“When we own parts of outstanding businesses with outstanding management, our favorite holding period is forever.”
–Warren Buffett, Berkshire HathawayLetter to shareholders from 1998
Warren Buffett has created incredible wealth for Berkshire Hathaway shareholders. It has been very inspiring to individual investors that he has done so – as he alluded to in his 1988 letter to shareholders – by focusing on investing in quality companies and holding them for the long term, without being disturbed by occasional market volatility.
Here are two stocks from Berkshire’s portfolio that can help you grow your savings for a richer retirement.
Berkshire has held an important position in Apple(NASDAQ:AAPL) since 2016. Despite recent stock sales, Buffett noted in early 2024 that Apple would likely remain Berkshire’s largest holding by the end of the year. In fact, Berkshire still owned 300 million shares of the iPhone maker at the end of the third quarter, with a market value of nearly $70 billion. By comparison, Berkshire’s next largest shareholding, American ExpressIt was worth 41 billion dollars.
In 2023, Buffett rated Apple better than any company Berkshire owns, and it’s easy to see why. Apple has a loyal and growing customer base, and many of the company’s customers own multiple devices. From January 2018 to early 2024, Apple’s active installed base of devices increased from 1.3 billion to 2.2 billion.
Apple continues to attract new customers around the world. In the most recent quarter, management reported that the active base hit another all-time high across all products and geographies.
This growth bodes well for the future of Apple’s services business, which generates much higher profit margins than sales of hardware products. Apple has focused on investing to expand the quality and variety of services in recent years, generating more than one billion paid subscriptions on the company’s platform, and this is helping to drive record revenue during a slow year for iPhone sales.
Apple’s revenue grew 2% in fiscal 2024 that ended in September to $391 billion, driven primarily by a 13% increase in services revenue. The introduction of Apple Intelligence could prompt more updates since it only runs on devices with a newer processor. This remains a key catalyst for improving growth as Apple integrates artificial intelligence (AI) features into its products and services.
The high margins that Apple generates from its products left the company with a huge net profit of $93 billion last year. Apple has plenty of resources to reinvest in new products and services to drive long-term growth. Stocks have become expensive over the past year, but if you initiate a position and the dollar cost averages over time, you should see solid returns.
Berkshire owned 10 million shares of Amazon(NASDAQ:AMZN) in the third quarter and has maintained a position as a leader in e-commerce and cloud computing since 2019. Amazon continues to grow its online retail business, while generating profitable opportunities to make money in other services.
Amazon’s enormous lead in e-commerce, with 6 times the market share of its next closest competitor, positions it well for long-term growth. Recent trends in consumer spending have made it difficult for Amazon to maintain high growth rates in its online store, but it still shows great potential. Lower sales prices are attracting more customers, as growth in paid units accelerated to 12% year over year in the third quarter.
Ultimately, Amazon’s advantage centers on its Prime membership program. All of the benefits that Amazon continues to build around Prime, including access to grocery and prescription delivery through RxPass, make it very difficult for customers to cancel their membership. Amazon said it had more than 200 million Prime members in 2021, but it’s still growing. Paid membership growth accelerated in the third quarter, driving a year-over-year increase in subscription revenue of 11%.
What’s most impressive about Amazon is its success in developing profitable revenue streams outside of its core retail service, such as its cloud computing division (Amazon Web Services). Amazon originally developed its cloud service to support the growth of its online stores, but it turned out there was a huge market for this service outside the company. Amazon Web Services now generates annual revenue of $103 billion.
Profitable cloud growth and recent cost-cutting efforts helped Amazon generate $50 billion in net revenue over the past year. Its continued investment in new fulfillment centers and AI capabilities shows there are still enormous opportunities to grow and reward Amazon investors for many years to come.
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*Stock Advisor returns from January 13, 2025
American Express is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Amazon, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
2 Warren Buffett Stocks That Will Stay Forever was originally published by The Motley Fool
