Warren Buffett’s still got it. Buffett’s investment conglomerate, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), once again crushed the market in 2022, besting the S&P 500‘s 18% decline (factoring in dividends) with a nearly 4% gain.
For over five decades, Buffett has earned fortunes for Berkshire’s shareholders by buying and holding high-quality, low-risk stocks. These types of investments are excellent candidates for retirement portfolios, as they lessen the risk of loss for investors while preserving the potential for wealth-building gains.
Here are two of Buffett’s favorite stocks, both of which are particularly well-suited for retirement accounts.
Coca-Cola (NYSE: KO) is Buffett’s longest-held position. Berkshire Hathaway has owned the beverage behemoth’s stock since 1988. Those shares are now worth nearly $24 billion, and they account for more than 7% of Berkshire’s public stock portfolio.
Coca-Cola has successfully weathered all kinds of economic environments in the roughly 35 years since Berkshire first purchased shares. Throughout that time, this Buffett favorite has rewarded its investors with a steadily growing cash payout. In fact, Coca-Cola has increased its annual dividend for a remarkable 60 straight years. And at recent prices, its shares yield a solid 2.9%.
A host of hard-to-replicate competitive advantages have made this impressive performance possible. Coca-Cola’s brand is known around the world. The company’s unrivaled global distribution network allows it to serve nearly any market across the globe. And its broad product lineup — which sports 200 brands spanning soda, water, juice, tea, coffee, and even alcohol — enables Coca-Cola to adapt to shifting consumer preferences by adjusting its massive marketing budget accordingly. Over the past decade, investors who have reinvested dividends have gained about 120%.
With its dominant competitive position and proven history of strong shareholder returns, Coca-Cola has all the makings of a core holding for an intelligently constructed retirement portfolio.
Bank of America
Buffett likes banks, and he loves Bank of America (NYSE: BAC) most of all. The financial services titan accounts for over 10% of Berkshire’s public stock holdings, a stake valued at more than $34 billion.
An investment in Bank of America is essentially a play on the growth of the U.S. economy. And as Buffett says, “Never bet against America.”
Fears of a potential recession have weighed on bank stocks in recent months. That’s understandable, as economic declines typically lead to lower demand for loans and higher default rates, both of which can dampen a bank’s profits.
But it’s possible that the U.S. could avoid a recession in 2023. And even if there is one, CEO Brian Moynihan recently said the most likely scenario is for a recession to be relatively mild.
Moreover, surging increased interest rates, which are often listed as a risk factor for a potential recession, could benefit Bank of America’s investors.
Although higher rates can slow economic growth, they also tend to boost banks’ net interest margins. This is particularly true for Bank of America, which is one of the most sensitive to changes in interest rates. The bank’s net interest income jumped 29% year over year to $14.7 billion in the fourth quarter. Looking ahead, the company estimates that a 1-percentage-point increase in rates would boost its net interest income by an additional $3.8 billion over the next year.
Still, investors appear to be overlooking these positive profit drivers. Bank of America’s shares can currently be had for less than 10 times its projected earnings in 2023. That’s quite a bargain for one of the best-run banks in the world.
Better still, Bank of America’s stock yields 2.6% at recent prices. These dividend payments should add a valuable cash component to the strong share price appreciation the financial giant’s investors appear set to enjoy in the coming years.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Joe Tenebruso 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 recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, long January 2024 $47.50 calls on Coca-Cola, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool has a disclosure policy.