Based on a 58-year track record as CEO of Berkshire Hathaway (BRK.A) (BRK.B), it’s safe to say Warren Buffett knows a thing or two about investing. As of this past weekend, he’d overseen a greater than 3,900,000% return in his company’s Class A shares (BRK.A) since taking the reins at Berkshire.

Although the Oracle of Omaha and his team oversee investments in 48 different securities (stocks and exchange-traded funds), not every holding shares the same outlook. What follows are three Warren Buffett stocks that stand out as screaming buys in June.

Johnson & Johnson
The first Buffett stock that stands out as a surefire buy in the month of June is healthcare company Johnson & Johnson (JNJ), better known as J&J.

The reason J&J has struggled in 2023 is the ongoing overhang of litigation concerning its talcum-based baby powder. Although Johnson & Johnson has a healthy balance sheet and generates plenty of operating cash flow, investors are looking for a definitive resolution to this litigation. However, this is a very short-term worry for a company with a rich history of delivering for its patient shareholders.

For more than a decade, J&J has shifted more of its focus to pharmaceuticals. Brand-name drug development has its perks, including a high organic growth rate, strong pricing power, and juicier operating margins.

But there’s a downside that can accompany generating more of its net sales from brand-name therapeutics: Brand-name drugs have a finite period of sales exclusivity. Johnson & Johnson has countered the potential of a patent cliff by aggressively reinvesting in its novel drug-development platform, forging a number of partnerships and alliances, and even making the rare acquisition.

Beyond the company’s stellar pharmaceutical division, J&J can also lean on its industry-leading medical-devices segment. Despite medical technologies being somewhat commoditized, this is an operating segment that’s poised to benefit from an aging global population that’s steadily gaining access to preventative care.

Another reason Johnson & Johnson has been such an outperformer for so long is its management team. In the 137 years since its founding, J&J has had just eight CEOs. Little turnover in key positions means strategic initiatives are being seen through from start to finish.

Shares of Johnson & Johnson can be scooped up by opportunistic investors for just 14 times consensus earnings for 2024. On a forward-earnings basis, J&J hasn’t been this cheap in more than a decade.

Paramount Global
A second Warren Buffett stock that stands out as a screaming buy in June is media company Paramount Global (PARA).

Paramount was taken to the woodshed by investors following the release of its first-quarter operating results. Though one-time charges pushed the company into the red, it was widening operating losses from the company’s streaming segment, a double-digit decline in advertising revenue from traditional TV operations, and a 79% cut to its quarterly dividend, that ultimately sent shares tumbling.

While Paramount Global’s first-quarter results were less than ideal, they represent an opportunity to pounce on what should be short-lived headwinds.

Take the company’s 11% year-over-year decline in TV Media advertising revenue as the perfect example. While it’s not uncommon for businesses to pare back their ad spending when the winds of recession begin blowing, the U.S. economy spends a disproportionately longer amount of time expanding than contracting. In other words, Paramount will have ad-pricing power in its corner more often than not. This marks an opportunity for long-term investors to take advantage of this (likely) short-lived swoon in ad revenue.

Streaming can be another source of excitement for Paramount’s shareholders, but they have to be willing to look more than three months down the line. Paramount+ added more than 4 million subscribers in the latest quarter, and advertising and subscription revenue for the direct-to-consumer segment jumped by double digits.

But what might be an even bigger catalyst for Paramount Global is Pluto TV, the company’s free, ad-supported streaming service. According to the company, global viewing hours rose 35% year over year, with monthly active users reaching 80 million.

If the Federal Reserve’s outlook is correct and the U.S. dips into a mild recession later this year, free streaming services are bound to draw a lot of attention. Paramount has its bases covered in the streaming arena, and with mindful cost-cutting, this segment can push toward profitability sooner than later.

Although no investor enjoys seeing a dividend reduction, the move saves Paramount approximately $495 million in annual cash outflows. It’s a short-term sacrifice that allows Paramount to position itself for sustained growth. At just 44% of book value and roughly 10 times forward-year earnings, Paramount looks like a deal.

Bank of America
The third Warren Buffett stock that stands out as a screaming buy in June is none other than Berkshire Hathaway’s second-largest holding by market cap, Bank of America (BAC).

BofA, as Bank of America is more commonly known, has been dragged down in recent months by the growing likelihood of a U.S. recession, as well as the regional-banking crisis. Since bank stocks are cyclical, a recession would probably lead to a higher rate of loan delinquencies and/or loan losses. It’s why we’re seeing money-center banks like BofA build up their loan-loss reserves over the past couple of quarters.

While “this time is different” might be the scariest phrase on Wall Street, this time may actually be different for bank stocks. Whereas recessions are usually met with dovish monetary policy and higher loan losses/credit charge-offs, the nation’s central bank has made tackling historically high inflation its No. 1 priority.

Rapidly rising interest rates have pumped up the interest income-earning potential of banks. BofA just happens to be the most interest-sensitive of all money-center banks. The Fed’s hawkish monetary policy has put billions of dollars of added net-interest income into its coffers each quarter. It’s possible Bank of America could see its earnings per share expand during a recession.

In addition to benefiting from higher interest rates, Bank of America’s technology investments are paying off. A steadily growing percentage of households have become active digital banking customers. Digital sales are considerably cheaper than in-person and phone-based interactions for banks. In BofA’s case, this digital shift is helping to improve its operating efficiency.

Long-term investors should also enjoy a generous capital-return program during periods of economic expansion. CEO Brian Moynihan and BofA’s board typically advocate for dividend and buyback programs that top $20 billion annually, with Fed approval.

With Bank of America now valued at 10% below its book value and roughly 8 times forward-year earnings, history suggests now would be the ideal time to pounce.

— Sean Williams

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