When it comes to stocks, investing legend Warren Buffett is in the business of slow and steady gains. And if that approach appeals to you, it’s easy enough to figure out how to follow in his footsteps.
Each quarter, Buffett’s holding company, Berkshire Hathaway (BRK-A), discloses its investment portfolio to the Securities and Exchange Commission for all to see.
Most recently, Berkshire revealed it mainly trimmed its holdings over the second quarter of this year, April May and June. But next time you’re on your favorite investing app, you might want to look at two companies Buffett chose to beef up his stake in: Kroger and Aon.
The Kroger Co. (KR)
Supermarket giant Kroger has been around for almost 140 years and runs more than 2,700 grocery retail stores from its Cincinnati headquarters.
The grocer also operates fine jewelry stores under the Fred Meyer Jewelers and Littman Jewelers names; food production and manufacturing facilities; supermarket fuel centers; and pharmacies in its combination food and drug stores.
Berkshire added 10.7 million shares of Kroger in the spring quarter, increasing its holding by 21%. And that was after adding 17.5 million shares — a 52% increase in its position — during the winter. The company now holds nearly 62 million shares at a value of $2.4 billion, making it the third-largest owner in the company.
The grocery store business checks off many boxes for Buffett: It’s simple, durable and not too susceptible to technological change.
For everyday investors on today’s stock trading platforms, the logic behind Kroger is simple: People will always need to eat.
In 2020, Kroger reported $132.5 billion in sales with an average 9 million customers visiting its stores daily. And though it’s an old-school brick-and-mortar retailer, Kroger has been increasing its omnichannel presence to keep up with the times: Its delivery service now covers about 98% of households in its market areas.
Kroger also boasts a treasure trove of customer data — which the company used to make 258 billion personalized recommendations to customers in during the year’s first quarter.
“Kroger’s data and personalization capabilities will contribute to increasingly meaningful ways to grow our e-commerce reach and capability, and we continue to elevate our personalized customer experience with our data today,” said chairman and CEO Rodney McMullen on the company’s Q1 call with analysts
Aon PLC (AON)
Buffett knows the insurance industry very, very well. So when he makes a purchase in the sector, investors would do well to take notice.
During the second quarter, Berkshire upped its stake 7% in global insurance brokerage Aon to 4.4 million shares, making it a billion-dollar stake.
Given all the uncertainty around the globe, Aon looks like a rather timely bet for Buffett, whose strategy of being ready for worst-case situations has served him well during the pandemic.
“The world is becoming more volatile,” Aon CEO Greg Case said on the company’s Q2 earnings call. “Just look at the socioeconomic impact of the pandemic, the rise of state-sponsored cyberhacking, the floods in Eastern Europe, the fires in Western America and the challenges globally from working remotely.”
Aon also has plenty of operating momentum working in its favor.
In the most recent quarter, revenue increased 16% to $2.9 billion. More importantly, free cash flow — something Buffett always loves to see — improved 13% to $1.3 billion. Management even repurchased 1.1 million shares during the quarter for $240 million.
Aon’s impressive free cash flow generation is fueled by the tollbooth nature of its brokerage model, established corporate relationships, and industry-topping client retention rates.
With the stock trading at a forward price-to-earnings ratio of 24, pretty much in line with the S&P 500, Aon’s Buffett-approved potential might be worth pouncing on.
How to get your share without Buffett’s riches
You don’t need Buffett’s billions to start building a position in either Kroger or Aon.
Even if you have a particularly small budget, you can use a zero-commission investing app that allows you to buy fractions of shares of the big-name stocks Buffett is investing in.
You can even use an app that allows you to invest with just your “spare change,” rounding up to the nearest dollar on all your purchases to help you build a diversified portfolio over time.
With a little help from the right platform, you might be able to use Buffett’s great stock ideas to earn some great investment profits.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
