If you want to invest like Warren Buffett and be successful, then you need to pay close attention to a stock's fundamentals and its valuation. Stocks that generate strong profit margins, pay dividends, and trade at modest multiples are all Buffett-type investments that could make for solid, long-term buys.
HCA Healthcare (NYSE: HCA), United Parcel Service (NYSE: UPS), and Goldman Sachs (NYSE: GS) are all investments that fit these criteria. Here's a closer look at all three of them and why they are great buys for value investors.
1. HCA Healthcare
HCA Healthcare operates more than 180 hospitals and roughly 2,300 other care sites, including surgery centers, in the U.S. and U.K. Shares of the healthcare stock are down around 20% this year, performing worse than the S&P 500 and its 13% decline over the same period.
The catalyst behind the sell-off was the release of the company's latest earnings report in April, which sent the stock tumbling. HCA reduced its guidance for 2022, which included reducing its revenue forecast by $500 million. For the year, it expects diluted per-share earnings to be between $16.40 and $17.60 (vs. a previous forecast range of $18.40 to $19.20). The company's profits will come in around $5 billion, which will be more than 8% of revenue.
Those are still strong numbers for the business. And HCA's dividend, which pays $2.24 per share annually, is in no danger at all -- even with the trimmed forecast. The stock's yield of 1.1% is below the S&P 500 average of 1.4%, but there's definitely room for it to grow. The company increased its dividend payments by 17% earlier this year, up from the $0.48 quarterly payment it was making in 2021.
Trading at a price-to-earnings (P/E) ratio of less than 10, HCA is definitely an attractive option for value-oriented investors like Buffett.
2. United Parcel Service
Buffett's Berkshire Hathaway holds UPS in its portfolio today, but it's one of the company's smallest investments. I'd argue it warrants more of a position there. Buffett, after all, has long been a proponent of betting on America and the long-term success of the economy. A great way to do that is to bet on the success of a quick and efficient logistics company like UPS.
Shares of UPS haven't crashed this year, they've merely gone along with the downward ride of the markets. The stock's 13% decline is in line with how the S&P 500 has performed thus far. But it should be doing better than that due to its resiliency. In the first three months of the year, the company's sales remained strong at $24.4 billion and rose 6.4% year over year. UPS reported net income of $2.7 billion, which was 11% of revenue and remained impressive. Last year, it averaged a profit margin of 13%.
UPS trades at a P/E ratio of around 15, which is cheap when you consider the S&P 500 index averages an earnings multiple of nearly 22. The low valuation and UPS's dividend yield of 3.3% makes this a fantastic stock to load up on today. Earlier this year, the company hiked its dividend by a whopping 49% in light of its strong results.
3. Goldman Sachs
Top investment bank Goldman Sachs was one of Buffett's holdings as recently as 2020, before Berkshire sold its stake in the business. Goldman's business is not in bad shape, and it has actually achieved incredible growth of late. In 2021, its net revenue of $59 billion marked a year-over-year increase of 33%. Net earnings of $21.6 billion were even more impressive, more than doubling in value as the company kept its costs contained while benefiting from a surge in investment banking revenue.
Through the first three months of 2022, the business remains strong with profits of nearly $4 billion accounting for more than 30% of its net revenue. Goldman's diluted per-share earnings of $10.76 for just the first quarter would be enough to pay for its dividend, which over the course of four quarters totals just $8 per share. While the bank has room for more increases, at 2.5%, the dividend yield already provides lots of potential recurring income for investors. Last year, Goldman hiked its quarterly dividend from $1.25 to $2.
Shares of the stock are down 17% this year and it looks like a great deal, trading at a P/E of 6 and right around its book value.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and Goldman Sachs. The Motley Fool recommends HCA Healthcare and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.