Are These 2 New Warren Buffett Stocks Really Worth Buying? This is what analysts say

Last week concluded with a sudden market rally after October’s inflation data came in better than expected, but this week’s trading has been unpredictable. There is a certain amount of uncertainty here; investors want to buy, but inflation remains high and interest rates are still rising, making for a difficult economic environment.

But it’s been tough all year long, and that hasn’t stopped legendary billionaire investor Warren Buffett from spending a month stock shopping with his firm Berkshire Hathaway. Buffett has been buying up stocks despite inflation, and it’s worth taking a moment to consider exactly what he’s looking for when picking out a stock.

His main point, in almost every purchase, is to buy from a company that makes things. This is a long-standing policy of his, but it is becoming increasingly important in a period of inflation. Buffett believes that investors should buy into companies that make products that customers want or need to buy, regardless of price. These are the companies that will succeed even in an inflationary regime. As he puts it, if customers like or want the products, “it doesn’t matter what happened to the price point.”

So let’s check in at Berkshire Hathaway. According to the company’s most recent filings, Buffett has bought heavily into two stocks that appear under pressure. We ran them through the TipRanks database to see if Wall Street’s pundits agree with his selections. Let’s take a look at the results.

Taiwan Semiconductor Manufacturing (TSM)

We’ll start with Taiwan Semiconductor, a major company in one of Taiwan’s major industries. The island country is one of the world’s largest producers of semiconductor chips, and TSM is the largest of its chip companies – and one of the largest chip makers in the world. TSM doesn’t just make self-designed chips; it is also the world leader in contract chip manufacturing and acts as a foundry for other companies. The company has a market cap of more than $400 billion, even after a 33% drop in share price this year.

Semiconductor chips are big business and TSM saw total sales of $56.8 billion last year. So far this year, the company has seen year-over-year revenue growth in every quarter; the most recent report, for 3Q22, showed $20.2 billion on the top line, up 36% year-over-year. In terms of earnings, the company reported $1.79 per ADR unit, up from $1.08 billion in 3Q21, an increase of 66%. In addition, the company is steering to 4Q22 revenue of between $19.9 billion and $20.7 billion. Looking beyond the fourth quarter, however, TSMC expects customer inventory reductions to weigh on results in the first half of 2023.

TSM is committed to a strong cash return program for investors and pays a regular quarterly dividend. The company has not missed a single payment since 2004 and prides itself on never lowering its quarterly payment. Taking into account the exchange rates between Taiwan and US dollars, the dividend per US share can sometimes fluctuate. The final payment was declared at 44 cents per share (US currency); at this rate it works out at 2.2% on an annual basis.

This company combines two characteristics that Warren Buffett has always looked for: a necessary product and a reliable dividend. In his Q3 filings, Buffett disclosed a massive buy-in to TSM of more than 60 million shares. This stake is now worth $4.77 billion at the current share price.

Needham analyst Charles Shi agrees that TSM is a stock to buy because it offers “positive risk/reward”.

While a deep cut is expected in early 2023, Shi believes the company will find support in the form of better pricing. He writes: “We estimate that TSMC’s average wafer price will grow at a 23% annualized rate through 2023, including 6% price increases implemented across the board, with the rest of the growth coming from the mix shift to advanced nodes, powered through the 5nm ramp of all non-Apple Tier-1 customers and Apple’s 3nm ramp. The price increase will offset the decrease in units and pave the way for a ~10% growth year for TSMC.”

To that end, Shi TSM shares are rating a buy along with a $110 price target, indicating a potential for a 38% upside in the year ahead. (To view Shi’s track record, click here)

Overall, TSM has logged 4 recent analyst ratings, and they all agree: This is a stock to buy, earning it a unanimous Strong Buy consensus rating. The shares are priced at $79.45 and their $99.50 average target implies upside potential of 25% over a year. (See TSM stock forecast on TipRanks)

Louisiana Pacific Corporation (LPX)

The second “Buffett pick” we’ll look at is Louisiana-Pacific, a Tennessee-based building materials company. This company has a leading position in the world market for oriented strand boards and other composite wood construction and building products. LP markets its product line to builders, contractors and homeowners, and its current lineup includes wood products for siding, framing and paneling. LP offers a range of options and upgrades including fire resistance, weather resistance and insulation required in residential construction.

LP’s business may vary from quarter to quarter due to fluctuations in the housing industry caused by weather, mortgage rates and average home prices. That said, the company earned $852 million in net sales for 3Q22, down 36% from the same period last year. Adjusted earnings per share of $1.72 per share were sharply lower than the $3.87 reported in 3Q21, though it well beat the $1.50 forecast. The company has $482 million in cash at the end of the quarter.

Looking at the dividend, this company has been paying consistently since 1974. The current payment, announced in October for a December 1 payout, is set at 22 cents per common share. The annualized rate of 88 cents per share gives a modest return of 1.4%. The key to this is reliability.

Although the US homebuilding industry is under pressure from rising mortgage rates, homes are still being built – meaning LP’s unique products are still essential. Buffett gave a nod to that in the third quarter, buying 5,795,906 shares, a new position now valued at more than $360 million.

Is it a good buy? Seaport analyst Mark Weintraub believes so, arguing that this stock can reward a patient investor. He writes, “For those willing to look through it, we’d like to re-emphasize the following: (1) we believe LPX has a product-driven competitive advantage in Siding with more market share gains, especially in repair/remodeling, as well as product mix improvement moving forward; (2) the balance sheet remains strong, and (3) the valuation is undemanding relative to our sum-of-its-parts work In fact, if LPX’s assessment of the return potential of the newly announced Houlton expansion is sound, then the company is still in rapid value creation mode.”

Based on all of the factors above, Weintraub gives a buy rating to LPX stock, and his $72 price target implies ~16% one-year upside potential for the stock. (To view Weintraub’s track record, click here)

All in all, LPX currently has an average buy consensus score based on 3 buy and 1 hold and sell each. The average price target stands at $69.80 and suggests upside potential of ~13% over the next year. (See LPX Inventory Forecast on TipRanks)

To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock insights.

disclaimer: The opinions expressed in this article are solely those of the named analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.

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