5 Warren Buffett stocks to buy and never sell
When Berkshire Hathaway (BRK.A -0.81%) (BRK.B -0.62%) CEO Warren Buffett buys or sells shares of a company, investors wisely pay attention. That’s because the Oracle of Omaha has generated an eye-popping 3,641,613% total return for its Class A (BRK.A) shareholders since taking over the reins of Berkshire Hathaway more than 57 years ago. year.
Given Buffett’s penchant for buying high-quality stocks and sticking to them for the long term, riding in the wake of the Oracle of Omaha has proven to be quite profitable for decades. It’s a particularly good time for investors to buy Buffett shares, with the S&P500 and Nasdaq Compound plunge into a bear market.
Here are five Warren Buffett stocks that investors can buy with confidence now and never have to sell.
The first Buffett stock that can be bought without investors losing sleep is the e-commerce leader Amazon (AMZN -1.77%). Although Amazon’s main online marketplace is likely to experience weakness during recessions, this revenue segment is not key to the company potentially tripling its operating cash flow over the next four years. .
Even though Amazon is estimated to bring nearly 40% of all U.S. online retail sales in 2022, it’s the company’s higher-margin ancillary operating segments that are driving its profitability and flows. cash. For example, Amazon’s marketplace popularity has helped the company recruit more than 200 million Prime members globally. Amazon generates about $35 billion in annual sales from subscription services, allowing it to reinvest in its extensive logistics network and other high-growth initiatives.
The other heavyweight is the Amazon Web Services (AWS) cloud infrastructure services segment. According to a recent Canalys report, AWS reported around 31% of cloud service spend during the second quarter. Even though AWS accounts for just one-sixth of Amazon’s net sales, it has still produced more than half of the company’s operating profit. With cloud growth still in its infancy and AWS accounting for a larger percentage of total Amazon sales, the company looks cheaper than ever, relative to its future cash flow generation potential.
The second Warren Buffett stock investors can buy and never have to consider selling is the payment processor Visa (V -2.03%). Despite being cyclical, Visa’s enduring competitive advantages make it an easy stock to hold over the long term.
For starters, Visa accounted for 54% of the U.S. credit card network’s purchase volume in 2020. The U.S. is the world’s largest consumer market and Visa holds a 31 percentage point lead over its closest competitor. . To boot, it’s the only payment processor that significantly expanded its share of the US processing market after the Great Recession (2007-2009).
To add to the above, the vast majority of global transactions are still conducted in cash. This should give Visa ample opportunity to grow organically in underbanked markets, such as the Middle East, Africa and Southeast Asia, and make acquisitions to expand its reach. .
It should also be noted that Visa does not act as a lender. By focusing solely on payment processing, Visa does not have to worry about potential loan payment delays and therefore is not required to set aside capital to cover potential loan losses. This is one of the main reasons Visa’s profit margin is typically at or above 50%.
A third Warren Buffett stock to buy and never sell is the Detroit auto giant General Engines (GM 0.10%). Although economic weakness and historically high inflation threaten to undermine auto sales in the near term, the long-awaited growth catalyst for General Motors has arrived.
The electrification of automobiles for individuals and corporate fleets is the decades-long opportunity the automotive industry has been waiting for. As most developed countries seek to reduce their carbon footprint, electric vehicles (EVs) are seen as a sustainable growth story.
General Motors plans to spend $35 billion on electric vehicle, self-driving vehicle and battery research by mid-decade. According to CEO Mary Barra, GM is expected to roll out 30 new electric vehicles by the end of 2025. The company is expected to have two fully dedicated and operational battery factories by the end of next year. , with more than one million electric vehicles produced every year. in North America in 2025.
Additionally, GM has a significant presence in China, the world’s largest automotive market. General Motors has sold 2.9 million vehicles in consecutive years in China and should have a chance to gobble up market share in China’s still nascent electric vehicle industry.
Bank of America
Warren Buffett’s fourth stock that can be bought on the fist and never sold is a financial juggernaut Bank of America (BAC 1.89%). To stay within the dominant theme of this list, short-term recession concerns should trump BofA’s many long-term benefits.
The beauty of bank stocks is that they benefit from the natural expansion of the US economy. The disproportionate amount of time the economy spends expanding, relative to contracting, allows Bank of America to grow its loan portfolio and deposits, which increases its long-term net interest income.
Another thing to note about Bank of America is that it is the most interest rate sensitive monetary central bank. With the Federal Reserve aggressively raising interest rates to keep inflation under control, ongoing variable rate loans are becoming more profitable for banks and credit unions without them having to lift a proverbial finger. Given that the target federal funds rate has just experienced an extended period where it was effectively at 0%, the implication is that BofA can expect a significant increase in net interest income in the years to come.
It is also a company that has done a phenomenal job of encouraging its customers to do digital banking. By the end of June, 43 million active users were banking online or via mobile, with 48% of all sales occurring digitally. Since digital transactions are considerably cheaper than in-person and telephone interactions for banks, this digital push has allowed BofA to consolidate some of its physical branches and reduce its non-interest expenses.
The fifth and final Warren Buffett stock you can buy and never sell is (tongue-in-cheek music)… Berkshire Hathaway. In the past four years, there is no action that Warren Buffett has spent more money buying than his own company.
What makes Berkshire Hathaway such a strong performer is Buffett’s affinity for cyclical businesses and his love of dividend-paying stocks.
As I’ve emphasized throughout this list, cyclical companies benefit from the considerably longer time the US and global economy spends developing. Instead of trying to guess when these economic downturns will occur, Buffett has filled Berkshire Hathaway’s investment portfolio with companies that thrive on the natural growth of US and global gross domestic product over time. Technology stocks, financial stocks (banks, insurers and payment processors) and energy stocks (oil companies) all benefit enormously from prolonged bull markets.
Additionally, Berkshire Hathaway is on track to collect approximately $6.07 billion in dividend income over the next 12 months. Income stocks are generally profitable, have weathered previous recessions, and offer a long history of outperforming their non-paying peers.
With Warren Buffett overseeing an average annual return of 20.1% for his company’s Class A shares over the past 57 years (ending Dec. 31, 2021), investors probably can’t go wrong adding Berkshire Hathaway to their own wallets.