The Best Warren Buffett Stocks to Buy With $1,000 Right Now

If you are a relatively new investor looking to learn from experienced and successful investors, there's no better place to start than by looking at what Warren Buffett's Berkshire Hathaway is holding in its equity portfolio. Buffett is known for focusing on businesses that generate excellent returns on investment. He's also known for choosing businesses with solid moats around them.

With that in mind, let's looks at three of his holdings: consumer electronics titan Apple (NASDAQ: AAPL); engineered wood producer Louisiana-Pacific (NYSE: LPX); and Pool Corp. (NASDAQ: POOL), a distributor of swimming pool products. Here's why each is worth considering today.

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Image source: Getty Images.

Excellent return on investment

Buffett touches on the importance of return on investment in his 1992 annual letter to Berkshire Hathaway, noting that "growth benefits investors only when the business in point can invest at incremental returns that are enticing -- in other words, only when each dollar used to finance the growth creates over a dollar of long-term market value."

The best way to judge incremental returns on investment is by examining the return on invested capital (ROIC), a measure of the returns generated by capital invested by both equity and debt investors. All three companies generate excellent ROIC and have done so over an extended period.

AAPL Return on Invested Capital data by YCharts

Note, as Buffett does, that this is not just about generating profit growth by chasing revenue growth. Instead, it's about consistently ensuring that investing capital results in profitable growth. Only if the latter is in place does it make sense for companies to invest in growth. The good news is that all three companies can do so.

That could be achieved through Apple investing in expanding its higher-margin services, or Louisiana-Pacific moving away from being a commodity provider of oriented strand board (OSB) toward higher-margin engineered wood siding and specialty OSB. Alternatively, it could be Pool Corp. adding new sales centers or consolidating a fragmented industry through acquisitions.

Good business moats

Buffett addressed this issue in his annual 2007 letter to shareholders. A truly great business must have an enduring "moat" that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business "castle" that is earning high returns.

One way to judge this is by looking at the consistency and level of a company's operating profit margin. Here again, all three stocks pass the test with flying colors.

AAPL Operating Margin (TTM) data by YCharts

Pool Corp.'s business moat comes from its dominant position in the wholesale market. Louisiana-Pacific has the weakest moat of the three, notably in its OSB business. Still, it does hold a leadership position in engineered wood siding and has the opportunity to win market share in siding over vinyl, wood, and fiber cement.

Stocks to buy?

The investment case for Apple rests on the company maintaining its leading position in mobile phones and other devices while growing margins through a relative shift in revenue toward services. As you can see above, its margin is improving and its ROIC remains excellent.

Pool Corp.'s margin and ROIC have dipped in recent years, but that comes down to a natural correction from the boom years of lockdowns, and 65% of its sales coming from maintenance and repair of pools. Long-term growth prospects look promising as new pools get added to the installed base every year.

Image source: Getty Images.

Louisiana-Pacific's margins and ROIC exhibit some volatility, which is understandable given the business's significant commodity costs. Still, it's on an upward trend, and if you believe engineered wood siding will continue gaining market share, its metrics will improve.

All told, all three stocks are excellent additions for a newbie investor to start out their investment journey by following Buffett's style of buying stocks.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.