Warren Buffett's best stocks of 2016 so far

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Five life lessons from Warren Buffett

Warren Buffett is among the best investors in stock market history, and millions of people follow his picks closely to try to find ideas for their own portfolios. Even though the overall stock market hasn't made much headway so far in 2016, the Oracle of Omaha has managed to include some solid year-to-date performers within his own holdings, as Buffett recently reported to the SEC on Form 13-F. In particular, four of Buffett's stocks have given investors strong double-digit returns in 2016, and shareholders want to know if the Buffett magic will continue. Let's take a look at these four top stocks from the Buffett list.

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Kinder Morgan, up 22%

Energy giant Kinder Morgan (NYSE: KMI) is one of the newer additions to Buffett's portfolio, with the Oracle revealing the pick in his 13-F filing for the fourth quarter of 2015. The company sports an unparalleled network of oil and natural gas pipelines and terminals as well as carbon-dioxide transport and storage, giving it competitive advantages over smaller rivals. Yet Kinder Morgan has seen its shares slump in response to energy price declines, despite the fact that its cash flow has stayed relatively constant.

In many investors' eyes, Kinder Morgan combines good value with lucrative income opportunities, as the stock pays a healthy dividend of almost 3%. With the company having just gotten federal approval to move forward with a plan to export liquefied natural gas, Kinder Morgan also has growth opportunities. That mix provides a timely buy opportunity, and even though some doubt whether Buffett himself authorized the purchase, Kinder Morgan is worth a closer look even after its recent run-up.

Kraft Heinz, up 19%

Food giant Kraft Heinz (NASDAQ: KHC) is a newly formed company, and Buffett's position stems from his purchase of Heinz alongside partner 3G Capital. The latest move upward follows a highly successful result from the merger of Heinz with Kraft. As Buffett described it, when you look at what he paid for Heinz and also consider the money used to pay Kraft shareholders a special dividend, his cost basis on his shares of Kraft Heinz shares was less than half their value even when the merger was first completed early last year.

Unfortunately, Buffett is about to get cashed out of another lucrative investment in Kraft Heinz. This month, the food company can redeem about $8 billion in preferred shares that Buffett owns, and given their 9% interest rate, it's almost certain that Kraft Heinz will do so. Nevertheless, Buffett will retain his common stock holding, and its nearly 20% gain this year points to the health of the company and its management under 3G.

Wal-Mart, up 17%

In contrast to the two picks above, Wal-Mart (NYSE: WMT) is a longtime Buffett pick. It has also been a source of funds for Buffett, who sold off some of his Wal-Mart shares recently in order to raise cash for other purchases that he considered to be more lucrative.

Much of the share-price gains in 2016 have come in the wake of solid performance in the company's first quarter, which included earnings that topped consensus forecasts by a dime per share. Interestingly, Wal-Mart has warned that profits could remain under pressure for some time, because the retailer is investing heavily in moves designed to boost longer-term prospects and keep competitors at bay. For now, shareholders are happy with Wal-Mart, but a full turnaround will take a lot longer to complete.

USG, up 17%

Gypsum wallboard maker USG (NYSE: USG) is another longtime Buffett holding. The company makes Sheetrock drywall and other building materials, such as ceiling tile, roofing, and insulation. Having boosted his position by investing in USG corporate debt during the financial crisis, Buffett has benefited from USG's recovery since the financial crisis.

This year, USG has responded favorably to the healthy U.S. economy, which has overcome global pressures that have held back construction and building activity throughout much of the rest of the world. With the company reporting increasing demand for its products in its most recent quarter, USG is still looking like a smart Buffett pick with long-term potential.

Buffett doesn't pay much attention to short-term results, so the fact that these four stocks are doing so well for him in 2016 won't really mean much to him. Yet these stocks are worth a closer look to see if you want to add them to your investment portfolio going forward.

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Warren Buffett's best stocks of 2016 so far
Warren Buffett speaks to the media during a press conference Monday, June 26, 2006 in New York. Buffet, the chairman of Berkshire Hathaway, recently announced his intention of giving 10 million shares of his company to charitable organizations, the majority going to the Bill and Melinda Gates Foundation. (AP Photo/Seth Wenig)
NEW YORK, UNITED STATES: California Governor Arnold Schwarzenegger (L) cofers with billionaire investor Warren Buffet (R) during a meeting with Wall Street investors at the Ritz Carlton hotel February 25, 2004 in New York City. AFP PHOTO/POOL/Kathy WILLENS (Photo credit should read KATHY WILLENS/AFP/Getty Images)
Investor Warren Buffet participates in the Treasury Conference on U.S. Capital Markets Competitiveness, Tuesday, March 13, 2007, at Georgetown University in Washington. (AP Photo/Gerald Herbert)
CLEVELAND - MARCH 25: Philanthropist Warren Buffet (C) wears a LeBron James Witness tee-shirt as he cheers for the Cleveland Cavaliers during a game against the Denver Nuggets March 25, 2007 at The Quicken Loans Arena in Cleveland, Ohio. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and/or using this Photograph, user is consenting to the terms and conditions of the Getty Images License Agreement. Mandatory Copyright Notice: Copyright 2007 NBAE (Photo by David Liam Kyle/NBAE via Getty Images)
** FILE ** In this May 21, 2008 file photo, U.S. Billionaire investor Warren Buffet speaks during a news conference in Madrid. Buffett's Berkshire Hathaway Inc. is investing at least $5 billion in Goldman Sachs Group Inc., Goldman announced Tuesday, Sept. 23, 2008. (AP Photo/Paul White, file)
Warren Buffet, chairman of Bershire Hathaway, arrives for the annual Allen & Co.'s media conference Wednesday, July 9, 2008, in Sun Valley, Idaho. (AP Photo/Douglas C. Pizac)
FILE - In this May 2, 2009 file photo, Warren Buffett, CEO of Berkshire Hathaway, right, waves to shareholders prior to the annual Berkshire Hathaway shareholders meeting in Omaha, Neb. Warren Buffet's Berkshire Hathaway said Tuesday, Nov. 3, 2009, it has agreed to buy Burlington Northern Santa Fe in a deal valuing the railroad at $34 billion.(AP Photo/Nati Harnik, file)
Warren Buffet heads to lunch after a morning session at the Sun Valley Inn for the 2011 Allen and Co. Sun Valley Conference, Thursday, July 7, 2011, in Sun Valley, Idaho. (AP Photo/Julie Jacobson)
Warren Buffett is interviewed in the White House Briefing Room in Washington, Monday, July 18, 2011, following his meeting with President Barack Obama. Obama met with members of the Giving Pledge including, Buffett and Bill and Melinda Gates, and others to receive and update on the program. (AP Photo/Pablo Martinez Monsivais)
Billionaire investor Warren Buffet at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Friday, July 13, 2012. (AP Photo/Paul Sakuma)
Warren Buffett, chairman of Berkshire Hathaway Inc., right, speaks to David Rubenstein, co-founder and managing director of the Carlyle Group, during the Economic Club of Washington dinner event in Washington, D.C., U.S., on Tuesday, June 5, 2012. Buffett said he doesn't expect another U.S. recession unless Europe's crisis spreads. Photographer: Andrew Harrer/Bloomberg via Getty Images
DETROIT, MI - SEPTEMBER 18: Billionaire investor Warren Buffett speaks at an event called, 'Detroit Homecoming' September 18, 2014 in Detroit, Michigan. The purpose of the invitation-only event of Detroit expatriats is to give the group a chance to reconnect, reinvest and reinvent with their hometown. The topic of Buffet's conversation was, 'Why I'm Bullish on Detroit.' (Photo by Bill Pugliano/Getty Images)
Warren E. Buffett, Chairman of the Board and Chief Executive Officer, Berkshire Hathaway Inc., participates in a NADA Automotive forum happening in conjunction with the New York International Auto Show, Tuesday, March 31, 2015, in New York. (AP Photo/Mary Altaffer)
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