Warren Buffett's Top 3 Stocks to Buy in April (and Beyond)

For sixty years.Berkshire Hathawayfirms(NYSE: BRK.A)(New York Stock Exchange: BRK).B) Chief Executive Officer Warren Buffett's stock has been outperforming benchmarks.S&P 500 Index. The S&P 500 has risen slightly more than 34,300%, including dividends, since Warren Buffett became the first chief executive officer of Berkshire in the mid-1960s, and as of the close of business on March 27, Oracle Corporation of Omaha's Class A shares (BRK.A) had risen more than 5,086,000%!

Warren Buffett's "secret" to success is really no secret at all. He and his investment team primarily look for name brand, profitable companies with rock-solid management teams, and let time do the magic.

But even as Wall Street's three major stock indexes hit record highs, Warren Buffett can still find plain value in his 45-stock, $374 billion portfolio at the helm of Berkshire Hathaway.

Here are three stocks Warren Buffett bought in April that have the potential to pay off for investors for a long time to come.

Snowdragon

The first Buffett stock you can safely add to your portfolio in April (and beyond) is Energy Inc. Snowdragon (Chevron) (NYSE: CVX)The oil and gas conglomerate happens to be one of only two stocks in Buffett and his team's Berkshire portfolio to have increased in the quarter ending December. The hybrid oil and gas giant happens to be one of only two stocks in the Berkshire portfolio that Warren Buffett and his team added to during the quarter ending in December.

If there is a negative side to investing in oil stocks, it is that they are cyclical. In other words, they ebb and flow with the health of the U.S. economy. As we witnessed in the early days of the COVID-19 embargo, the demand cliff can devastate the base commodities that these companies rely on. Thankfully, a variety of macro and company-specific factors suggest that Chevron is well positioned for success.

First, Chevron will benefit from the constraints on global oil supply. About three years of underinvestment in capital by energy giants (including Chevron itself) during the pandemic, coupled with the Russian invasion of Ukraine, makes it unlikely that crude oil will be oversupplied anytime soon. It is normal for the price of an important commodity to rise when its supply is constrained. This is good news for Chevron's upstream drilling business.

Another reason for Chevron's strength is that it is a hybrid energy company. While Koon's drilling business generates the largest profits for Chevron, Chevron also operates a pipeline, chemical plant and oil refinery. The Koon pipeline generates highly transparent and predictable cash flows, while the chemical plants and oil refineries hedge against a fall in the spot price of crude oil, i.e. a fall in the spot price reduces the cost of inputs, which generally leads to an increase in consumer/business demand. If the spot price of crude oil falls, Chevron is well placed to hedge.

Among hybrid energy companies, Freddie Mac also has one of the most enviable balance sheets. Higher spot crude oil prices have allowed Chevron to meaningfully service its debt, with a net gearing ratio of only 7.3% at the end of 2023. Chevron has the financial flexibility to make acquisitions, fund a strong capital recycling program, and reinvest in high-margin drilling.

The final piece of the Chevron puzzle is its historically low price. Opportunistic long-term investors now need less than 11 times forward earnings to buy shares of Chevron. That's 271 TP3T below the forward earnings multiple of the past five years, which is a bargain for an oil giant that yields a whopping 4.21 TP3T and has raised its dividend payout ratio for 37 straight years.

Sirius XM Holdings, Inc.

Warren Buffett's second stock is a satellite broadcasting operator.Sirius XM Holdings (NASDAQ resonance code: SIRI)It was a hot buy in April (and beyond). Coincidentally, Sirius XM was the other company, besides Snowflake, that Buffett and his team bought in the fourth quarter.

The main reason Sirius XM stock has performed so poorly recently is because of concerns about the health of the advertising industry. Currency-based data and recession forecasting tools have suggested that the U.S. economy is in trouble. It's normal for companies to cut back on advertising budgets when there are signs of trouble in the economy.

However, Sirius XM is different from traditional broadcast carriers in that it is very much a "one-stop-shop".criticalThe

Groundbroadcast and online broadcast operators derive the majority of their sales from advertising, while Sirius XM's advertising revenues in 2023 account for only 20% of its revenues (primarily through its 2019 Pandora acquisition.) The bulk of Sirius XM's revenues from last year (nearly 77% of net sales) can be traced back to subscription services. In times of economic uncertainty, Sirius XM subscribers are much less likely to cancel than advertisers are to cut back. In short, Sirius XM is better positioned than its peers to thrive in any economic environment.

It's probably a good time to mention that Sirius XM is also the only licensed satellite radio operator. While it still faces competition for listeners from ground and online broadcasting, as the only licensed satellite operator, the company has strong pricing power that it can use to outpace inflation where it counts.

Another reason Sirius XM is worth buying is the transparency of some of its expenses. While royalties and talent acquisition costs change quarterly, equipment and transmission costs tend to be relatively constant no matter how many subscribers a company adds. That's the secret to long-term profit expansion.

The final piece of the puzzle is the historically low valuation of Sirius XM, whose stock can now be purchased for less than 12 times forward earnings, a discount of 40% to the average forward earnings over the past five years.

Paramount Global

Buffett's third stock is a media giant.Paramount Globalfirms(Paramount) Global (NASDAQ resonance stock code: PARA)It was a hot stock to buy in April and will likely continue to be for a long time.

There are two culprits behind Paramount's poor stock performance. First, it is suffering from the same advertising problems as Sirius XM. The traditional telecom divisions of traditional media carriers like Paramount Global still rely heavily on advertising revenue.

Another issue for Paramount Global is the company's debt. With declining ad sales and repeated post-pandemic movie production blunders, there are some concerns about the company's ability to pay off $14.6 billion in outstanding long-term debt by the end of 2023.

While these real concerns have had an impact on Paramount's stock price, investors prefer long-term investments from a risk and return perspective.

One factor in Paramount's favor is that this is an election year. According to GroupM, political ad spending in the U.S. is expected to grow 31% this year over the last election cycle (2020) to $15.9 billion. While this may not be a silver bullet for Paramount's traditional e-commerce business, it will be a nice boost for many of its advertising micro-businesses after a difficult time.

Paramount's streaming business is also a cause for optimism. While investors would have preferred to see a significant reduction in losses this year, it is important that Paramount maintains its strong subscription pricing capability. The ability to raise prices without losing 67.5 million Paramount+ subscribers is key to the business achieving recurring profitability.

Paramount is behind Pluto TV, the leading free ad streaming platform in the U.S., and I'd be remiss if I didn't notice. If the U.S. economy goes into recession, "free" will be an extremely tempting option for consumers looking to save money.

Patient investors can buy this Buffett stock now at less than 9 times forward earnings, which could prove to be a very good deal.

Should you invest $1,000 in Chevron now?

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Sean Williams has a position in Sirius XM. the Motley Fool has recommended Berkshire Hathaway and Chevron. the Motley Fool has a disclosure policy.

Warren Buffett's 3 Stocks to Buy in April (and Beyond) was originally published by The Motley Fool.