Five Blue-Chip Stocks on Warren Buffett's Buy List

Could the economy and stock market be recovering faster than we expect? In terms of the economy, Fed chairman Ben S. Bernanke said the worst U.S. recession since the 1930s has technically ended and cited various signs of a recovery. Even President Obama has said that the embattled US economy is recovering spurred on by his $787 billion stimulus plan. From a stock market perspective, the most influential stock market guru and investor – Warren Buffett – has also said that he is once again bullish on equities and his company, Berkshire Hathaway, is heavily buying. Here are my ideas on which American blue chip stocks he would be buying (or adding to existing positions) based on intrinsic value, ability to leverage fast-growing and more rewarding international markets and profit from a battered US dollar.

General Electric (GE) - U.S. multinationals that do business overseas directly benefit from a global recovery and weaker dollar thanks to higher profits reported in US dollar terms. General Electric is the biggest of the US conglomerates out there and stands to reap huge profits as global industrial and manufacturing demand soars from countries like China and India. GE also benefits from increased domestic infrastructure spending courtesy the $787 billion economic stimulus. Further, the large share price appreciation from historic lows this year reflects investors' growing confidence that the company's hefty GE Capital finance arm had weathered the financial crisis and that its large industrial businesses would benefit as the world economy begins to climb out of recession. That's why Warren Buffett (already an investor in this stock) and most analysts see only one way for this stock to go - Up.

Microsoft (MSFT) - The next 12-18 months are loaded with new products for Microsoft, namely its new operating system coming out in October - Windows 7 - a replacement for the much maligned Vista. Further, PC manufacturers have reported that they see the global market for PCs stabilizing or actually turning upward – suggesting tech spend is going to surge at both a corporate and consumer level. Microsoft's Bing search engine (which Yahoo (YHOO) is also using in their new partnership) is emerging as a challenger to the dominance of Google (GOOG) after capturing a near-11 per cent share of the market in little more than three months. All these factors bode well for Microsoft and a stronger share price over the next few years.

Goldman Sachs (GS) – There are a lot of rich investors with cash on the sidelines looking for a way to invest their money in order to earn above-average returns. With the financial crisis of the year past, many are reluctant to trust their money to anyone but the best and most secure. That's where Goldman Sachs comes in. They clearly have the US government in their pockets and have emerged like a phoenix from the ashes of the worst financial crisis since the Great Depression. Profits and bonuses are booming at the company and rather than hate them – invest in them. You may not have the millions to be a client of theirs, but you need less than $200 (a bargain some would say) to become a Goldman investor. After all, Warren Buffett is still holding onto his warrants he got when investing in them at the peak of the financial crisis and if he thinks they are good enough to keep owning, then so should we.

Caterpillar Inc (CAT) – As the Indian and Chinese economies recover, so will their insatiable appetite for all things resource related. While BHP and Freeport-McMoRan (FCX) are the resource growth plays to benefit from the commodities boom, Caterpillar provides the equipment to sustain these and most major mining companies. Like GE, they will also benefit from local stimulus spending on machinery to build and upgrade the nation's infrastructure. Their best-in-class manufacturing capability and an unparalleled dealer network give them a huge advantage over competitors enabling them to expand their market-leading position in heavy machinery and engine markets

Disney (D) - With their recent takeover of Marvel, Disney is poised to become an even more dominant force in the media content world. Coupled with their multi-channel distribution network they should enjoy substantial revenue growth over the next few years. While the weakening US dollar may hurt local sales, it should amplify their foreign revenues. In the medium term though, the weak greenback could work in Disney's favor because it encourages Americans to vacation domestically rather than overseas. This should boost revenue at their local theme parks and hotels. Putting all these factors together make Disney a great stock to own for the long term.

Warren Buffett has two cardinal rules of investing. Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1. If the global economy recovers, then the above stocks should satisfy these rules. As always, do your own research before buying any investment and if you are an investor uncomfortable with picking individual stocks consider global mutual or exchange traded funds that will more likely than not have these stocks in their asset mix.

Disclosure: No Positions

Comments

[EddieTa:]

Thanks for the article. Buffett of course would never invest heavily in MSFT for Berkshire, but he has said that he admires the company and bought 100 shares years ago just so he could receive the annual reports.

Sep 18 07:48 AM

[Johan Belgium:]

If there is a recovery..... the big guys only think on their own position and short-term. Bernanke was never right in his predictions and only worstened the situation. Warren Buffet is right that a lot is cheap (or was in the beginning of this year), but he really thinks long-term and is only interested in the quotations within >5 years. But he knows very well (and is maybe afraid to admit) that the economy still is a huge mess.
And if according to you "recovery" means: stealing money from the people to continue filling the pockets of the rich top, then indeed there is one..

Sep 18 10:28 AM

[bobbybutte:]

I appreciate the article but the author obviously does not KNOW Buffett

Buffett would never own MSFT because he could not personally value future earnings

GS and GE he has the preferred why would he want to"double down" at these inflated levels.If he would have "bought" he would have done it while the stock was half of what it is now

Sep 19 06:13 PM

[bobbybutte:]

i could see him buying Cat ,especially in july when it was cheap but doubt it Dis he had alarge stake in after the cap cities merger and he got out,having said that it is a franchise he likes and if he would have added IMO he would have done it in q1 when it was much cheaper

Sep 19 06:14 PM

[connorport:]

That would be a wrong assumption. Today would be a good day to invest in GE as short term they look to be trailing back to the mid 20's. That's a 50% return short term even at todays prices.


On Sep 19 06:13 PM bobbybutte wrote:

> I appreciate the article but the author obviously does not KNOW Buffett
>
>
> Buffett would never own MSFT because he could not personally value
> future earnings
>
> GS and GE he has the preferred why would he want to"double down"
> at these inflated levels.If he would have "bought" he would have
> done it while the stock was half of what it is now

Sep 19 10:28 PM

[Living4Divi...:]

Your article title is "Five Blue-Chip Stocks on Warren Buffett's Buy List"

In fact, some of your picks (MSFT) are clearly stocks WB would NOT Buy.

Therefore your article is merely speculative, as you don't really know what the Oracle of Omaha is actually buying. It is clear that the author hasn't thoroughly studied WB.

Sep 20 09:09 AM