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American Express Company(AXP-N)

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2 Warren Buffett Stocks to Buy Hand Over Fist in May

Motley Fool - Mon Sep 18, 11:09AM CDT

A check of the markets over the past month or two suggests that stocks may be back in a bit of short-term trouble. But, like Warren Buffett, you shouldn't worry about it. The investing legend keeps his focus on the long-term picture. You'd be wise to do the same.

That's not to suggest every single one of Buffett's long-term picks has been a winner. The Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) portfolio has suffered the occasional ill-advised investment. Some of its current holdings are a bit questionable as well. By and large, though, you'd be well advised to take Buffett's lead and borrow a few of his picks when you're looking for new holdings.

With that as the backdrop, here's a closer look at two of Berkshire Hathaway's most attractive positions that are still buy-worthy at their present prices. And, for good measure, we'll look at one portfolio holding that Buffett probably wishes he'd sold much sooner.

2 Buffett stocks to buy

The first of Berkshire Hathaway's biggest holdings you may want to consider scooping up for yourself is Citigroup(NYSE: C).

It's not most investors' top-of-mind name when looking for a banking stock to add to their portfolio. That honor typically belongs to Bank of America (which Buffett's Berkshire also owns a large stake in), JPMorgan Chase, or Wells Fargo.

Nevertheless, Citi is a compelling prospect if for no other reason than that it boasts the highest dividend yield (of 5%) among those giant banks.

That impressive yield is not the top reason to consider stepping into a new position in Citigroup right now, however. The best bullish argument here and now is that CEO Jane Fraser is finally implementing some long-overdue structural changes. Namely, Fraser is trying to flatten the organizational chart by removing at least one layer of management. That likely means layoffs are coming. The changes should simplify how the company runs itself. At the same time, Citi intends to continue its exit from foreign markets where its consumer banking businesses were not thriving or where conditions proved untenable.

It remains to be seen how long it will take to fully put these changes in place or how long it will take for them to boost the bottom line. The struggling stock needed some sort of hope-based catalyst, though. Now it has one.

The other Buffett stock you'll want to consider adding to your holdings is credit card company American Express(NYSE: AXP).

There was a time when credit cards were highly sensitive to the sort of economic headwinds we're seeing now -- inflation, high household debt, and sluggish earnings growth. Not anymore though. Credit cards are increasingly used as replacements for the cash-based spending that happens regardless of the economy's condition. Indeed, among the top features offered by all of American Express's credit cards are the rewards points and cash back cardholders get for using them to purchase groceries.

This is just a small sampling of the edge American Express has on its competitors like Visa and MasterCard, though. Its rewards and perks ecosystem is so phenomenal, in fact, that consumers and corporations alike are willing to pay sizable annual fees to use the company's cards. These fees make up more than 10% of the company's total top line, and because they're fees that AmEx charges for doing what it already does -- acting as a payment middleman and managing its perks ecosystem -- it's high margin revenue.

The evidence of its cards' fee-bearing marketability lies in the numbers. While its results can certainly be erratic, the company has a long history of long-term top- and bottom-line growth. It's no wonder Buffett likes the stock so much, even if its dividend yield at the current share price is a modest 1.5%.

AXP Revenue (Quarterly) Chart

AXP Revenue (Quarterly) data by YCharts.

What American Express shares lack in dividend yield, they make up for in dividend growth. The current quarterly payment of $0.60 per share is more than twice as much as the company was paying just six years ago.

One Buffett stock to avoid

Not every Buffett stock is one you'd want to pick up for yourself right now, however. Berkshire is also still a big stakeholder in struggling cable giant Charter Communications(NASDAQ: CHTR), parent to Spectrum.

If you've been keeping tabs on the company, then you already know the deal it recently made with Walt Disney is a winner ... for Charter. Spectrum cable customers will soon be getting streaming service Disney+ at no extra cost, and some of its cable subscribers will also soon have free access to ESPN+. And, once the sports network becomes a stand-alone streaming platform, these consumers will also enjoy access to the much more robust ESPN channel. In the meantime, Charter will become a reseller of Disney's streaming services to those among Spectrum's broadband customers who aren't currently cable television customers.

The overarching reason not to buy Charter, however, remains the same. That is, while the addition of some of Disney's streaming services bolsters the value of Spectrum's cable plans, it still won't be enough to stem the cord-cutting tide. The cable TV industry as a whole has been steadily losing customers since 2014. Spectrum has been and remains a participant in that trend: It shed another 200,000 of its 14.9 million pay-TV subscribers last quarter alone. Too many consumers are just still too ready to cut the cord. Numbers from research firm YouGov indicate around one-third of the country's cable subscribers are thinking about canceling within the next six months.

If that doesn't convince you, this might: Berkshire has been intermittently paring down its position in Charter since 2017. The conglomerate may be hesitant to renew its selling of its remaining 3.8 million share stake simply because doing so could put too much bearish pressure on the vulnerable stock.

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American Express is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, JPMorgan Chase, Mastercard, Visa, and Walt Disney. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

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