The stock market has been unpredictable in recent months, and as a result, investors have headed for the exits. The S&P 500 has contracted 14% year to date, and the Nasdaq Composite, which comprises a wider range of speculative growth stocks, has drawn back 22% over the same time period.
This is unsurprising considering the current state of the global economy. With inflation ascending to 40-year highs, the Fed’s decision to conduct numerous interest rate hikes in response, as well as unresolved issues bound to the Russo-Ukrainian war, investors have fallen out of love with high-priced growth stocks.
Such types of companies never interested the great Warren Buffett, who is famous for picking low-value stocks with resilient business models and attractive dividend yields. It’s during times of considerable uncertainty that Buffett’s wisdom and investing strategy come in handy the most. After all, the star stock picker is quoted for saying, “Only when the tide goes out do you discover who’s been swimming naked.”
This sentence is certainly relevant in today’s economic environment as investors continue to be tested by the stock market’s 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%) has fallen 21% year to date despite its strong outing in the first quarter of 2022. Total sales finished in line with Wall Street estimates, increasing 1.8% year over year to $23.2 billion, and diluted earnings per share beat consensus expectations by 7.5%, concluding at $0.80.
The company’s earnings report demonstrated that, in the face of surging inflation, consumer spending habits remain positive. This was evidenced by its $980 billion in payment volume in Q1, equal to 14.1% growth year over year. The company’s balance sheet continued to expand in Q1 as well. Total loans and leases increased 10% year over year $993 billion, and total deposits grew 9.9% to $2.1 trillion.
Bank of America’s efficiency ratio — which shows how well a bank controls its expenses — decreased 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 2.32% yield at present. This means investors are receiving a quarterly payment of $0.21/share irrespective of the company’s stock price movement. Investors can choose to reinvest their dividends or use the proceeds to pay for other expenses. With the stock trading at just 10.4 times earnings today, now may be the optimal time to accumulate shares of this mega-bank stock.
The Coca-Cola Company (KO -1.19%) isn’t a flashy business, but the multinational beverage corporation knows how to deliver.
Up 7% since the start of 2022, the Warren Buffett favorite posted a strong report in Q1. The company’s total revenue outperformed Wall Street forecasts by 6.8%, expanding 16.3% year over year to $10.5 billion, and its diluted earnings per share (EPS) exceeded consensus estimates by 10.4%, surging 23.1% to $0.64. The beverage company’s operating margin also finished at 32.5% vs. 30.2% in the prior year.
“We are pleased with our first quarter results as our company continues to execute effectively in a highly dynamic and uncertain operating environment,” noted James Quincey, Chairman and CEO of Coca-Cola, in the earnings call.
This statement characterizes the company’s bread and butter: consistency. Because Coca-Cola is a consumer staples enterprise, its products are essential regardless of the economic climate. This explains why the beverage juggernaut performed so well in its opening quarter compared to many other companies that continue to face pressure from the macroeconomic environment.
Coca-Cola rewards its shareholders in a major way with its $0.44/share quarterly dividend, which translates to a yield of 2.70%. The company’s consistent and resilient business has allowed it to raise its dividend for more than 50 consecutive years.
Knowing that and applying a long-term approach, just think about where the company’s dividend could be 50 years down the road. If I had to guess, Coca-Cola will still be around, and the company’s dividend will be much higher than it is today.