Since the late 1950s, legendary investor Warren Buffett and his long-time partner Charlie Munger have transformed Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) from a struggling textile manufacturer to a holding company with a market capitalization greater than $470 billion. Today, I’ll discuss three Warren Buffett stocks to hold for the next 10 years.
Buffett firmly believes that stocks outperform all other asset classes over time. However, he’s not one to buy shares in a company at any price. Indeed, the Oracle of Omaha is regarded as the king of value investing.
Earlier in the year, Buffett released his annual shareholder letter. Although Buffett is bullish on stocks long term, he said “that rosy prediction comes with a warning: Anything can happen to stock prices tomorrow.” And within days of his warning in February, markets globally did indeed crash.
To him, if you’re not thinking of owning the stock you’ve just bought for at least a decade, don’t even think of owning it for a day. Therefore, falling prices don’t make him nervous because he has seen equity markets recover time after time. Instead, he patiently waits.
One of my favorite Warren Buffett quotes is “opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” In other words, he’d recommend retail investors to buy stocks as prices decline.
Buffett invests for the long haul and he has generated massive wealth over the last few decades. BRK.A stock currently has the most expensive share price of any company in history. In 1964, each Class A share was just shy of $20. Now each Class A share costs upwards of $290,000 (no, that’s not a misprint). Buffett has been making, on average, 20% a year.
Buffett’s preferred investments are:
- Large-cap stocks
- Financials, including banks and insurance companies
- Consumer brands
- Stocks that pay dividends
Berkshire Hathaway’s regular 13F filings with the Securities and Exchange Commission (SEC) show his holdings. With that in mind, here are three Warren Buffett stocks to hold for the next 10 years:
Warren Buffett Stocks: Apple (AAPL)
Apple shares comprise around 20% of Warren Buffett’s portfolio with Berkshire Hathaway. Regular InvestorPlace.com readers will be familiar with the fact that Buffett loves consumer stocks. And he regards Apple as a compelling consumer business thanks to its popularity worldwide.
In a recent interview Buffett said, “I do not focus on the sales in the next quarter or the next year. I focus on the … hundreds, hundreds, hundreds millions of people who practically live their lives by [iPhone] … It’s probably the best business I know in the world.”
Two years ago, Apple became the first U.S.-based company to hit a $1 trillion valuation. Currently the market-cap is about $1.6 trillion. With such a market-cap, it would be safe to assume that Apple shares are unlikely to be held down by the market for too long, even in uncertain times brought on by novel coronavirus. Wall Street and Buffett regard large-cap companies as good, stable long-term investments.
In fact, so far in the year, Apple shares are up around to 33%. But that metric tells only half the story. On March 23, AAPL stock hit a recent low of $212.51. Now it’s hovering around $405.
Apple announced on Thursday, in its fiscal third-quarter earnings report, a four-for-one stock split to occur in August.
The Cupertino, California-based tech giant committed to be carbon-neutral by 2030. The commitment extends to its supply chain, too. As a result every device it sells will have net zero climate impact before the end of the decade.
The company also has long-term catalysts, including the opportunities yet to be offered by the upcoming 5G iPhone. Thus, long-term investors may regard any dip in AAPL shares as a good opportunity to buy into the business.
American Express (AXP)
American Express is one of the largest global payment networks.
Buffett has been a shareholder since 1964. According to the second-quarter earnings release of July 28, the company’s net income came at $257 million, or 29 cents per share, compared with net income of $1.8 billion, or $2.07 per share, a year ago.
Analysts are debating the economic effect of the Covid-19 pandemic on global economies and the spending habits of consumers. If our economy does not show the V-shaped recovery many have been hoping for, then businesses like American Express are likely to be adversely affected further.
One important point to highlight is that the company’s core consumers form an affluent client base relative to the customers of competitors. Thus American Express – a trusted brand – may be less affected from a potential economic slowdown. Year-to-date, AXP stock down around 24%.
Long-term investors who would like to follow Warren Buffett stocks may consider buying AXP on the dips.
Costco Wholesale (COST)
Costco Wholesale is the second-largest global retailer by revenue,.
COST stock has rewarded its shareholders well so far in 2020. The share price is up about 11%. In comparison, the S&P 500 index is about down 1%.
Costco operates in the warehouse (or wholesale) club space within the retail industry. This segment usually performs well regardless of macroeconomic conditions, thanks to the low cost and high-value products. Costco’s main competitor is Walmart (NYSE:WMT) and both companies are thriving in recent years.
The group runs on a “subscription business model,” where customers pay an annual membership fee to have access to its bargain-priced bulk goods. In 2019, Costco collected around $3.35 billion in membership fee revenue, which is almost entirely profit. The membership service has a renewal rate of over 90% in the U.S. as the group scores high on customer satisfaction surveys.
By using a membership-only system, Costco is able to book nearly all of its profits one year in advance. Thus the annual membership model contributes to its operating income and gives Costco stock immense earnings stability.
Coupled with strong customer loyalty, the retail giant has pricing power, too. And as a result both the top and the bottom lines register year-over-year increases. Over the past quarters, the Street has also been applauding Costco’s cost structure, one of the lowest in the retail industry.
Although I believe COST stock is likely to go higher in the long run, there will be profit-taking around the corner. Therefore those investors who may want to recession-proof their portfolio could regard any dip in the stock price as a viable opportunity to buy into the shares.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, including a Ph.D. degree, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.