The world’s greatest value investor knows that share performance in a single year means nothing. Indeed, Warren Buffett has said that his preferred holding period is forever.
Hanging on to good stocks for decades — and buying more shares when the best stocks get beaten down — helped Warren Buffett amass a fortune of $63 billion.
For example, International Business Machines Corp. (IBM) and Wells Fargo & Co (WFC) went on sale last year in Warren Buffett’s view. Berkshire Hathaway upped its stake in the tech giant to 8.4% from 7.8%, while the WFC holding went to 9.8% from 9.4%.
Needless to say, neither IBM nor WFC were the best stocks of 2015. Longer term, however they’re big-time market beaters.
The lesson here is that if you want to model yourself after Warren Buffett, you have to maintain very long horizons. It’s only through the march of time that the best stocks reveal their superior value.
Warren Buffett’s equity portfolio contains many stocks to buy even though they’ve been dogs recently. They may not look like the best stocks now, but that’s a temporary condition for patient investors.
Here are five Warren Buffett stocks that may have fallen on hard times recently, but they’ve been big winners for buy-and-hold investors.
Warren Buffett’s Best Stocks: Wells Fargo & Co (WFC)
However, if you’re bullish on America, then you’ve got to be bullish on WFC and the financial sector in general. After all, the economy isn’t going anywhere without the participation of banks.
WFC is down a painful 14% over the last 52 weeks. Even the crummy performance of the broader market is better than that.
Take a step back, however, and WFC is a great long-term holding. Over the last decade, this bank stock is up 49%, which beats the S&P 500 by almost 10 percentage points.
Warren Buffett’s Best Stocks: International Business Machines Corp. (IBM)
IBM’s problems are well known: PC sales are in secular decline and it missed out on the mobile market.
Although we don’t know the exact reasons for Warren Buffett picking up more shares, we do know this: He has confidence in management and the stock price doesn’t reflect the company’s intrinsic value. All of Warren Buffett’s picks share those traits.
IBM has been in a downtrend for two years now and it’s not clear when it will stabilize. Shares are down 18% over the last year alone.
But over the longer haul of 10 years, IBM has beaten the S&P 500 by about 12 percentage points.
Warren Buffett’s Best Stocks: The Coca-Cola Co (KO)
Investors are worried that Coca-Cola (KO) faces an existential threat because sales of sugary and artificially sweetened fizzy drinks are in decline.
But Coke has a long history of figuring out ways to fight threats. In this case, it’s investing in bottled teas, water, fruit juices and sports drinks.
The market is buying into Coke’s strategy. Shares are positive so far this year and over the past 52 weeks, while the broader market printed losses.
There is risk in every investment — even the best stocks — but investors have been well compensated by KO. Shares have more than doubled over the past decade. The S&P 500 has done half as well.
Warren Buffett’s Best Stocks: Deere & Company (DE)
Deere & Company (DE) is getting hammered by forces well beyond its control, as the global slump in commodity prices is hurting demand for things like tractors and other heavy machinery.
But agriculture is the oldest cyclical market in history. It’s always boom or bust.
Reflecting the end of the commodity supercycle, DE is down 8% over the five years while the S&P 500 is up by half.
But DE is a stock for the long game: Over 10 years, Deere beats the broader market by about 25 percentage points. Over 20 years, it’s by 100 points.
Warren Buffett’s Best Stocks: AT&T, Inc. (T)
Telecommunications stocks are among the most boring investments you can find. With painfully slow growth in a saturated market, they just chug along.
That said, it’s important to play defense. AT&T (T) is ideal for that. With a five-year beta of 0.27, according to S&P Capital IQ, T is far less volatile than the S&P 500.
The real value, however, is in the dividend. At 5.2%, T has one of the highest yields in the S&P 500.
It also accounts for the lion’s share of total returns. T stock is up just 34% over the last 10 years on a price basis. Add in the dividend and that performance jumps to 134%. The S&P 500 has a total return of just 84% over the same span.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.