Berkshire Hathaway CEO Warren Buffett is widely considered one of the best stock pickers of all time, and for good reason. By focusing primarily on a company's intrinsic value and its competitive moat, Buffett generated a staggering 3,641,613% total return on capital for Berkshire shareholders from 1964 to 2021.
So, if you're looking for investing ideas, Berkshire's diverse portfolio certainly isn't a bad place to start. Here are three top Buffett stocks that could make you richer in 2023 and beyond.
Image source: The Motley Fool.
1. Ally Financial
Ally Financial (ALLY 0.53%) is an automotive-oriented online bank. Berkshire first purchased shares in the financial services company in the first quarter of 2022, according to WhaleWisdom. Since this initial purchase, though, Ally's shares have been in a tailspin. The bank, in fact, lost a staggering 48% of its value over the balance of 2022.
Ally's fortunes do appear to be rapidly improving, however. Thanks to stronger-than-expected 2022 fourth-quarter financial results and a lower-than-expected loan default rate for the three-month period, the bank's shares have moved higher by an impressive 33% so far this year.
Why is Ally stock a buy right now? A few reasons. On the valuation side, Ally's shares are trading at a bargain basement price-to-earnings ratio of 6.58 at the time of this writing. What's more, Wall Street expects the bank to deliver solid top-line growth next year, with a 7.4% rise in annual revenue relative to 2023. Lastly, Ally sports an above-average dividend yield of 3.67% at current levels.
All told, Ally stock seems poised to continue its rebound following a forgettable 2022.
2. Citigroup
Citigroup (C 1.35%) is another bank Berkshire added to its portfolio in Q1 2022. And like Ally, Citigroup stock retreated in a big way in 2022 (down 25.1%), but the bank's shares have been on the mend in 2023 (up 14.7% year to date).
Citigroup is essentially a turnaround story. The bank is undergoing a major restructuring process centering around lowering costs and doubling down on its commercial and wealth management segments. Now, Citigroup doesn't have the retail presence to compete with the top dogs in this space, but Wall Street analysts think the financial services company deserves a richer valuation nonetheless.
As things currently stand, Citigroup stock is undervalued by a noteworthy 51.9%, relative to Morningstar's latest fair value estimate. That's an attractive valuation proposition -- especially in light of the bank's well-above-average annualized dividend yield of 3.97%.
Citigroup's stellar upside potential and enticing dividend yield ought to bode well for its prospects in 2023.
3. Johnson & Johnson
Johnson & Johnson (JNJ 0.76%) has been part of Berkshire's portfolio since 2006. What's notable about this fact is that Buffett has rarely shown patience with low-moat pharmaceutical stocks. J&J, however, is simply built differently than its peers. J&J has one of the strongest balance sheets in the world, it has raised dividend payouts every year for over half a century, and the company has consistently generated free cash flows in excess of 20% of sales in recent times.
Perhaps most importantly, though, J&J's strong track record of innovation in the pharmaceutical arena has kept it from experiencing a major drop off in revenue stemming from one or more patent expirations. That's a big plus from a value creation standpoint, especially as the healthcare company gears up to spin off its consumer healthcare unit.
Why is J&J a top Buffett stock to buy now? Although J&J stock has gotten off to a sluggish start in 2023 (down 4% at present), J&J's carve-out of its consumer health business later this year ought to be a major catalyst for the stock. The company's pharma business has been a high growth area for J&J for years, and this separation ought to enable management to better spotlight this growth for investors.