What stocks would Warren Buffet pick now?

How to optimize your earnings? And tooling yourself to make better investments.

Welcome to the third edition of the Gist by AskFinny, where we’re sharing tips on optimizing your after-tax earnings, Warren-Buffett-style stock picks and comparing different funds you could invest in.  In our second post, we shared tips on high-yield CDs, bargain stocks, and finding that ETF or mutual fund you’ve been looking for.  If you missed it, read it here.  

The Gist comes to your Inbox once a week.  If any of this is useful to you, please invite your family and friends to join the community here. Keep in mind, the following content is not financial advice and does not contain any security or product purchase recommendations. 

You can also ask us any finance or investment question privately by visiting  AskFinny.com.  We will share the most insightful questions and answers with our Gist audience.  

In this edition, you’ll find out about: 

  1. Why should you donate stocks rather than cash?

  2. What would be Warren-Buffet-style stock picks in today’s market?  

  3. How to compare different ETFs and mutual funds--in a very simple way? 

So let’s start with the summary of our findings.

Summary

1. You could get a larger tax benefit by donating stock vs. cash (assuming your stocks grew in value), because you don’t have to pay capital gains taxes on donated stocks.  Here is an illustrative example. 

Courtesy of Fidelity Investments.  

2.  We screened stocks comparably to how Warren Buffet would screen them--searching for stocks with solid economic moats and cash flows.  Here are the stocks that pass the screen:  

You can also always ask Finny for “top stocks” by visiting AskFinny.com and typing “top stocks”.  We update the selection weekly. Keep in mind, this is not a recommendation to buy any of these stocks--it’s just the output of our unbiased analysis.    

3.  The quickest way to compare different ETFs or mutual funds is to use Finny and compare symbols, such as “VWO vs IEMG vs SCHE” (in this case, we compared the top emerging market ETFs).  Here is the output:   

Now let’s expand on this and share with you our detailed thinking. 

Deep Dive 

1. Donating appreciated stock is one of the most effective ways to give more to causes you care about.  But why should you choose stock over cash?  

Here are two key reasons you should give stock donation a try:

  • By donating appreciated stock, you could actually donate up to 20 percent more than if you sold the stock and then made a cash donation. The reason is simple: avoiding capital gains taxes.

  • You can offset capital gains taxes.  Consider donating some of your appreciated shares and then buying new shares to reset your cost basis at the current, higher price. This will reduce your future capital gains tax exposure if the stock continues to grow in value.

2/ What stocks in today’s market would meet Warren Buffet selection criteria?  

When selecting stocks, Warren Buffet looks for companies with strong competitive advantages (economic moats). Below we’re showing you Warren-Buffet-like investments: companies with strong moats,  positive free cash flows and good returns on capital.  Be sure to research those stocks further before making an investment. 

Here are the top picks:   

  • Baidu (BIDU) is the Google of China.  It’s a powerful internet giant sitting on a cash pile, and has ample funding to invest in technologies such as autonomous driving and artificial intelligence.  

  • Nordstrom (JWN) is a powerful brand. Although it has some catch-up work to do in the e-commerce space, membership in Nordstrom’s loyalty club is going super strong, and the brand continues to be viewed as premium.

  • Marathon Petroleum (MPC) is the dominant player in the petroleum market.  With the acquisition of Andeavor last year, Marathon is committed to fully integrating the company's operations and improving its earnings.

Of course there are other stocks with strong moats and good returns on capital, such as Alibaba (BABA), AT&T (T), Altria (MO) and 3M (MMM), but the ones we listed above are attractively priced relative to their price range in the last year. 

3.  Now that the US and some other developed markets are at the top of the 52-week price range, some investors are taking another look at emerging market ETFs.

We’ve compared three of the most popular emerging markets ETFs:

By popular, we mean ETFs that have considerable assets, but we also screened for cost (we prefer ETFs with low expense ratios).  We also made sure we have representation by different ETF issuers: BlackRock, Schwab and Vanguard.  

In this example we’re highlighting how to compare like investment options--funds addressing the same or similar market opportunities.  At AskFinny, type “Fund1 vs Fund2” to see the comparison results (Fund1 and Fund2 are ETF or mutual fund symbols).    

The three funds are slightly different in scope.  IEMG and SCHE primarily focus on emerging markets, while VXUS covers both emerging and developed markets outside the United States. 

That’s it for this edition.  What would you like to hear about in our next Gist?  Ask us a question here.

The AskFinny Team