2 Warren Buffett Stocks to Buy Now and Hold Forever
When it comes to following famous investors, track records matter. After 57 years as CEO of Berkshire Hathaway (BRK.A -2.76%)(BRK.B -3.02%), Warren Buffett’s track record is about as long as they get. It’s also, quite possibly, the most successful investment record in history.
When Buffett took the helm in 1965, Berkshire Hathaway was trading for just $19 per share. Berkshire’s Class A shares (BRK.A) have been trading at an eye-popping $478,670 lately. From 1965 through the end of 2021, shares of the sprawling conglomerate generated a compound annual return of 20.1% compared to just 10.5% for the benchmark S&P 500 index.
Riding on Buffett’s coattails has been a successful strategy for longer than most of us have been alive. Clearly, paying attention to Berkshire Hathaway’s disclosures can pay off well for patient investors.
Apple (AAPL -3.86%) is easily the largest holding in Berkshire’s portfolio. Buffett is famously uncomfortable with tech stocks, but he gladly tells anyone who will listen that Apple is a favorite thanks to some impenetrable competitive advantages.
The iPhone has been the single most popular handheld device since it launched in 2007. It’s still in a league of its own thanks to an operating system the company doesn’t allow other manufacturers to access the way Alphabet licenses Android.
The pricing power Apple enjoys on its devices is significant, but it isn’t going to be the company’s main source of profits in the years ahead. Buffett can’t get enough of Apple right now because he expects its services segment to continue growing at a strong pace for many years to come. During the fiscal second quarter ended March 26, 2022, services revenue grew 17% year over year to $19.8 billion.
If you’re holding one of more than 1 billion active iPhones at the moment, and you initially subscribed to an application through the App Store, Apple most likely keeps between 15% and 30% of your subscription fees. Apple generates revenue from more services than its App Store and it runs them well. For example, Apple TV+ recently beat Netflix to become the first streaming service to win an Academy Award for Best Picture.
Buffett also adores Apple’s commitment to returning its profits to shareholders. In April, Apple’s board of directors raised its repurchase program by $90 billion and the company also nudged its quarterly cash dividend 4.5% higher. During the first half of fiscal 2022, the company bought and retired $43 billion worth of its own stock. With a new $90 billion authorization, this pace could accelerate.
In 2019, Berkshire Hathaway began accumulating Amazon.com (AMZN -5.60%) shares. The stock shot higher during the early days of the pandemic, but it’s been beaten down by around 41% from the peak it reached last summer. Heavy investment in fulfillment services that were necessary to meet exploding demand in 2020 and 2021 led to a net loss of $3.8 billion in the first quarter of 2022.
At just 0.4% of the overall portfolio, Berkshire’s Amazon stake is a relatively minor one. In the months ahead, though, I expect to the size of this stake to increase significantly. According to the U.S. Census Bureau, e-commerce accounted for less than 15% of total retail sales during the first quarter, giving Amazon’s consumer business plenty of room to grow.
Amazon’s greatest strength is its ability to turn challenges into successful new businesses. For example, the company had to invest heavily in internet infrastructure to run its online shopping business. Instead of chafing at its own expenses, the company leaned in and later launched Amazon Web Services (AWS) in 2006. Now, AWS is the company’s most profitable segment. Sales from AWS in the first quarter soared 37% year over year to $18.4 billion, $6.5 billion of which Amazon was able to report as operating income.
Amazon’s consumer business has been in its present position before. The big difference now is that the company is supported by positive cash flows from other parts of its increasingly diverse operation. With the means to support the consumer business on its path back to profitability, this is a great stock to buy and hold for the long run.