One of the core philosophies of Berkshire Hathaway’s (NYSE:BRK.A, NYSE:BRK.B) Warren Buffett is the importance of taking a buy-and-hold approach to investing. About long-term stocks, he once famously said: “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
No doubt, this focus on long-term stocks has worked out extremely well for him. Buffett is worth a staggering $81 billion. He has also done this by generally avoiding the high-growth areas of the markets, such as tech stocks.
OK then, in light of all this, what are some stocks to buy right now — and to hold on to for the long term? Let’s take a look at five:
Best Long-Term Stocks To Buy: Alibaba (BABA)
Lately the Chinese economy has come under pressure as President Trump’s tariffs have taken a toll. But the long-term prospects still look bright. The number of people in China’s middle class is expected to hit 600 million by 2022 (this compares to the total population in the US of 320 million). In fact, according to research from Standard Chartered Bank, China is on track to become the world’s largest economy next year.
A good way to play this? Alibaba (NYSE:BABA), which is the largest e-commerce operator in China. Even with the slowdown in the country, Alibaba is still finding ways to keep up the heady growth. In the latest quarter, revenues spiked by 56% to $10.5 billion.
Over the years, BABA has expanded away from just e-commerce. It’s as if the company has been following the Amazon.com (NASDAQ:AMZN) playbook. For example, BABA has a thriving cloud computing business. During Q3, revenues soared by 90% to $825 million.
Despite all the growth, BABA stock still is relatively cheap (primarily because the shares have taken a big hit during the market selloff). Note that the forward price-to-earnings multiples is 23X. To put things into perspective, JD.com (NADAQ:JD) trades at 40X and AMZN is at 63X.
Best Long-Term Stocks To Buy: AT&T (T)
AT&T (NYSE:T) is certainly a company that has been durable. It helps that it has focused on businesses that provide recurring revenues. But T has also had a proven long-term track record of transforming itself, such as going from landlines to mobile.
Despite all this, Wall Street has not been too upbeat about the company. Since late 2017, T stock has gone from $39 to $30.
But I think this has set up a nice entry point — at least for those looking for a long-term stock. The main reason is that T stock should benefit nicely from another transformation of the business: the $81 billion acquisition of Time-Warner.
With the deal, the company gets a wide assortment of entertainment assets like the WB movie studios, HBO and Turner. These businesses will bring in over $31 billion in annual revenues, with high margins.
But T has the benefit of its massive mobile footprint for distribution. And this will be key for its upcoming launch of a streaming platform, which will have three huge categories (movies, original programming and the Warner film library). As seen with the huge success of Netflix (NASDAQ:NFLX), streaming is a strong secular growth trend as consumers want more choices and affordable prices.
Finally, T stock is trading at dirt-cheap levels, with the forward price-to-earnings multiple of 8.5x. There is also a juicy dividend yield of 6.7%.
Best Long-Term Stocks To Buy: Coca-Cola (KO)
With the trend towards healthier diets, Coca-Cola (NYSE:KO) does seem vulnerable. But it is important to note that the company has been evolving. An example of this is Coca-Cola Zero. There has also been the reinvigoration of brands like Sprite and Fanta, which include no-or-low calorie recipes.
But the company is also expanding into other drink categories. One is Smartwater, which has been a fast grower. Then there is the move into energy drinks as well as the acquisitions of Organic & Raw Trading (the developer of the MOJO kombucha brand), Tropico (the creator of various fruit-flavored beverages) and Costa (a UK-based retail coffee chain).
All in all, the strategy has worked quite well. Just look at Q3, in which organic revenues increased by 6% and sales volume was up 2%. As for profits, they came to $1.88 billion, up from $1.45 billion on a year-over-year basis.
Oh and of course, Buffett is the top holder of KO stock. He currently owns a hefty 400 million shares.
Best Long-Term Stocks To Buy: Procter & Gamble (PG)
Few companies have had the staying power of Procter & Gamble (NYSE:PG), which got its start back in 1837. P&G initially focused on selling candles and soap, and the company would not reach $1 million in revenues until 1858.
Fast forward to today: PG generates about $67 billion on the top line and has a market value of $225 billion.
Granted, during the past few years, there has been issues at the company, which involved a tough fight with activist investor Nelson Peltz. Yet regardless of the drama, it looks like things are headed in the right direction. PG has been cutting costs, paring down the bureaucracy and focusing more on innovation.
The result is that PG is posting strong growth. In the latest quarter, organic sales increased by 4% (this was the highest in four years). There was strength across all the categories. As for the profits, they rose by 12% to $3.2 billion or $1.22 per share.
The dividend for PG stock is also attractive, at 3.2%. The company has increased the payout for 62 consecutive years.
Best Long-Term Stocks To Buy: Exxon Mobil (XOM)
The oil industry can be extremely volatile, as seen during the past year with crude prices. Yet Exxon Mobil (NYSE:XOM) has a diverse, integrated platform that generally provides stability. The company has extensive upstream (oil exploration, extraction and production) and downstream (marketing, refining and retail) assets.
Now it’s true that when it comes to production, XOM has struggled. But the company is making progress. Keep in mind that there continues to be traction in the Permian basin as well as with offshore developments, such as in Brazil, Guyana and Angola.
In the meantime, XOM continues to crank out significant profits. During the latest quarter, they spiked by 57% to $6.24 billion. The dividend is also standout, at 4.6%. The company has raised it an average of 6.2% a year for the past 36 years.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.