Warren Buffett has largely remained out of the headlines during this financial downturn. While other money managers like Bill Ackman and Carl Icahn continue to generate headlines, Buffett has largely remained quiet.

Prior to the market crash in March, Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A) had roughly $128 billion in cash.

That level of dry powder means that it could purchase nearly any U.S. company trading on the public markets.

Berkshire is likely to deploy some of its cash; however, it could choose to boost its existing stakes in its portfolio companies instead of buying a new company.

Here are three major holdings of Berkshire Hathaway that could be excellent “Warren Buffett stocks” to buy.

Warren Buffett Stock No. 3: Bank of America

Buffett has long been a fan of investing in banks. Berkshire Hathaway’s portfolio consists of eight U.S. banks with its largest stake in Bank of America Corp. (NYSE: BAC).

COVID-19 has hammered the banking sector, particularly companies with extensive exposure to small business loans and commercial real estate. The company has taken the lead in providing mortgage relief and allowing delays to loan payments. That creates a series of short-term pressure on the company, particularly given the low-interest rate environment that will impact the company’s bottom line.

That said, the U.S. Federal Reserve has pledged to provide “unprecedented” support to the banking industry. Bank of America – as a “too big to fail” financial institution – should weather this storm over the short term.

Additionally, interest rates are likely to rise in the near future as inflationary pressures begin to impact the economy. Bank of America is likely to bottom out in the second quarter and will establish itself as a solid turnaround story in the coming years.

It’s fair to anticipate that Berkshire and other large institutions will move to snap up shares on the cheap.

Warren Buffett Stock No. 2: Delta Airlines

Berkshire Hathaway is a major backer of the four largest airline companies in the United States. Buffett’s firm had pumped a lot of money into American Airlines Group Inc. (NASDAQ: AAL), Delta Air Lines Inc. (NYSE: DAL), United Airlines Holdings Inc. (NASDAQ: UAL), and Southwest Airlines Co. (NYSE: LUV) in 2016. At the time it was surprising because Buffett had warned about the dangers of investing in these companies, particularly in the wake of 9/11.

Delta Airlines is the most intriguing of the four airlines because of its synergies with credit card giant American Express Co. (NYSE: AXP), another large holding in Berkshire’s portfolio.

That said, Delta is facing significant challenges in the near and medium term. Although airlines did receive a massive bailout, the companies will face a significant challenge in consumer behavior.

According to the Transportation Security Administration, daily passenger traffic is down 90% year over year. Meanwhile, the Harris Poll reports that one in every five Americans will not fly on a plane for at least four months after the economy experiences a “flattening” of the coronavirus curve.

Delta is trading at a larger discount to Buffett’s other airline holdings and has been a much more profitable company than its rivals. However, anyone who is buying Delta needs to have a two- to three-year investment thesis before we see a resurgence in air travel demand.

Warren Buffett Stock No. 1

Berkshire Hathaway’s single-largest holding is Apple Inc. (NASDAQ: AAPL). It comprises roughly 35% of the total portfolio, according to Bespoke Investment Group. Prior to the March downturn, Apple represented a significant win for its shareholders. The price of Apple stock surged from less than $150 per share in January 2019 to $327.85 in February 2020.

Shares are now off 24% from those February highs, and Apple is facing significant supply chain challenges and a lack of consumer demand. Apple had closed its retail locations in early March and had projected it would remain closed through March 27. However, the firm quietly changed its order to state that locations would remain closed until “further notice.”

Concerns about consumer demand have fueled a round of price downgrades by analysts on Wall Street. Should the coronavirus fuel a significant closure of stores and sap demand, Apple stock could fall further. However, improved demand and a strong fourth quarter could press the stock back toward $300 per share by the end of the year.

Investors should be cautious about speculating right now. With the number of coronavirus cases surging higher, investors might want to wait a little longer before piling into the market.

Will Berkshire Hathaway Buy This Company?

The firm even has enough money to purchase McDonald’s Corp. (NYSE: MCD), assuming there wouldn’t be much of a premium on the valuation.

The question that many people are wondering is if Berkshire Hathaway will put money to work and purchase another firm. The company has committed to maintaining a cash position of at least $20 billion, and it will likely stay nimble with so much uncertainty in the market now.

Berkshire is more likely to divest from companies that might experience a significant shift in demand and will likely purchase stock in firms that provide the best outlook for growth in cash flow. This makes banking stocks, particularly at the regional level, attractive sources of investment for Berkshire.

— Money Morning Staff

Source: Money Morning