The spotlight has been on technology stocks of late. The Nasdaq Composite has sunk 25% year to date in response to inflationary pressures, rising interest rates, and unsettled fear surrounding the war by Russia against Ukraine. Many tech companies continue to face growing pains as they try and navigate a high interest-rate environment and manage unfavorable comparable metrics from a year ago.
But not all companies have been harmed by the current macroeconomic landscape. Investors have been heading to value stocks in recent times vs. more speculative growth stocks that are unprofitable and cash-flow negative. Thus, many of the stocks that prominent value investor Warren Buffett owns have done well in light of the market’s chaos.
Generally speaking, value stocks are characterized as safer investments given their cheaper valuations and dividend policies. In a market bristling with uncertainty today, it might not be unwise to consider turning to value-oriented names. On that note, here are two Warren Buffett favorites that provide investors with security in the midst of the ongoing tech sell-off.
1. Kraft Heinz
Kraft Heinz (KHC -0.49%), representing nearly 5% of Buffett’s Berkshire Hathaway portfolio, is a multinational food and beverage company. The stock has generated a total return of 25% year to date, an impressive rally compared to the S&P 500, which has dropped 15% in the same time period.
In terms of results, the company posted total revenue of $6 billion and diluted earnings of $0.63 per share in its first quarter, beating Wall Street estimates by 4% and 13%, respectively. The better-than-expected numbers were a result of the company’s effectively managing inflation and supply restraints, in addition to making meaningful progress in its marketing initiatives.
For fiscal 2022, analysts are modeling a top and bottom line of $25.6 billion and $2.69 per share, translating to a 2% and 8% year over year decline, respectively. With growth forecast to unwind this year, why are investors flocking to Kraft Heinz? As a consumer staples stock, the company’s business is largely unaffected by the economic landscape because it sells essential, everyday products. Even with inflation and interest rates climbing, consumer demand for Kraft Heinz’s products will remain unvaried.
The company also pays investors to own the stock, boasting a forward annual dividend yield of 3.61%. And given that the food and beverage company has almost $3 billion in cash and a debt-to-equity ratio of only 44%, Kraft Heinz is firmly positioned to navigate any unexpected events moving forward. In short, the company serves as a very stable investment in what is now an unstable economic environment.
Coca-Cola (KO 1.63%), which makes up 14% of Buffett’s portfolio, is one of the star stock picker’s most notable investments. Year to date, the stock is up 11%, primarily driven by its consistently dependable business. In its opening quarter, the beverage company grew total sales by 16% to $10.5 billion, and adjusted earnings climbed 16% to $0.64 per share. The impressive quarter was led by strong performances in North and Latin America, which experienced sales growth of 22% and 34%, respectively.
In 2022, analysts are forecasting the beverage titan to generate a top and bottom line of $41.9 billion and $2.47 per share, indicating 9% and 6% growth year over year, respectively. Cash is certainly king for Coca-Cola, which has a cash position of $7.7 billion and has generated $10.2 billion in free cash flow in the past 12 months. Not only does this showcase the company’s financial health, but it also allows Coca-Cola to continue increasing dividends and buying back shares, and it facilitates the future growth of its business.
Similar to Kraft Heinz, Coca-Cola sells products that are scarcely impacted by the economic climate. With a forward annual dividend yield of 2.68%, the company’s Board of Directors announced a 60th consecutive annual dividend increase on Feb. 17. The consistency and reliability that Coca-Cola offers investors are unrivaled, making it a great stock to consider adding to your portfolio today.