Warren Buffett makes investing look easy. Buffett bought his first shares of stock at age 11 in 1941. By age 15, he had a net worth of about $6,000, the equivalent of about $64,477 in 2022 dollars. Over the next 70 years, the “Oracle of Omaha” used his value investing prowess to amass a fortune worth about $100 billion.
But Buffett doesn’t fit the mold of the greedy Wall Street billionaire. In recent years, Buffett has donated more than $46 billion to philanthropic causes, more than any other billionaire donor. Despite his massive fortune, Buffett also still lives in the same house he purchased in his hometown of Omaha, Nebraska, for $31,500 in 1958.
The good news for investors is that Buffett has been highly candid about his approach to the market over the years, giving followers a checklist of characteristics he looks for in stocks. Morningstar analysts maintain a “Warren Buffett stocks” list of companies that meet Buffett’s general investing criteria, regardless of whether Buffett actually holds them in Berkshire’s portfolio. These companies have strong competitive advantages in their respective businesses, generate consistently positive free cash flows and produce above-average returns on capital.
The following are seven of the best Warren Buffett-style stocks to buy in 2022, according to Morningstar:
- Microsoft Corp. (MSFT)
- Alphabet Inc. (GOOG, GOOGL)
- Meta Platforms Inc. (META)
- UnitedHealth Group Inc. (UNH)
- Nvidia Corp. (NVDA)
- Visa Inc. (V)
- Walmart Inc. (WMT)
Microsoft is the largest software company in the world and is the owner of the Windows operating system, the Office professional software suite and the Azure cloud services platform. Windows is also the parent company of professional social media platform LinkedIn and video game platform XBox. Microsoft also recently announced a nearly $70 billion buyout of video game publisher Activision Blizzard Inc. (ATVI).
Microsoft’s dominant position in professional software and its valuable brands are exactly the type of attributes Buffett looks for in a stock. In addition, Microsoft generated an incredible $61.2 billion in net income in 2021. In the most recent quarter, Microsoft reported 18.3% revenue growth and 8.2% net income growth, yet the stock still trades at a reasonable valuation of only about 23.4 times forward earnings estimates.
Morningstar analyst Dan Romanoff says Microsoft’s ability to grow both earnings and margins at scale is extremely impressive. “We believe that customers will continue to drive the transition from on-premises to cloud solutions and revenue growth will remain robust with margins continuing to improve for the next several years,” Romanoff says.
Morningstar has a “buy” rating and $352 fair value estimate for MSFT stock.
Alphabet is the world’s leading internet search provider and is one of the largest and most profitable online advertising companies. Alphabet is the parent company of search engine Google, streaming video platform YouTube, cloud services provider Google Cloud, autonomous vehicle company Waymo, cybersecurity company Mandiant, wearable fitness device company Fitbit and several other cutting-edge technology endeavors.
Buffett has historically shied away from technology stocks, but he has changed his tune somewhat in recent years with large investments in companies like Amazon.com Inc. (AMZN) and Snowflake Inc. (SNOW). Berkshire’s largest holding is Apple Inc. (AAPL), but there’s a strong argument that Alphabet is an even better bargain stock. In the first quarter, Apple reported just 8.5% revenue growth, compared with 22.9% growth for Alphabet. In addition, Alphabet shares have a lower forward earnings multiple, price-to-earnings-to-growth ratio and price-to-sales ratio than Apple.
Analyst Ali Mogharabi says first-quarter softness in YouTube numbers is only temporary and Google Cloud trends remain healthy. “Alphabet dominates the online search market with Google’s global share above 80%, via which it generates strong revenue growth and cash flow,” Mogharabi says.
Morningstar has a “buy” rating and $3,600 fair value estimate for GOOGL stock, which closed at $2,120.67 on June 17.
Meta Platforms Inc. (META)
Meta Platforms is Alphabet’s largest competitor in online advertising and is the parent company of social media and messaging platforms Facebook, Instagram, Messenger and WhatsApp. Meta’s Reality Labs business is developing augmented reality and virtual reality hardware and software, such as Horizon Worlds and other metaverse platforms.
Tech sector stocks have taken a big hit so far in 2022. Unfortunately, Meta shares are down 51.6% for the year through June 17, making it the worst-performing stock on this list. Buffett followers know he sees market pullbacks as periodic opportunities to buy high-quality stocks at discounted prices, so investors who emulate Buffett might not be deterred by Meta’s recent weakness. The company reported $7.4 billion in net income in the first quarter, but the stock trades at just 14.1 times forward earnings.
Mogharabi says it shouldn’t be lost that the Facebook app is among the most popular global apps on both Android and iPhone smartphones. “We believe the company will continue to benefit from an increased allocation of marketing and advertising dollars toward online advertising, more specifically social network and video ads where Meta is especially well positioned,” he says.
Morningstar has a “buy” rating and $384 fair value estimate for FB stock, which closed at $160.87 on June 17.
UnitedHealth Group Inc. (UNH)
UnitedHealth is the largest U.S. managed care company, providing health plans and health care services to millions of customers. Health care appears to be a secular growth trend for investors, and UnitedHealth is well positioned to capture a significant share of the multitrillion-dollar long-term opportunity.
In the first quarter, UnitedHealth reported that its insurance customer base grew 3%, to 51 million customers. That customer growth coupled with rising insurance rates generated a sizable earnings and revenue beat for UnitedHealth, including 14.2% revenue growth and $5 billion in net income. From a value perspective, UNH shares trade at just 21.5 times forward earnings estimates.
Analyst Julie Utterback says UnitedHealth is taking an integrated approach to health care, including its UnitedHealthcare insurance business, its OptumRx pharmacy benefit manager business, its OptumHealth care provider business and its OptumInsight health analytics business.
“Outside of substantial regulator-led reforms, we think these vertically integrated organizations could help bend the healthcare cost curve in the U.S., and UnitedHealth should be one of the key leaders of that charge going forward,” Utterback says.
Morningstar has a “hold” rating and $402 fair value estimate for UNH stock, which closed at $456.09 on June 17.
Nvidia is one of the world’s largest producers of high-end semiconductors. Nvidia chips provide the massive amount of processing power required for a wide range of cutting-edge technologies, including high-end gaming, enterprise graphics, artificial intelligence applications, the metaverse, the Internet of Things, autonomous vehicles and cloud computing.
In recent years, Nvidia would be the furthest thing from a typical Buffett value stock. However, Nvidia’s relentless growth, coupled with a 47.3% year-to-date sell-off, has NVDA stock trading at 30 times forward earnings estimates. In the first quarter, Nvidia reported $1.6 billion in net income and an impressive 46.4% revenue growth.
Analyst Abhinav Davuluri says Nvidia investors should prepare for gaming revenue weakness in the near term stemming from several headwinds, including the negative impact of the Ukraine conflict, China lockdowns and Nvidia’s transition to a new graphics processing unit architecture. “Despite near-term headwinds, we view Nvidia as our top fabless semiconductor pick, as we think the firm’s data center business will prove resilient to macroeconomic headwinds,” Davuluri says.
Morningstar has a “buy” rating and $200 fair value estimate for NVDA stock, which closed at $156.01 on June 17.
Visa is a leading global credit card and digital payments processor and has the largest retail electronic payment network in the world. Visa shares have held up relatively well in recent months as the broad market sell-off has intensified, falling 11% in the past three months versus a 16.7% drop in the S&P 500.
While all of the stocks on this list may fit the bill of a potential Buffett stock, Visa is the only stock here that Buffett actually owns. He first invested in Visa in the third quarter of 2011. Since that time, Visa has generated a total return of roughly 870% for Berkshire, compared with a 281% total return for the S&P 500. More than a decade after Buffett first purchased Visa, Berkshire still holds about 8.3 million shares.
Analyst Brett Horn says Visa is an established market leader that still has long-term growth prospects. “Despite the ongoing evolution in the payments industry, we think a wide moat surrounds the business and that Visa’s position in the global electronic payment infrastructure is essentially unassailable,” Horn says.
Morningstar has a “buy” rating and $221 fair value estimate for V stock, which closed at $189.05 on June 17.
Walmart is the world’s largest retailer, with thousands of Walmart stores and Sam’s Club membership-only warehouses. Walmart is also a former Buffett stock that he purchased starting in 2005, when he initially disclosed a 19.9 million-share stake. By 2009, Buffett had doubled the size of his Walmart investment, but he completely exited the position in 2018.
At the time Buffett sold his Walmart shares, he said the company had “a tough competitor” in Amazon. However, while Amazon remains a legitimate threat to all legacy brick-and-mortar retailers, Walmart has spent most of the past four years since Buffett sold his stake investing heavily in ramping up its e-commerce business and rolling out innovative omnichannel services, such as pickup, delivery, and its Walmart Marketplace platform for third-party small and medium-size businesses.
Analyst Zain Akbari says inflation and pandemic-related factors drove Walmart’s first-quarter earnings miss, but the stock is attractively valued at just 18.6 times forward earnings. “We believe Walmart’s value proposition should become increasingly valuable to strained consumers and expect low-single-digit annual percentage sales growth and mid-single-digit adjusted operating margins over the next decade,” Akbari says.
Morningstar has a “buy” rating and $138 fair value estimate for WMT stock, which closed at $120.62 on June 20.