The stock market has been unpredictable for the past few months and as a result investors have headed for the exits. The S&P500 contracted by 14% since the beginning of the year, and the Nasdaq Compoundwhich includes a broader range of speculative growth stocks, fell 22% over the same period.
This is not surprising given the current state of the global economy. With inflation hitting 40-year highs, the Fed’s decision to make numerous interest rate hikes in response, and unresolved issues related to the Russian-Ukrainian war, investors are no longer in love. high-priced growth stocks.
Such types of businesses never interested the great Warren Buffett, famous for his selection of low-value stocks with resilient business models and attractive dividend yields. It is in times of considerable uncertainty that Buffett’s wisdom and investment strategy are most useful. After all, the stock pick star is quoted as saying, “It’s only when the tide goes out that you find out who swam naked.”
This phrase is certainly relevant in today’s economic environment as investors continue to be challenged by stock market volatility. Here are two stocks to consider buying now that together make up 22% of Buffett’s investment portfolio.
1. Bank of America
As one of the largest banks in the world, Bank of America (BAC -1.39%) fell 21% year-to-date despite its strong release in the first quarter of 2022. Total sales ended in line with Wall Street estimates, rising 1.8% year-over-year to 23 $.2 billion, and diluted earnings per share exceeded consensus expectations by 7.5%, ending at $0.80.
The company’s earnings report demonstrated that in the face of soaring inflation, consumer spending habits remain positive. Evidenced by its payments volume of $980 billion in the first quarter, a year-over-year growth of 14.1%. The company’s balance sheet also continued to expand in the first quarter. Total loans and leases increased 10% year-over-year to $993 billion, and total deposits increased 9.9% to $2.1 trillion.
Bank of America’s efficiency ratio – which shows how well a bank controls its spending – fell 100 basis points quarter over quarter to 66%. A lower efficiency ratio is better because it indicates that a bank is spending less to generate more revenue.
In addition, the bank pays a dividend with a yield of 2.32% currently. This means that investors receive a quarterly payout of $0.21/share regardless of the company’s stock price movement. Investors can choose to reinvest their dividends or use the proceeds to pay other expenses. With shares trading at just 10.4 times earnings today, now may be the optimal time to accumulate shares of this mega-bank.
The Coca-Cola Company (KO -1.19%) is not a flashy company, but the multinational drinks company knows how to deliver.
Up 7% since the start of 2022, Warren Buffett’s favorite posted a strong first quarter report. The company’s total revenue beat Wall Street forecasts by 6.8%, rising 16.3% year-over-year to $10.5 billion, and its diluted earnings per share (EPS) topped consensus estimates by 10.4%, rising 23.1% to $0.64. The beverage company’s operating margin also ended at 32.5% from 30.2% a year earlier.
“We are pleased with our first quarter results as our company continues to operate effectively in a very dynamic and uncertain operating environment,” Coca-Cola Chairman and CEO James Quincey noted on the earnings call.
This statement characterizes the company’s bread and butter: consistency. Because Coca-Cola is a consumer staples company, its products are essential regardless of the economic climate. This explains why the beverage juggernaut performed so well in its first quarter compared to many other companies that continue to face pressure from the macro environment.
Coca-Cola amply rewards its shareholders with its quarterly dividend of $0.44/share, which translates to a yield of 2.70%. The company’s consistent and resilient activity has enabled it to increase its dividend for more than 50 consecutive years.
Knowing this and taking a long-term view, just think about what the company’s dividend might be 50 years from now. If I had to guess, Coca-Cola will still be around and the company’s dividend will be much higher than it is today.