3 Long-Term Investments Warren Buffett Intends to Keep Indefinitely That Remain Attractive Purchases Today

3 Long-Term Investments Warren Buffett Intends to Keep Indefinitely That Remain Attractive Purchases Today

Warren Buffett said famous Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) shareholders that “when we own shares of exceptional companies with exceptional leaders, our preferred holding period is forever.” That said, he rarely finds a business so remarkable that he ends up never selling it.

He clarified his position in his 2016 letter to shareholders: “It is true that we hold shares that I do not intend to sell out of sight (and we are talking about 20/20 vision). But we have made no commitment that Berkshire will hold any of its marketable securities forever. »

But Buffett came close to making that commitment to shareholders in his latest letter to a handful of companies he considers unprecedented in their industries. He plans to maintain Berkshire’s investments in these companies “indefinitely,” he says.

Here are three stocks Buffett plans to hold forever that still look like great buys today.

3 Long-Term Investments Warren Buffett Intends to Keep Indefinitely That Remain Attractive Purchases Today

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1. Coca-Cola

Buffett first purchased shares of Coca-Cola (NYSE:KO) for Berkshire Hathaway in 1988 and was added to it in 1989. Coca-Cola was one of the companies Buffett was referring to when he initially made his statement about Berkshire’s preferred holding period.

One of the most important factors in Buffett’s investment process is identifying companies with broad economic moats – a sustainable competitive advantage. A wide moat allows a company to generate strong gross margins. Coca-Cola’s moat comes from its strong brand and the cost advantages its size offers.

The strength of its brand is reflected in Coca-Cola’s ability in recent years to pass on the costs of inflation to its customers. The company’s 12% organic revenue growth in 2023 is driven by a 10% increase in pricing and a shift in channel mix, and is above underlying inflation rates in most of its markets.

Coca-Cola’s global reach is another reason why Buffett likes the company. Coca-Cola products are sold worldwide, allowing Coke to maximize the efficiency of its supply chain. Additionally, distribution agreements for existing products allow the company to easily introduce new products. As a result, Coca-Cola can increase its already dominant share of the markets in which it participates.

Even though Buffett doesn’t plan to increase his position in Coca-Cola in 2024, the stock still looks attractive at the current price. The shares trade at a forward price-to-earnings (P/E) ratio of 21.7, which is roughly in line with S&P500. But Buffett would describe Coca-Cola’s prospects as “better than the average American company.” Indeed, investors should expect steady revenue growth (even after adjusting for inflation) and continued margin expansion for the foreseeable future.

2.American Express

American Express (NYSE:AXP) is another long-standing Buffett holding. He acquired a significant position in the company for Berkshire’s portfolio during the first half of the 1990s.

What sets American Express apart from other credit card issuers is that it owns the payment network its cards use. Bank issuers rely on third-party payment networks to process payments every time someone swipes, grabs, taps or enters their credit card details online. Payment networks charge a significant amount for the provision of their services. But American Express keeps that to itself.

Nearly 80% of American Express’s net revenue comes from payment processing and card fees, although interest on loans is a growing source of revenue. As a result, American Express could see its growth slow in an economic downturn that reduces consumer spending, but it won’t suffer as big an impact from defaults as other issuers.

Amex expects strong growth in the coming years. Its long-term outlook calls for double-digit revenue growth, with profit growth hovering around 15%. It expects to achieve these goals this year with revenue growth of around 10% and earnings per share (EPS) growth of 15%. With the shares trading at a forward price-to-earnings ratio of 17.7, they appear to represent excellent value relative to the company’s growth prospects.

3. Western Oil

The last stock mentioned by Buffett as one that Berkshire plans to hold indefinitely is Western oil (NYSE:OXY). This is a new addition to Berkshire’s portfolio. Buffett established a position in Occidental in 2019 by purchasing $10 billion of preferred stock to finance the oil company’s acquisition of Anadarko. In 2022, it began accumulating common stock and Berkshire now owns 28% of the outstanding shares. Buffett has continued to strengthen Berkshire’s position in 2024.

Occidental’s position in the Permian Basin gives it great capacity to produce low-cost oil. That said, it spent a lot of money to establish this position, taking on huge amounts of debt and putting pressure on its balance sheet. To this end, management plans to sell non-core assets to pay down debt, a strategy it has followed throughout its recent history.

Because Occidental earns most of its revenue from oil production instead of refining and processing like other integrated oil and gas companies, it is much more sensitive to fluctuations in oil prices. Chief Executive Officer Vicki Hollub, for whom Buffett has expressed much admiration, is extremely optimistic about the price of oil. So far, his bets have worked well, with West Texas Crude futures prices soaring 18% in the first three months of the year.

This also makes Occidental a bit riskier than other oil and gas companies. But with a forward P/E ratio of 17.9 and an enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of 6, the shares are trading at fair value. If Hollub’s thesis on oil prices comes to fruition over the next couple of years, it could prove very interesting.

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American Express is an advertising partner of The Ascent, a Motley Fool company. Adam Levy has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

3 Stocks Warren Buffett Plans to Hold Forever That Still Look Like Great Buys Today was originally published by The Motley Fool

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