If you’re looking for the best stocks to buy and hold forever, borrowing a pick or two from Warren Buffett is never a bad idea. After all, they don’t call him the Oracle of Omaha for nothing. There’s a reason why your Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) has been able to overcome S&P 500(SNPINDEX: ^GSPC) over the years.
Here’s a rundown of three of your best bets on Warren Buffett right now, although they’re arguably undervalued.
Are you missing the morning scoop?Breakfast news offers it all in one fast, silly, free daily newsletter. Register for free »
The Coca-Cola Company(NYSE: KO) is the world’s largest beverage name, including brands such as Gold Peak tea, Minute Maid juices, Dasani water and many others, in addition to its namesake cola.
It currently does business worth about $46 billion each year, but regularly increases its results. The same goes for its dividend, which has increased every year for the last 62 years. This reliable income is a key reason why Buffett has stuck with this income stream since he first got into it in 1988.
And don’t expect this streak to end anytime soon, if it ever ends. Unlike the rival PepsiCoCoca-Cola does not bottle most of its products. Most of its revenue comes from selling branded concentrate to franchise bottlers, who in turn handle the production and distribution to get its products onto store shelves.
Although this arrangement means less revenue relative to the amount of beverages consumers drink, it is a higher-margin model since bottlers assume most of the cost-based risk. Higher profit margins, in turn, mean more earnings per share that support continued dividend payments.
By the way, Berkshire Hathaway’s 400 million Coca-Cola shares are worth nearly $26 billion—the conglomerate’s fourth-largest holding. That in itself is a lead worth pursuing.
So what is Berkshire Hathaway’s biggest holding? Buffett – or at least one of his lieutenants – has been divesting his stake in Apple(NASDAQ:AAPL) for some time now. However, his remaining 300 million shares (worth $69 billion) leave Apple as Bearkshire’s top investment. Again, take the hint.
When Berkshire started buying Apple in 2016, it caught people a little off guard. In general, Buffett has not been a fan of technology stocks, explaining that it is difficult to determine their value simply because their technologies can be difficult to understand; They may or may not keep competitors at bay.
However, as time has gone on, purchasing Apple has made more and more sense. Its customers are fiercely loyal and the company makes perpetually competitive products. The launch of its services (apps, digital content, and the like) now also generates the kind of recurring revenue Buffett has often sought, accounting for about a quarter of Apple’s current revenue.
Berkshire has shed half its stake in the consumer technology giant this year alone, but don’t read too much into it. Buffett isn’t afraid to invest in a company he believes in, but even by his standards, Apple was becoming a dangerously large position with about half the value of all his investments in publicly traded investments.
You may also be cautious about choosing such a profitable option when capital gains tax rates may be about to increase.
However, the average newcomer like you would not face these concerns. The same reasons you liked it then still apply to the newcomers now: their leadership in the smartphone market and the growth in service revenue that the iPhone is increasingly driving. Last year’s services business improved another 12%, extending a well-established growth trend.
Lastly, although it is rarely pointed out when discussing Warren Buffett’s stock picks, you should know that Buffett himself does not necessarily personally own Apple, Coca-Cola or any of the other tickers found in Warren’s portfolio. Berkshire Hathaway.
However, he owns a huge amount of Berkshire Hathaway stock: on the order of 15% of Berkshire (which now has a market capitalization of around $1 trillion) and about a third of the conglomerate’s voting shares. As the cliché inelegantly but accurately explains, he eats his own food. In other words, Buffett is on the same side of the table as Berkshire shareholders.
It takes away some of the excitement of poaching some of the Oracle of Omaha picks. But investing should be about results first and foremost, and Berkshire Hathaway certainly delivers. While this doesn’t happen every year, given enough time, Berkshire easily outperforms the broader market.
This is, at least in part, a result of Buffett (and his management team) being patient with Berkshire’s holdings, something many investors struggle with. But it’s also because most of its value is not in the publicly traded stocks it owns, but in the private entities it owns.
These include cash boosters like Shaw flooring company, Duracell batteries, Pilot travel centers, Clayton Homes and Geico auto insurance, to name a few. These are big businesses that you simply can’t sustain any other way.
Just keep in mind that while Berkshire raises a lot of recurring cash from its holdings, it doesn’t distribute this money in the form of dividends, which it doesn’t pay out. Rather, you’re hoarding this money, waiting for the next big buying opportunity, something else Warren Buffett has shown incredible patience for.
So don’t let Berkshire’s current record cash hoard of $325 billion stop you from buying. When the right opportunity presents itself, Buffett will start buying it before announcing it.
Before you buy Coca-Cola stock, consider this:
He Varied and Dumb Stock Advisor The analyst team has just identified what they believe are the 10 best stocks for investors to buy now… and Coca-Cola was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when NVIDIA made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $833,545!*
Stock Advisor provides investors with an easy-to-follow success plan, including guidance on how to build a portfolio, regular analyst updates, and two new stock picks each month. HeStock Advisorthe service has more than quadrupled the return of the S&P 500 since 2002*.
See the 10 actions »
*Stock Advisor returns from November 25, 2024
James Brumley has positions at Coca-Cola. The Motley Fool has positions and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Three Warren Buffett Stocks That Will Stay Forever was originally published by The Motley Fool