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Motley Fool Issues Rare “All In” Buy Alert
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With just about six weeks left in the year, Warren Buffett’s company Berkshire Hathaway (BRK.A 0.99%) (BRK.B 1.08%) looks poised to soundly beat the broader market in 2022. The company’s stock is up about 3.6% this year, while the S&P 500 index is down about 16.8%.
One of the ways Berkshire has been able to do this is with its $343 billion equities portfolio in which it buys and sells stocks.
Over its long and storied history, Berkshire has a strong track record of beating the market, and Buffett is considered one of the greatest investors of all time, so it’s always a good idea to keep an eye on the company’s portfolio. With that said, here are two no-brainer Buffett stocks to buy for 2023.
The e-commerce and cloud giant Amazon (AMZN -0.75%) saw its profits erode this year due to rising interest rates and inflation, which significantly increased the cost of doing business.
Although net sales actually increased in the first nine months of this year compared to the first nine months of last year, Amazon has not been able to keep pace with the rise in operating expenses, which led to a more than 55% drop in operating income during this time.
Still, Amazon has some incredibly attractive businesses that built a strong moat. For instance, the company’s on-demand cloud computing business Amazon Web Services (AWS) saw operating income grow nicely this year, and it also controls a leading 32% of the cloud service market.
Another business growing quite rapidly within Amazon is advertising services, which grew sales by 30% year over year in the third quarter of 2022, faster than any of Amazon’s other core businesses including AWS.
And don’t forget about the Prime subscription business. Amazon’s ability to package Prime benefits like free shipping with its growing streaming service is an advantage over other individual shopping or streaming services. While short-term headwinds may persist, the stock — now trading below $94 per share — is back to pre-pandemic levels, despite many of its businesses growing at a fast clip and being better positioned in the post-pandemic world.
Bank of America (BAC 0.05%), the second-largest bank by assets in the U.S., saw its stock sell off by about 16.1% this year as investors worry about the macroeconomic outlook heading into 2023, with a recession on the minds of many.
But soaring interest rates this year have also begun to benefit the bank in a big way. Bank of America saw the yields on many of its loan and bond holdings rise as the Federal Reserve hiked interest rates. Net interest income (NII), the profits that banks make on loans and securities after covering the cost to fund those assets, jumped by $1.4 billion in the third quarter.
On Bank of America’s recent earnings call, management said it expects NII to grow by another $1.25 billion in the fourth quarter from Q3. Now, with such rapid rate hikes, there is a question of how much deposit pricing will jump moving forward, but management thinks NII could very well keep growing into 2023, and Bank of America does have the stickiest low-cost deposit base of any of its peers.
Credit quality is also still holding up well, and Bank of America is currently the only large traditional bank ramping up share repurchases, while most banks are in the process of building capital in order to meet higher regulatory requirements in 2023 and 2024.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has positions in Bank of America. The Motley Fool has positions in and recommends Amazon and Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
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