Warren Buffett’s approach to picking stocks may not be particularly exciting, but that’s not his goal — it’s to consistently make money. His conglomerate Berkshire Hathaway has certainly done that over the past few decades, even if it occasionally trails the S&P 500 benchmark in some years. He thinks in the long term and doesn’t sweat the temporary headwinds. You’d be wise to mirror his style and poach a few of his picks.
Owning just five of Buffett’s top holdings could bear plenty of fruit, given enough time. Here are your five best “forever” Buffett bets, even if you’re only starting out with $1,000.
Kroger (KR 0.27%) operates 2,750 grocery stores under a handful of different banners peppered across most of the country. In fact, it’s the United States’ second-biggest grocer, only trailing Walmart, and there’s enough business for both.
Kroger’s edge is the fact that it’s much more than just your typical grocer. It’s a vertically integrated food seller, prominently featuring its own private-label goods and in some cases producing its own products.
Around one-fifth of its top line comes from sales of house brands, which not only translates into higher profit margins, but also means its supply chains are shorter. Then there’s the monetization of all the web traffic that Kroger.com draws.
This chain of grocery stores will never be a high-growth investment. What it lacks in speed, however, it makes up for in raw muscle. It’s no wonder Buffett and his team like it.
2. Capital One
Capital One Financial (COF 0.50%) is a somewhat misunderstood credit card company. While it does tend to address a sliver of the consumer market that’s not well served by more-familiar credit card names, it doesn’t take on risks that don’t reward its shareholders.
As Ian Lapey, a portfolio manager at Gabelli Funds, points out, “The company has never lost money since going public in 1994 and [tangible book value] has compounded at about 14% a year.”
The strongest bullish argument for buying Capital One shares now? You can step into them at around the same price that Buffett did. Berkshire only bought the 9.9 million shares it now owns during the first quarter of this year.
3. American Express
Technically, it’s another credit card company. American Express (AXP -3.89%) and Capital One are dramatically different entities, though. Not only do they aim to serve different segments of the same market, but American Express’ business model is also still centered around its fee-based charge cards offering tons of cardholder perks.
Case in point: The American Express Platinum Card gives holders $200 worth of annual credits toward hotel stays, access to lounges at airports, up to $240 worth of yearly savings on streaming services, and more. The card costs its holders $695 per year, but for frequent users, the benefits that Amex has negotiated with a wide array of service providers can easily pay for the card.
Buffett’s Berkshire has held a stake in American Express for decades now, initiating its position in 1991.
One of Buffett’s most-quoted pieces of wisdom is “Buy what you know.” And he practices what he preaches. Berkshire has held a huge stake in Coca-Cola (KO 0.08%) for a long, long time, and his favorite beverage is Coke.
The pick makes plenty of sense. Buffett loves value stocks and dividends. The company has raised its payout every year for the past 61 years. You won’t find a much better-pedigreed dividend stock.
The brunt of the bullish argument, though, is the company’s universal marketability. It is one of the world’s best-known brands, and one of the biggest brand families. Dasani, Fanta, Gold Peak, Minute Maid, and Powerade are just some of the other labels that make up the company, giving Coca-Cola a product and a price point for nearly every consumer.
Last but not least, add Apple (AAPL -0.62%) to your list of Buffett stocks to buy and hold forever. Buffett tends to eschew technology stocks, recognizing their apparent fortunes can turn on a dime. That’s just not his thing.
Yet, Apple isn’t your typical technology company. It might be more accurate to describe it as a consumer services company that relies on technology to deliver those services. That’s particularly true given that high-margin digital services now account for nearly one-fourth of Apple’s top line, and roughly one-third of its operating profit.
A superior product (the iPhone) takes care of the rest, continuing to add users to its digital ecosystem despite broadly slowing smartphone sales. More than 2 billion Apple devices are now regularly used worldwide, with most of them the highly popular smartphone.
As of the end of the first quarter, Berkshire Hathaway held roughly $150 billion worth of Apple stock, easily making it the fund’s single biggest position.
American Express is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Walmart. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.