (NYSE: KO) and the 400-million share position Berkshire has maintained since 2006. The business model is easy to understand; the company’s brands like Gold Peak tea, Minute Maid juices, and of course Coca-Cola’s sodas are, of course, all leading names, and the stock provides plenty of reliable and tangible value. Not only has the company paid a quarterly dividend for decades, but it has raised its annual dividend payout for an incredible 62 consecutive years! Its yield right now is a solid 3.1%.

Granted, Coca-Cola faces some headwinds at the moment as it works to fully absorb or pass along rising commodity and freight costs in an increasingly competitive environment. There is also the fact that technology has made it easier not only for consumers to find alternative products but also for Coca-Cola’s rivals to snag market share.

However, this company’s got an edge you may not be aware of.

Coca-Cola doesn’t do much of its own bottling anymore. Several years ago it sold off most of its U.S. bottling operations to localized franchisers who ultimately take on the burden and cost risk of bottling and distribution. The core of the company’s business model now is selling concentrated flavor syrups to these bottlers and then marketing the daylights out of the product. While this approach generates less revenue, it’s also a business model with less risk and much higher profit margins.

In other words, Coca-Cola’s cash flow and subsequent dividends are well protected — a detail that Warren Buffett and Berkshire’s other chiefs certainly recognize.

Avoid Paramount Global

While most of Berkshire Hathaway’s picks make sense, there’s also the occasional clunker. Paramount Global (NASDAQ: PARA) is arguably one of them. Berkshire’s position began raising eyebrows as soon as the holding company established it in early 2022. It has since raised its stake and even more eyebrows as it now totals 93.7 million shares and is valued at $1.2 billion.

Yes, this is the same Paramount that used to be ViacomCBS — parent to the CBS network, Viacom Studios, cable channels like Comedy Central, MTV, and Nickelodeon, streaming platform Paramount+, and free-to-watch television service PlutoTV.

While they’re all respectable entertainment brands, nearly every aspect of these media businesses is on the defensive. Revenue is more or less stagnant, as are operating earnings. Its streaming operations remain in the red despite demonstrated revenue growth. Meanwhile, it’s seeing declines in its TV and film revenue. The company is reportedly hunting for a media partner to merge with — or even shopping around for a potential buyer — as a means of saving itself while it still has some marketable value left to tap. Although that’s arguably the smart move to make at this time, it’s also a clear sign that Paramount Global is far from thriving.

So, why did Berkshire Hathaway buy it? Again, nobody’s perfect. The misstep is even a bit understandable, in fact, given the circumstances at the time the position was first established.

Think back to the way things were in early 2022. The dust from a frenzy of launches and expansions of streaming services around that time (during the COVID-19 pandemic) had yet to settle. It wasn’t clear what the future of the streaming market would look like then. It was just clear that the pandemic had cemented consumers’ interest in streaming into place. Berkshire wanted a promising stake in the business; Paramount appeared to be a solid bet. It’s only been recently that the grim realities of streaming are coming to light. That is, it’s an expensive, competitive business to be in. And cable TV isn’t in any better shape.

That’s not to say Paramount is doomed. It likely will find a partner or buyer. It’s looking for this strategic alternative from a position of weakness, though. You should be looking for companies operating from a position of strength.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Berkshire Hathaway. The Motley Fool has a disclosure policy.

2 Berkshire Hathaway Stocks to Buy Hand Over Fist, and 1 to Avoid was originally published by The Motley Fool