There aren’t many investors who can claim to have a better track record than Warren Buffett, whose know-how has helped lead Berkshire Hathaway (NYSE: BRK.A, BRK.B) to market-crushing returns over the last fifty years.
So what kinds of companies does Buffett invest in? Look to one of his most famous quotes for the answer: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
In other words, if you want to follow in the Oracle of Omaha’s legendary footsteps, look for great companies that happen to be a bit under-appreciated.
Here are two companies that fit the bill.
Disney (NYSE: DIS)
What’s there not to like about Disney (NYSE: DIS)? This is a company that already owned some of the world’s biggest entertainment properties, and then it bought 21st Century Fox last year to add several more.
Want to watch a Star Wars movie? You get to pay Disney. Love watching Marvel superhero flicks? You’ll pay Disney for that, too. Pixar? Also Disney. Heck, Disney now even owns ESPN and its ESPN+ platform has already added 2 million subscribers in less than a year.
Pretty soon, the company will be launching its own dedicated streaming platform in Disney+, so say goodbye to watching your favorite Disney movies on Netflix (NASDAQ: NFLX). You’ll need a Disney+ subscription instead, and with all of the big titles that are sure to be on it, it’s likely Disney+ will be a juggernaut.
Not only that, but this year promises to be a massive one as far as movie releases go, with Captain Marvel, the live-action remakes of Dumbo, Aladdin and The Lion King, Avengers: Endgame, Toy Story 4, and episode 9 in the Star Wars saga all hitting theaters this year.
And as if that wasn’t enough, Disney Resorts is also opening Star Wars: Galaxy’s Edge extensions to its parks in both California and Florida this year, extensions that will come with a park pass hike which will help Disney’s “parks, experiences, and consumer products” segment do well again this year.
With everything going on with Disney this year, investors can expect a lot of top-line growth, as well as some new expenses. But Disney is building a new kind of entertainment conglomerate, one that will come with bottom-line upside for years to come. And beyond that, the stock trades at $110 right now and is expected to earn $7.40 per share next year. That’s 14.8x earnings, which means this excellent company is trading at a bit of a discount.
What’s more, in the past 10 years, Disney’s profits have grown by 13% annualized, and over the past thirty years it has demonstrated year-over-year profit growth every single year.
Apple (NASDAQ: AAPL)
Warren Buffett started buying Apple (NASDAQ: AAPL) back in 2016, and the stock is Berkshire Hathaway’s largest investment holding by weight as either Buffett or Ted Weschler have bought shares of the tech giant in all but one quarter since 2016.
Apple surged to a $1 trillion valuation in August 2018, but has since sputtered as slipping iPhone sales globally has given the market reason to pause. But despite the slowdown in its iPhone business, Apple is still a Buffett stock that investors should consider.
Since the peak it reached in October, shares are still down around 25% even after a bit of a jump last week after Apple reported earnings that weren’t quite as bad as Wall Street was anticipating. In its last quarter, iPhone sales dropped about 15%—which was due in part to a slowdown in the Chinese market—while revenue for the services segment jumped 19% from the same period a year earlier. The services segment is one investors should be watching carefully as the company tries to shift its focus from iPhone sales to being a services provider, and that segment currently generates around $40 billion annually.
But while Wall Street is nervous about the future of the iPhone, individual investors should remember that Apple’s iPhone sales have been impressively resilient, and there are some changes coming to the market—including 5G compatibility, an increase in the use of augmented-reality functionality, and battery performance improvements—that could send future generations of the handset surging in years to come.
There’s also the long-term potential of Apple’s wearables, home, and accessories segment, which saw a 33% year-over-year sales bump last quarter, and it’s likely the company is just scratching the surface of those markets. And beyond that, Apple has a massive $130 billion cash pile that it could use to make a big acquisition that could help it transition beyond the iPhone.
Right now, Apple has a P/E of 14.32 and annual EPS growth of 7.46%, as well as a dividend of 1.68% that is likely to grow.