But after these rosy 2024 gains, many ASX investors might be looking for some stable, defensive investments to ride out 2025. After all, the returns of both the Australian and American markets were well above average last year. And the markets do have a sometimes uncomfortable tendency to revert to their mean sooner or later.

With that in mind, let's discuss a pair of defensive ASX shares that I think offer investors stability as we embark upon another year on the stock market.

Two defensive ASX shares to buy for 2025 stability

Telstra Group Ltd (ASX: TLS)

First up is the leading Australian telco, Telstra. We all know Telstra (and may or may not love it), but I think this company's shares represent a solid and stable investment for 2025. The Telstra share price actually had a fairly poor 2024, treading water for most of the year.

Despite this, the company managed to report some solid earnings and substantially grew its dividend. Today, it offers a hefty (and fully franked) dividend yield of 4.42%.

Telstra is also a highly defensive company. Fixed-line internet and mobile services are essential to modern life, and as such, customers won't want to give them up even if their personal financial circumstances deteriorate. That makes this company's earnings and profits highly stable, which should lend comfort to any investor seeking a reliable investment in 2025.

iShares Global Consumer Staples ETF (ASX: IXI)

Our second defensive ASX share is not technically a share at all. Instead, it is an exchange-traded fund (ETF). This particular ETF offers investors a portfolio of global companies that are leaders in providing consumer staples goods. Consumer staples are products that we tend to need, not want. They include food, drinks, household essentials, alcohol, and tobacco.

This ETF houses around 100 of these companies, which hail from several different countries. You'll find some familiar names in the current portfolio, including Coca-Cola, Colgate-Palmolive, Costco, Kraft Heinz and Nestle.

The inherent nature of these products makes, at least in my view, the companies that produce them very stable investments.

After all, we all still need to eat, drink and run our households regardless of how the economy or stock market is doing. I won this ETF in my personal portfolio as a sleep-well investment, and I think it can lend stability as an ASX defensive share to any portfolio in 2025.

The post 2 ASX defensive shares to buy now for stability appeared first on The Motley Fool Australia.

In fact, the last dividend Berkshire paid out was back in the 1960s. Buffett has even joked that he must have been in the bathroom when the payment was approved.

Ever since then, Berkshire shareholders haven't received a single dollar of dividend income.

But that doesn't mean Buffett himself is averse to receiving dividends. In fact, Berkshire is probably one of the largest single recipients of dividend income in the world. Our Foolish colleagues in Buffett's home country of the United States estimated back in June that Berkshire is on track to bank more than US$6 billion in passive dividend income over the coming 12 months.

What's even more mindboggling is that it is estimated that US$5.17 billion of that passive income will be coming from just seven underlying shares in Berkshire's portfolio.

Those Berkshire bankrollers are as follows:

• Occidental Petroleum Corp (NYSE: OXY)
• Bank of America Corp (NYSE: BAC)
• Apple Inc (NASDAQ: AAPL)
• Chevron Corporation (NYSE: CVX)
• Coca-Cola Co (NYSE: KO)
• Kraft Heinz Co (NASDAQ: KHC)
• American Express Company (NYSE: AXP)

So Buffett is someone who evidently knows a thing or two about building a stream (in this case a raging torrent) of passive income.

But how can we take Warren Buffett's experience to our own ASX and build a stream of passive income from ASX dividend shares that will last a lifetime, as Buffett's has?

Building a Buffett-inspired passive income portfolio

I think there are two key lessons here.

The first is that investors should find high-quality dividend payers that have the financial strength to raise their dividends over time in a meaningful, inflation-beating way.

Take Apple and Coca-Cola. Apple only started paying its investors dividends in 2012. But since then, it has increased its annual payouts substantially every year. Just this year, the technology titan boosted its quarterly dividend payouts by 4.35% from 23 US cents a quarter to 24 US cents.

Meanwhile, Coca-Cola has one of the best dividend growth streaks in the world, having just raised its annual dividend for the sixtieth (yes, 60) year in a row.

The second is that investors should seek a wide range of these quality passive income payers. You'll notice that of those seven Berkshire bankrollers listed above, two are oil shares (Chevron and Occidental), one is a tech stock (Apple), two are financials stocks (Bank of America and American Express), and two are consumer staples giants (Coke and Kraft-Heinz).

Buffett, and Berkshire by extension, is thus able to rely on a wide range of top-tier companies that all operate in different corners of the market. This reduced the portfolio's single-sector risk substantially and ensures that Berkshire's stream of passive income remains strong.

I myself attempt to incorporate these two lessons into my own passive income portfolio. That's why I invest in a range of high-quality shares like Washington H. Soul Pattinson and Co Ltd (ASX: SOL), Wesfarmers Ltd (ASX: WES), National Australia Bank Ltd (ASX: NAB), MFF Capital Investments Ltd (ASX: MFF), Telstra Group Ltd (ASX: TLS), and Endeavour Group Ltd (ASX: EDV).

Collectively, I hope these companies will be half as kind to me in terms of generating passive income as Buffett's investments have been to him.

The post Here's how I'd use the Warren Buffett method to target lifetime passive income from ASX shares appeared first on The Motley Fool Australia.

Berkshire may have dozens and dozens of shares in its bulging portfolio. But Buffett gets the vast majority of his dividend income from just a few of those.

So today, let's look at three of Buffett's largest dividend stocks, and some possible ASX equivalents that we can look to for our own dividends here on the Aussie share market.

3 of Warren Buffett's best dividend stocks

Kraft Heinz Co (NASDAQ: KHC)

Kraft Heinz is one of Berkshire's more controversial holdings. Buffett himself helped engineer the merger that brought Kraft and Heinz together back in 2015. But since then, this company has had its fair share of ups and downs. Between 2017 and 2020, shareholders watched as the company shed 75% of its value.

In saying that, Kraft Heinz has kept the support of Buffett, who hasn't sold a single share. The company appears to be slowly on its way up too, having gained almost 75% since its 2020 lows.

Today, Berkshire would be enjoying the 4.13% dividend yield that Kraft Heinz stock currently offers. The closest ASX equivalent to this food giant is probably Bega Cheese Ltd (ASX: BGA). Not only does Bega have a popular range of Australian food products, including Vegemite, but its portfolio of drink brands (including Dare, Vitasoy, and The Juice Brothers) also gives it some semblance to another Buffett favourite, Coca-Cola Company.

Bank of America Corp (NYSE: BAC)

Buffett has long loved bank stocks, but Bank of America remains Berkshire's only holding as of today. Bank of America is one of the most dominant financial institutions in the United States and the world, only behind JP Morgan Chase.

This one provides an easy comparison. The ASX's equivalent to his investment would probably have to be Commonwealth Bank of Australia (ASX: CBA), which is generally regarded as the ASX's highest-quality bank share. Another option could be the second largest ASX bank, National Australia Bank Ltd (ASX: NAB).

ASX investors might be grateful that both CBA's and NAB's dividend yields come in far ahead of BoA though. Right now, CBA shares are offering a fully franked yield of 4.27%, and NAB, 6.15%. That looks pretty good against Bank of America's 3.13%.

Chevron Corporation (NYSE: CVX)

Buffett clearly loves oil stocks, with both Chevron and Occidental Petroleum forming large chunks of Berkshire's portfolio at present. Chevron is a famous US dividend stock. It is even a rare dividend aristocrat, having increased its annual dividend payments every year for 36 years.

Perhaps Buffett's pick of the ASX oil shares would be Woodside Energy Group Ltd (ASX: WDS). Woodside is the clear market leader when it comes to ASX oil stocks, thanks to its blockbuster merger with the petroleum division of BHP Group Ltd (ASX: BHP) last year. This merger made the company the seventh largest on the S&P/ASX 200 Index (ASX: XJO).

Although Woodside can't boast of such an impressive divided streak as Chevron, it still smashes the yield you can get on Chevron stock today. Chevron currently offers a dividend yield of 3.84%, which pales in comparison to Woodside's fully franked 10.72% trailing yield.

The post 3 high-yield dividend stocks Warren Buffett owns (and 3 similar on the ASX) appeared first on The Motley Fool Australia.

We are very fortunate to be able to get a comprehensive look at Warren Buffett's investments every three months. That's because his investment house, Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) is a publically traded company that has to disclose its investments every quarter.

So to kick things off, let's take a look at the current top ten investments of Berkshire Hathaway, according to CNBC's Buffett portfolio tracker:

1. Apple Inc (NASDAQ: AAPL), at 47% of Berkshire's portfolio
2. Bank of America Corp (NYSE: BAC) at 8.3%
3. Coca-Cola Co (NYSE: KO) at 7.5%
4. American Express Company (NYSE: AXP) at 6.7%
5. Chevron Corporation (NYSE: CVX) at 6.2%
6. Kraft Heinz Co (NASDAQ: KHC) at 3.9%
7. Occidental Petroleum Corporation (NYSE: OXY) at 3.6%
8. Moody's Corp (NYSE: MCO) at 2.3%
9. Activision Blizzard Inc (NASDAQ: AVTI) at 1.2%
10. HP Inc (NYSE: HPQ) at 1.1%

So a rather interesting and somewhat eclectic collection of investments there.

How to invest, Berkshire Hathaway style

What immediately stands out is Berkshire's massive stake in Apple. At 47% of Berkshire's entire portfolio, it's clear that Buffett has chosen this company as its ride-or-die stock. And it's not hard to see why. Apple indisputably possesses one of the best brands on the planet. The company and its management are of the highest calibre and have shown a consistent ability to generate monstrous profits for decades now.

The other investments are worth analysing on their own merits though. Bank of America, American Express, and Moody's are all financial stocks. Chevron and Occidental are both oil shares. Coca-Cola needs no explanation and nor does food behemoth, Kraft Heinz. Activision Blizzard is a gaming giant behind names like Call of Duty and World of Warcraft. And HP Inc is the office supplies company most of us would be familiar with.

So how would Buffett invest $5,000 in ASX shares today if he could? It's difficult to compare the ASX and US markets, seeing as we simply don't house the same kinds of world-dominating companies that America does.

But let's give it a go anyway.

If I were to deploy $5,000 into ASX shares to try to replicate a Buffett portfolio, here's what I would do.

Building a $5,000 ASX share portfolio like Buffett

I would start with $1,000 in Commonwealth Bank of Australia (ASX: CBA) shares. CBA is Australia's largest bank and shares many of the same characteristics as Bank of America. CBA also provides popular credit products, a la American Express, and provides other financial services for ASX bankers and investors, although not quite in the same manner as Moody's.

But I, and many other analysts, regard CBA as the ASX's best-run bank, and I think that it would be Buffett's pick on the ASX.

Another $1,000 would go into Woodside Energy Group Ltd (ASX: WDS) shares. Woodside is the ASX's largest oil and gas producer, and shares similarities with Occidental and Chevron in this regard. Buffett is clearly bullish on energy right now, and I think Woodside would be a strong contender for energy exposure on the ASX.

Bega Cheese Ltd (ASX: BGA) could be a nice local substitute for Kraft Heinz. Bega's dairy products and nut spreads are popular here in Australia, and provide similar exposure to the kinds of defensive consumer sales products as Kraft Heinz. So there's another $1,000 gone.

With the final $2000, I would invest in the iShares S&P 500 ETF (ASX: IVV). For one, Buffett has often touted the benefits of investing in a low-cost S&P 500 index fund, which the IVV ETF most certainly is.

However, the primary reason I have chosen this ETF is that it gives us ASX investors an easy way to invest in many of those top Buffett holdings ourselves. Buffett's top investment, Apple, is also the largest holding in the iShares S&P 500 ETF with a 7.4% weighting. Berkshire Hathaway itself is number six, while Chevron, Coca-Cola, and Bank of America are also weighted towards the top of the pile.

Foolish takeaway

That's how I think Warren Buffett would build a $5,000 ASX share portfolio here on the ASX today. I don't claim to speak for the great man, of course. But I think this is the closest way that ASX shares can reflect the intentions of what Buffett has done with his own holdings.

The post How to invest $5,000 in ASX shares today like Warren Buffett might appeared first on The Motley Fool Australia.

Luckily for us, his stock selections are public knowledge because the investment company he runs, Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B), is listed. So, we get regular updates on his holdings.

Here are Buffett's top 10 stocks by value, according to Berkshire Hathaway's FY22 full-year results released in February.

Top 10 stocks that Warren Buffett owns

What are the lessons for investors buying ASX 200 stocks? 

Buy large-cap ASX 200 stocks

Buffett's top 10 holdings are full of multi-billion-dollar global companies that own household-name brands.

Obviously, he's extremely positive on Apple given the almost 40% allocation of his total portfolio!

He refers to Apple as Berkshire Hathaway's "third-largest business" after its wholly-owned insurance and railroad companies. He reckons Apple is "probably the best business I know in the world".

You could also say he's in love with Bank of America, Chevron, and American Express, given they and Apple together comprise an astonishing 68% of the investment pie!

Large-cap companies are typically industry giants with large valuations (or market capitalisations). Their sheer size is a big factor enabling them to weather all types of economic conditions.

This means safety and stability for the investor.

As mature companies, their share price growth may be limited unless they are in rapidly growing and evolving industries, such as technology (like Apple), or have a global market for their products (also like Apple).

The trade-off in the limited share price growth is strong, reliable, and regular dividends. This makes them a favourite choice among income investors and those who want lower-risk investments.

Fun fact: Buffett's Coca-Cola investment returns $704 million in annual dividends.

The three biggest large-cap ASX 200 stocks available to investors are BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), and CSL Limited (ASX: CSL). 

Buy and hold high-quality businesses for the long term

Buffett is a value investor, meaning he targets high-quality businesses and buys them when they are trading below their intrinsic worth or book value.

He also describes himself as a "business picker" rather than a "stock picker".

That means he uses fundamental analysis to get a real understanding of the companies he is considering buying, and to keep tabs on the ones he already owns. He spends most days in his office reading.

Buffett buys long, which means he's patient. He doesn't get caught up in the day-to-day price movements of his investments based on announcements with short-term share price ramifications.

Buffett's strategy means he has fun in both bear markets and bull markets. How smart is that?

Bear markets provide opportunities to buy below value, and bull markets power up those share prices.

A few examples of long-term holds within Buffett's top 10 stocks are Bank of America, which he first purchased in 2011, American Express (1964), Moody's (2000), and Coca-Cola (1988).

He bought Coca-Cola just months after the Black Monday 1987 market crash. He saw an opportunity to nab a high-quality business while the share price was down, and he went hard too — putting $1 billion into the stock. That's a big number today, let alone back in 1988!

There's also a lesson in moving with the times and adapting your investments in accordance with general business and societal trends, such as the rise of technology.

Buffett first bought Apple in 2016 and Activation Blizzard in 2021. Apple is the biggest US tech stock and Activation Blizzard is in the top 30.

The biggest ASX 200 information technology stocks are WiseTech Global Ltd (ASX: WTC) and Xero Limited (ASX: XRO). But they're babies in size compared to the big US tech stocks.

Keep cash on hand for opportunities

As we covered last month, Buffett moved US$23.3 billion (A$35 billion) from the market into cash between 30 June and 31 December 2022.

Berkshire Hathaway went into 2023 with cash, cash equivalents, and treasury securities (bonds) worth US$128.7 billion.

In his annual newsletter released in February, Buffett explained:

As for the future, Berkshire will always hold a boatload of cash and U.S. Treasury bills along with a wide array of businesses.

We will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses.

Spare cash means you can enjoy some satisfying dollar-cost averaging on ASX 200 stocks when the market is down.

Let's talk about diversification

In total, Buffett has 49 stocks in his portfolio, which sounds like a lot. But it's not when you look at the enormity of the whole pie (about US$340 billion).

In short, he's got huge sums invested in each of those 49 stocks. Using the top 10 as an example, if one of those companies goes bust, he'll lose billions. That's probably why they're all large caps. The likelihood of a large cap going under is incredibly small, so perhaps that's why Buffett feels safe to invest big.

Things look a little different when you're an ordinary investor with, say, $50,000 in ASX 200 stocks. You can't really afford to make mistakes and not having a diversified portfolio is a huge one for us.

We should point out that Buffett has good diversification across different industries.

Diversification is important because it gives you safety. The more ASX 200 stocks you hold and the more industries you are exposed to, the lesser your risk.

We don't know what is around the corner. Imagine holding a portfolio full of travel stocks in early 2020.

A quick way of ensuring you have great diversification is not to bother trying to pick ASX 200 stocks at all. Instead, take Buffett's advice and buy a low-cost S&P 500 index fund instead.

That's his key recommendation for ordinary investors looking to set themselves up for retirement.

The S&P/ASX 200 Index (ASX: XJO) closed the session yesterday at 7,362.2 points, down 0.05%.

The post Which stocks does Warren Buffett own (and what can ASX 200 investors learn from this)? appeared first on The Motley Fool Australia.

These could be themes like lithium production, electric vehicles, or the ageing population.

But one expert has warned that investing in mega-trends is a trap that could lose you significant amounts of money.

US financial expert and buy-and-hold advocate Brian Feroldi took the example of meat substitutes as an example in his newsletter.

"Last year, global sales of plant-based meat rose 31% to more than $10 billion, according to Statista. Over the next five years, that figure is expected to triple," he said.

"This is clearly a mega-trend in the making."

However, the winners from such explosive growth aren't always investors.

"In the case of plant-based meat, consumers and society are most likely to reap the bulk of the rewards," said Feroldi.

"That's because we don't see any discernible moat — or sustainable competitive advantage — for the largest players."

The fake meat business is booming, but are investors cashing in?

Take a look at one of the pioneers, Beyond Meat Inc (NASDAQ: BYND).

As a first-mover in the industry, investors went crazy for the shares after the company listed in 2019. Within the first few months, the share price went from the US$60s to the US$230s. 

This is the sustainable future in a world craving better health and feeding a massive population, thought shareholders.

And that sentiment is still likely true, with more and more people consuming meat substitutes each year.

But now the Beyond Meat stock price is languishing around US$16.

Why? Because larger, deep-pocketed competitors joined the plant-based meat market when they saw how lucrative the business is.

"Scores of rivals like Tyson Foods Inc (NYSE: TSN), Kraft Heinz Co (NASDAQ: KHC), and Conagra Brands Inc (NYSE: CAG) have started offering plant-based meats of their own at cheaper prices," said Feroldi.

"When that happens, gross margins — the price a burger sells for minus what it cost to make — contract."

Feroldi presented the deterioration in Beyond Margin's gross margins in black-and-white:

"That's right, the company has been forced to slash prices so much it is losing money with each sale."

And that's why a business' moat matters much more than trends.

A company could be in the most exciting growth field in the history of humankind, but if everyone else can easily pile on then investors will lose.

"Before you run out [and] invest in the next mega-trend, ask yourself: what's this company's moat?" said Feroldi.

"Without that moat protecting profits, it's just a matter of time before competitors show up to drive down prices. And when that happens, it is consumers — not investors — that stand to benefit the most."

The post Mega-trends don't make you rich: Why moats matter in investing appeared first on The Motley Fool Australia.

Warren Buffett is one of the greatest investors of our time and his company Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), regularly beats the S&P 500, a broader benchmark for the market, on annual performance. One of the ways Buffett and Berkshire are able to do so is through Berkshire's massive $345 billion equities portfolio, from which Buffett and the rest of his team purchase and sell select stocks.

Buffett has long been known as a value investor. He tries to find stocks that are trading below their intrinsic value and that the market missed or simply ignored. Over time, value investors believe these stocks will appreciate nicely as the market wakes up and takes notice.

Considering how successful Buffett has been with this strategy, let's look at five value stocks the Oracle of Omaha currently owns and see if they have helped his business succeed.

1. HP

Known as the original start-up out of Silicon Valley, HP (NYSE: HPE) has been making computers and printers for decades. While the company may not be seen as the innovator it once was, HP has become a stock that traditional investors have warmed up to for the basic reason that it prints plenty of cash profits and uses that to pay shareholders.

For fiscal 2022, HP is projecting free cash flow of between $3.2 billion and $3.7 billion. The company is also on track to return more than $5 billion to shareholders through dividends and share repurchases in the current fiscal year. With an annual dividend yield of close to 3.4%, HP stock trades at just over five times earnings.

2. Citigroup

After investing in nearly every other large US bank over the past few decades, Buffett and Berkshire purchased a nearly 3% stake in the embattled bank Citigroup (NYSE: C) earlier this year. Citigroup is an obvious value play, with its stock trading at just 60% of its tangible book value, or net worth. Shareholders are right to question the stock at the moment after the company has been dealing with regulatory issues regarding its risk management and internal controls, and after years of lagging returns.

But now, CEO Jane Fraser, who took over Citigroup in early 2021, commenced a big transformation plan which includes selling off most of the bank's international consumer banking operations. This will make the bank simpler and focus on higher-performing businesses. Citigroup still has a lot of work to do, but if management can clean up the regulatory issues and create a more focused operation, getting back to full tangible book value should be quite doable. While Buffett waits, Citigroup is paying an annual dividend yield in excess of 4%.

3. Kraft Heinz

The multinational food and beverage company Kraft Heinz (NASDAQ: KHC) is often referred to as Buffett's biggest mistake. Berkshire teamed up with 3G Capital in 2013 to purchase Heinz for $23 billion. They would eventually merge the company with Kraft in 2015, at which time shares opened around $71.

Today, shares sit at $38, so Berkshire has lost a good deal of money on the investment. Still, Berkshire continues to own more than 26% of the company. Kraft Heinz still has nearly $19.3 billion of long-term debt, but management made some serious progress in reducing that debt, grew free cash flow in recent years, and it also pays more than a 3% dividend yield.

4. Ally Financial

The large digital consumer bank Ally Financial (NYSE: ALLY), which specializes in auto lending, is another bank Buffett is purchasing stock in while its below tangible book value, and which pays an extremely healthy dividend yield of roughly 4.6%. Ally took off during 2020 and 2021, as the chip shortage and lack of auto inventory led to high car prices and huge demand, particularly among vehicles, enabling Ally to strongly grow its retail auto loan book.

But investors are now concerned about loan losses as consumer finances get drained and as many expect a recession next year. Ally is still originating auto loans -- and at very high yields -- and management seems to be taking a conservative approach to credit. If loan losses don't exceed management's built-in expectations, then I'd suspect Berkshire has a winner here.

5. Jefferies Financial

Berkshire recently unveiled its small purchase of shares in investment bank Jefferies Financial (NYSE: JEF) during the third quarter. Similar to Citigroup and Ally, Jefferies also has an attractive valuation, trading just over tangible book value. The bank also pays out more than a 3% dividend yield.

The broader investment banking sector struggled this year, as equity and debt underwriting significantly slowed down in the face of falling equity valuations and market volatility. But Jefferies is reportedly gaining market share and Berkshire and Jefferies own a mortgage business together, so Berkshire likely got to know management pretty well.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Warren Buffett owns these 5 value stocks appeared first on The Motley Fool Australia.

A five-year chart of The Kraft Heinz (NASDAQ: KHC) stock offers a near-perfect reversed reflection of the S&P 500 index's performance over the same time frame. Share prices of the food product giant have declined nearly 57% over the last five years, underperforming the 46% gain from the index. But Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B) has held to its shares in the company throughout that half-decade.

Berkshire is one of the company's largest shareholders. As of March 2022, Berkshire owned 26.6% of Kraft Heinz. 

Why has Buffett continued to hold an underperforming stock? Well, for one thing, it's not like there haven't been any good reasons to sell. Here are a few things that went wrong following the merger between Kraft Foods and H.J. Heinz:

• Kraft saw its market share erode against the growth of private-label brands, leading to a decline in sales.
• In 2018, the company disclosed an SEC investigation into its accounting policies over supplier agreements.
• Kraft also cut its quarterly dividend to address more than $30 billion of long-term debt it held as of 2018. 

Most investors would have sold Kraft Heinz long ago, but not Buffett. In early 2019, Buffett told CNBC he would be happy to own the stock 10 years from now. 

Buffett has cut loose several stocks over the past several years that failed to perform to his expectations. He closed Berkshire's position in IBM in 2017, after he bought $10.8 billion worth of shares in the computer hardware maker in 2011. But there is clearly something about Kraft Heinz that he values. Let's look at three possible reasons why he has remained patient with this one.

1. Buffett likes to do business with people he trusts

Buffett admitted in 2019 he misjudged the competitive position of packaged food brands against Wal-mart Stores, Inc. (NYSE: WMT) and other retailers' efforts to promote their own private labels. That was a big reason why Kraft saw its sales and profits decline through 2019. 

However, Buffett went into the Kraft Heinz merger in 2015 with a valued partner. Berkshire and 3G Capital own a combined 42% of Kraft Heinz. Buffett has been friends with 3G founder Jorge Paulo Lemann for many years. He first met Lemann while serving on the board at Gillette before it was acquired by Procter & Gamble. 

3G Capital has a long record of doing deals across industries and improving performance at the businesses it controls. The Brazilian investment firm famously orchestrated the combination of Anheuser-Busch Inbev in 2008. Buffett has always believed in doing business with people you trust, and that certainly applies to his investment in Kraft Heinz.

2. Kraft has "very, very strong brands"

While certain Kraft brands, such as Oscar Mayer, Jell-O, and CapriSun, no longer have the competitive edges they did many years ago, brands like H.J. Heinz, Kraft Mac & Cheese, Lunchables, and Philadelphia cream cheese still generate strong sales. Buffett has called these "very, very strong brands." 

Indeed, these products have remained immune to the pull of private labels. Over the last three years, they delivered annualized growth in adjusted sales of 8%. 

3. Sales are growing under Kraft Heinz's new CEO

To turn things around starting, Kraft Heinz turned to 3G's farm team. In 2019, Kraft appoint former Anheuser-Busch Inbev's Chief Marketing Officer, Miguel Patricio, as CEO. The results have been outstanding.

Patricio sold off underperforming brands, made improvements to Kraft's packaging, marketing, and operating efficiency, and paid down debt. Not only have adjusted sales improved, but Kraft demonstrated excellent pricing power in this inflationary environment.

One reason Buffett favors investing in top brands is the ability to raise prices over time to offset the long-term erosion to shareholder returns caused by inflation. In the second quarter, Kraft reported a 10% year-over-year increase in adjusted sales, completely driven by higher selling prices. 

Kraft Heinz stock has outperformed the S&P 500 in 2022

Kraft appears to be finally performing to Buffett's expectations. Under Patricio, Kraft stock is up 28% since the end of June 2019, including dividend reinvestment. That puts Kraft stock just ahead of the S&P 500's 23.4% return over that three-year period. 

Kraft stock is outperforming the market year-to-date, down 6.6% compared to the S&P 500's decline of 23.3%. Given Kraft's improved business performance, Buffett probably won't be selling out anytime soon. 

It's not too late to buy Kraft Heinz stock. The business is positioned for more growth under Patricio. The stock also pays a dividend yield of 4.77%, and trades at a delicious price-to-earnings ratio of 12.6 based on this year's earnings estimates, which is a discount to the S&P 500's forward P/E of 17. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Warren Buffett loves this US stock appeared first on The Motley Fool Australia.

To repurpose an old television commercial: When Warren Buffett talks, people listen. Buffett is one of the world's richest billionaires and most successful investors. Much of the investment community follows his every move, looking to bring some of the Buffett magic into their own portfolios.

Buffett's moves are particularly interesting as the U.S. faces inflation plus fears of recession. Investors generally want safety in uncertain times. And Buffett, who's seen many flavors of recession, could shed light on where to find that safety.

But Buffett doesn't buy and sell stocks based on what's happening with the economy. He's an all-weather investor -- choosing stocks that can survive all economic climates. That may be why he has 10% of Berkshire Hathaway's portfolio invested in consumer staples, a sector that's known for being recession-resistant.

Consumer staples defined

Consumer staples are essential food, beverage, household, and personal products. Examples are soda, eggs, milk, toothpaste, and detergents.

Consumer staples companies include retailers and manufacturers of these products. On the retail side, you have Dollar General (NYSE: DG), Walmart (NYSE: WMT), Costco (NASDAQ: COST), and their competitors. Consumer staples manufacturers include Procter & Gamble (NYSE: PG), Coca-Cola (NYSE: KO), and Kimberly Clark (NYSE: KMB).

Why consumer staples stocks are recession-resistant

A look at your own buying habits can demonstrate why consumer staples stocks don't tank in recessions. With inflation running hot, where have you cut back to make ends meet? You're probably spending less on things like electronics and designer clothes. You may have even canceled a streaming service or two.

But you are still buying toilet paper, deodorant, and bread, even as the prices on these goods rise. On top of that, you may have shifted some shopping to discount retailers like Walmart, in lieu of your more expensive local market.

Here's what it comes down to. People keep buying their staples. Demand for these essential goods doesn't drop off when the economy goes sideways.

Buffett's consumer staples stocks

Berkshire Hathaway owns five consumer staples stocks:

1. Coca-Cola
2. Kraft Heinz (NASDAQ: KHC)
3. Kroger (NYSE: KR)
4. Mondelez International (NASDAQ: MDLZ)
5. Procter & Gamble

Where to find consumer staples stocks for your portfolio

Buffett's consumer staples portfolio is interesting, but you don't want to run out and copy it. Even Buffett himself would tell you: A better approach is to invest in what you know -- specifically, the products, brands, and retailers that are essential to you.

This is easy to figure out, too. Look at your last grocery receipt. Cross off everything that's nonessential and see what's left. Or peek into your pantry and bathroom cabinets. Note the brands you buy repeatedly. It could be Colgate or Charmin, for example. If you see mostly generic goods, then where are you buying them?

You could also think back to the products that kept selling out during the Great Lockdown of 2020. (In my community, it was toilet paper, disinfectants, and chicken.) People stockpile the stuff they can't live without. And many of these staples are made or sold by public companies.

Spend a few minutes on this exercise, and it could reveal six or more recession-resistant stocks to consider for your own portfolio.

Recession defense, the Buffett way

Many investors use consumer staples stocks as a defensive strategy against recession. To follow Buffett's approach, though, you'd invest in defensive stocks you're willing to hold for decades. That's different from owning shares of Coke or Walmart temporarily because financial pundits are predicting recession.

In other words, play defense consistently. Manage to a risk level you can handle in all investing climates. Buffett has 10% exposure to consumer staples, for example, but you might prefer 5% or 15%. Whatever your number is, stick with it. That way, you won't be scrambling to adjust to every market shift. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Warren Buffett has 10% of Berkshire Hathaway's portfolio in this recession-resistant sector appeared first on The Motley Fool Australia.

Buffett's biggest position

Betting on banks

These businesses are tasty

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Here are Warren Buffett's biggest stock picks appeared first on The Motley Fool Australia.

The dairy and food manufacturer's share price finished the day up by 0.86% at $5.85.

Going nuts over labelling

It's been a long road for Bega but it appears to be the end of Kraft's tantrum. It all began when ASX-listed Bega Cheese acquired the peanut butter business from Mondelez Australia in 2017.

While the acquisition itself posed no issues, the labelling of the peanut butter jars did – well, Kraft Heinz thought so. See, branding is everything and the iconic yellow label and lid of Kraft looked very similar to what Bega acquired.

Four years seems to have been enough for Kraft to concede. Judgements handed down during the past twelve months have all ruled in Bega's favour. These judgements confirmed the Aussie company had the right to use the current packaging for its smooth and crunchy peanut butter.

However, today's announcement says Kraft has entered a confidential settlement regarding the issues of monetary relief and legal costs payable in respect of the proceedings. As part of the settlement, the US giant will pay $9.25 million.

Furthermore, all legal proceedings will be discontinued once Bega receives the payment. Kraft shouldn't have any problems with coughing up $9.25 million. Over the last 12 months, the company has made US$541 million in earnings.

How has the Bega share price been doing?

Unfortunately for Bega shareholders, the cheesemaker has underperformed the S&P/ASX 200 Index (ASX: XJO) in the last year. While the benchmark returned a mighty 22.2%, Bega climbed 16.17%. Still, that's not a bad return, especially when dividends are factored in — taking it to around 18%.

However, the dairy food producer has had a rough couple of months. The Bega share price is down more than 10% since 21 April 2021. That's when the company disclosed that an agreement had been terminated, removing access to a spray dryer and finishing plant it had sold in 2017.

The post Kraft to cough up $9.25m to Bega Cheese (ASX: BGA) over peanut label appeared first on The Motley Fool Australia.