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5 of the safest Warren Buffett stocks you can buy with confidence right now

Berkshire Hathaway (BRK.A 0.20%) (BRK.B 0.15%) CEO Warren Buffett has undoubtedly established himself among the big investors. During the 57 years he held the reins of Berkshire, he led his company’s Class A shares (BRK.A) to an aggregate return of 3,641,613%, through December 31, 2021. The company’s the Omaha Oracle outperformed the broad based S&P500 so much so that the stock price could drop 99% tomorrow and still easily top the S&P 500 since 1965.

While there is an endless list of reasons for Buffett’s success, including his love of cyclical businesses and dividend-paying companies, filling Berkshire Hathaway’s portfolio with relatively safe companies cannot be overlooked as fundamental to the long-term superior returns of his business.

Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.

Of the more than four dozen stocks currently held in Berkshire Hathaway’s portfolio, there are five exceptionally safe Warren Buffett stocks that patient investors can buy with confidence right now.

Johnson & Johnson

The first health care conglomerate is the first that exceptionally safe Warren Buffett stock investors can buy right now Johnson & Johnson (JNJ -0.01%). While not a significant holding in Berkshire Hathaway’s portfolio, it has proven to be a stable long-term source of income.

Perhaps the best aspect of health stocks is that they are defensive. No matter how well the US economy and stock market perform, or how high inflation is, people will always need prescription drugs, medical devices and healthcare services. People keep getting sick just because Wall Street hits a bump in the road. This places a minimum level of demand under most healthcare stocks.

One of the things that makes Johnson & Johnson such a special company is its going concern. J&J has been in business for 136 years and has only had 10 CEOs during that time. Continuity in key leadership positions ensured that strategic visions were met.

Johnson & Johnson’s operating segments also play an important role in its success. While the sale of branded pharmaceuticals accounts for most of J&J’s growth and operating margins, branded drugs have only a limited period of sales exclusivity. To counter these patent cliffs, the company can, for example, leverage its leading medical device segment, which is perfectly positioned to take advantage of an aging global population. When a door closes with J&J, one or more tend to open.

Finally, Johnson & Johnson is about as financially sound as any publicly traded company on the planet. It has increased its base annual dividend in each of the past 60 years and is one of only two publicly traded companies to receive the highest credit rating (AAA) from Standard & Poor’s, a subsidiary of S&P Global.

Visa and MasterCard

Warren Buffett’s second and third extremely safe stocks to buy with confidence right now are payment processors Visa (V -1.43%) and MasterCard (MY -1.60%). I arbitrarily chose to discuss both companies at once since their operating models, and therefore their catalysts, are virtually identical.

Like most financial stocks, Visa and Mastercard are cyclical businesses. With US gross domestic product declining in consecutive quarters (most investors would call this a “recession”), you might be wondering why buying into payment processors would be a wise move. The simple answer is time. Although recessions and economic contractions are inevitable, they do not last very long. In comparison, economic expansions are usually measured in years. Disproportionate periods of expansion are what allow Visa and Mastercard to thrive.

These pillars of payment processing are also number 1 and 2 in the United States, the largest consumer market in the world. In 2020, Visa and Mastercard controlled 54% and 23% of the U.S. credit card network’s purchase volume, respectively. Yet, with most global transactions still conducted in cash, the opportunity to sustain double-digit growth through acquisition or organic expansion is also there.

Finally, Visa and Mastercard avoided lending and stuck strictly to payment processing. By doing so, both companies avoid the defaults and losses that typically accompany recessions. Not having to set aside capital for bad debts is what allows Visa and Mastercard to rebound faster than most financial stocks.

A person interacting with the US Bank mobile app on their smartphone.

Image source: US bank.

American bank

A fourth Warren Buffett stock that is extraordinarily safe and can be gobbled up by long-term investors right now is American bank (USB 0.49%)the more familiar American bank’s parent company.

Like Visa and Mastercard, banking stocks are cyclical. This means that the recent economic downturn and rapidly rising inflation have generally increased loan delinquencies and encouraged banks to set aside more capital for loan losses. However, because economic expansions last considerably longer than contractions, banks like US Bancorp benefit from the long-term growth of loans and deposits, the “bread and butter of banking”, as I like to call it.

Speaking of the bread and butter of banking, regional banking giant US Bancorp has consistently stood out for its superior return on assets, compared to other major banks. While most money banks were attracted to riskier derivative investments before the financial crisis more than a decade ago, US Bancorp’s relatively conservative management team avoided these pitfalls. Translation: it has rebounded quickly from recessions, and often in better shape than other major banks.

US Bancorp also deserves kudos for its leading digital engagement push. By the end of May 2022, 82% of the company’s active customers were doing digital banking. More importantly, 64% of loan sales were made online or through a mobile app. In some context, only 45% of loan sales were made digitally at the start of 2020. Because digital transactions are substantially cheaper for banks than face-to-face or phone interactions, this digital push is allowing US Bancorp to consolidate some of its branches and reduce non-interest expenses.

Chevron

The fifth and final particularly safe Warren Buffett stock that investors can buy with confidence right now is a major oil and gas company Chevron (CLC 1.30%).

Naturally, the idea of ​​buying an oil stock just won’t sit well with some investors. Just over two years ago, the first lockdowns related to the COVID-19 pandemic caused demand for crude oil and natural gas to plummet, ultimately dragging down drilling and exploration companies . However, Chevron is a different breed of oil company that has managed to navigate its way through a tough time for the oil industry.

Chevron’s greatest asset might be its integrated operating model. Although it derives its juiciest margins from its upstream drilling operations, the company also owns a transmission pipeline, refineries and chemical plants. Midstream assets, such as pipelines and storage, almost always operate on fixed-price or volume-based contracts. In other words, operating cash flows tend to be highly predictable and transparent. Meanwhile, Chevron’s downstream refineries and chemical operations typically act as a hedge against falling energy prices.

Moreover, Chevron is in excellent financial shape, compared to other global oil and gas giants. Chevron’s debt-to-equity ratio is below 20% and the company is well positioned to continue to pay down debt, increase its already high dividend and repurchase up to $10 billion of common stock this year.

If that’s still not enough to convince you that Chevron is a safe long-term investment, consider this: Due to reduced capital investment during the pandemic and Russia’s invasion of Ukraine, supply global oil and gas supply is expected to remain limited for years. This is a positive development for energy commodity prices and ultimately for drillers.