What Stocks Would Warren Buffett Buy Right Now?

Well, that was fast.

In less than five months, the S&P 500 more than made up for all of last summer’s losses. Since bottoming on October 3, the large-cap index is up 25%.

After that kind of big move, many smart traders – like my colleague Jeff Clark – are bearish. Long-term uptrends don’t continue in a straight line. You’ll always see “corrections” along the way.

As Jeff points out, if you’re a short-term trader, you might be more comfortable on the sidelines. But if you’ve got a longer-term timeframe, I think you’ve got a good opportunity to buy into one of the year’s safest trends. Let me explain…

While many stocks have surged off their October bottoms, one group of stocks has been largely “left behind.”

They’re big, cheap, and steadily growing their earnings… In most cases, they reward patient investors by paying a fat dividend… Even better, this group includes some of the best businesses in the world.

You see, “boring” sectors like health care, consumer staples, and telecom services tend to hold up even when the economy slows down. The tradeoff is that they don’t benefit much from an improving economy… which is exactly what investors have been betting on in recent months.

Below is a list of large-cap companies in these sectors that haven’t participated in the big rally. The performance column shows how they’ve done since the S&P 500 bottomed on October 3, 2011.

Company	Performance	Yield
Kellogg (K)	-1.2%	3.3%
General Mills (GIS)	0.6%	3.2%
Walgreen (WAG)	0.9%	2.7%
Kimberly-Clark (KMB)	2.1%	3.9%
Bristol-Myers Squibb (BMY)	3.7%	4.2%
Pepsico (PEP)	3.8%	3.3%
Johnson & Johnson (JNJ)	4.4%	3.5%
Colgate-Palmolive (CL)	5.2%	2.5%
Costco Wholesale (COST)	5.6%	1.1%
Verizon (VZ)	5.8%	5.2%
Proctor & Gamble (PG)	6.1%	3.1%
Coco-Cola (KO)	6.4%	3.0%
Heinz (HNZ)	6.9%	3.6%
Eli Lilly (LLY)	8.3%	5.0%
AT&T (T)	8.8%	5.8%

As you can see, the best performer on the list lags the benchmark index by more than 15 percentage points…

This underperformance has nothing to do with business being bad. These are all high-quality companies that you’ll find in the portfolios of long-term investors like Warren Buffett and Jeremy Grantham.

In other words, they’re the kind of companies that attract investors who don’t want to worry about short-term fluctuations in the economy.

I like to think of these names as “hype-free” companies. No broker will ever call one of his customers with a hot tip about Heinz or Kimberly-Clark. In my experience, investors aren’t keen on stories about ketchup or diapers.

That’s what makes these stocks perfect right now. If the market pulls back, you won’t see anyone “taking profits” in these stocks. They may even benefit during a correction, as investors tend to put money into “safer stocks” when volatility jumps.

Finally, you shouldn’t ignore the dividends here. Even a short holding period of three to six months can generate 10 times as much income as cash in a money market account.

And in today’s “zero percent” world, more people are recognizing the power of solid dividend-payers. That’s going to put a tailwind behind these names this year.

So if you’ve got a longer-term time horizon… and money you want to put to work right now… start with the list above.

Good investing,

– Larsen KusickSource: Growth Stock Wire

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