3 Top Stocks in Warren Buffett's Portfolio to Watch in 2024
Learn from Warren Buffett: 3 Top Stocks for Beginner Investors
If you're new to investing and want to follow in the footsteps of renowned investor Warren Buffett, reviewing the holdings in Berkshire Hathaway’s equity portfolio is a great starting point. Buffett is famous for selecting companies that offer strong returns on investment and have robust competitive advantages, or "moats."
Below, we examine three standout stocks from Buffett’s portfolio: Apple (AAPL), Louisiana-Pacific (LPX), and Pool Corp. (POOL). Each company demonstrates qualities that Buffett looks for, making them worth considering for your investment strategy.
Why Return on Invested Capital (ROIC) Matters
Buffett has long stressed that it’s not just growth that matters—but profitable growth. In his 1992 annual letter, he highlighted the importance of businesses generating enticing incremental returns. This is best measured by Return on Invested Capital (ROIC), which reflects how effectively a company is using its capital to produce profits.
All three companies—Apple, Louisiana-Pacific, and Pool Corp.—boast consistently high ROIC over time, making them prime examples of firms that put capital to good use. For instance:
- Apple continues to expand into high-margin services.
- Louisiana-Pacific is moving beyond commodity markets into specialty siding products.
- Pool Corp. grows by adding new sales centers and acquiring smaller industry players.
The Strength of a Business Moat
Buffett famously described a business moat as the key to sustained high returns. An enduring moat protects strong returns from being eroded by competitors. One way to identify a wide moat is to look for consistently strong operating profit margins.
- Apple enjoys industry-leading margins thanks to its brand and ecosystem.
- Pool Corp. holds a dominant position in pool supply distribution.
- Louisiana-Pacific leverages its leadership in engineered wood siding, though its moat is a bit narrower in commodity building materials.
Should You Consider These Stocks?
- Apple remains a powerhouse in the mobile device market and continues to grow its services, resulting in robust margins and excellent ROIC.
- Pool Corp. saw extraordinary growth during the pandemic driven by increased demand for pool products, and continues to benefit from ongoing maintenance spending. As more pools are built, growth prospects stay strong.
- Louisiana-Pacific faces some margin and ROIC variability due to commodity price swings, but is improving as it focuses on high-demand engineered siding.
Conclusion: Three Buffett Favorites for New Investors
For those just starting their investment journey, Apple, Louisiana-Pacific, and Pool Corp. offer strong track records in both profitability and competitive positioning. Following Buffett’s approach of investing in businesses with proven returns and protective moats could set you on the right path.
This content is for informational purposes only and does not constitute financial advice.
