3 Warren Buffett Stocks to Hold Forever
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Beverage giant Coca-Cola has slowly but surely become one of Berkshire’s most important positions.
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Contrary to the rhetoric, the oil and gas industry is far from being on its deathbed. One of its names could continue thriving for decades, in fact.
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Buffett and Berkshire Hathaway’s managers may like Amazon for a reason they themselves haven’t even yet fully realized.
You probably already know that Warren Buffett’s favorite holding period for Berkshire Hathaway‘s stock picks is “forever.” That’s not to say Berkshire never exits a position, because it does. Buffett’s bigger point is simply that, at the time he’s stepping into a new holding, he has every reason to believe that company will remain successful indefinitely. Ergo, any Berkshire pick you borrow for yourself is also likely to be a solid “forever” trade.
With that as the backdrop, here’s a closer look at three current Buffett-approved Berkshire Hathaway holdings that would likely be at home in your portfolio as well.
It’s not just an easy, safe, dividend-paying name to own. Through attrition and sheer patience, Coca-Cola (NYSE: KO) has become Berkshire’s fourth-biggest holding. As of the most recent look, the conglomerate owns 400 million shares (or $28 billion worth) of the beverage behemoth. That’s nearly 10% of Berkshire’s total stock holdings, and more than 9% of Coca-Cola itself.
The rationale isn’t a tough one to figure out. Buffett likes quality companies, and Coca-Cola is a quality company. All of its brands — which include Minute Maid juice, Dasani water, Powerade sports drink, and of course its namesake cola just to name a few — are not only household names, but woven into the fabric of our culture; the Coca-Cola name and logo can even be found on Christmas ornaments, clothing, home décor, etc. Credit the organization’s brilliant marketing efforts, which have been brilliant for a long, long time. They’ve turned the purchase of its drinks into a habit few consumers even give a second thought to.
That being said, Buffett’s continued bullishness on Coca-Cola is also quite pragmatic. Not only has the company paid a dividend every quarter like clockwork for decades, but it has now raised its annual per-share payout every year for the past 63 years. Just last year Berkshire Hathaway collected $776 million worth of dividend payments from Coca-Cola, adding to the organization’s cash hoard that can be used any number of ways.
It may be difficult to view an oil and gas giant like Occidental Petroleum (NYSE: OXY) as a “forever” holding. After all, the advent of renewable energy and electric vehicles is an undeniable threat to the hydrocarbon industry. Goldman Sachs believes that global demand for crude oil will peak around 2034, for perspective, before beginning its permanent decline. And, there may well come a time when the Occidental we know today will offer nothing the world wants.
That day isn’t today, however, or even on the near-term horizon for two key reasons.
First, while demand for crude may be set to peak within a decade, consumption of oil isn’t going to simply going to go away then. It’s just likely to fade away…incredibly slowly. Indeed, the International Energy Administration believes ongoing growth of the world’s need for energy means we will still be burning almost as much oil and natural gas in 2050 as we’re burning now. Occidental Petroleum’s low-cost access to both means there’s plenty of profit to be made in the business between now and then.
And second, Occidental Petroleum is pre-emptively preparing for the eventual wind-down of the oil business with a new revenue-bearing technology.
It’s called carbon capture. That just means carbon dioxide that would normally be created for industrial and energy purposes is captured before it can enter the environment. And Occidental’s take on carbon capture is particularly amazing. Its so-called direct air capture equipment can literally suck CO2 out of the ambient air. The tech works, too — it just needs more scale as well as more social and political support to become fiscally viable.
That day’s coming sooner rather than later, though. Industry research outfits Spherical Insights and Market.us both agree that the nascent direct air capture market will grow at an average annual pace of more than 60% over the course of the coming decade.
The irony is, this technology’s success will also extend the world’s use of oil.
Finally, add Amazon (NASDAQ: AMZN) to your list of Warren Buffett stocks to buy and hold forever.
Plenty of investors were surprised back in 2019 when Berkshire Hathaway took a stake in the e-commerce giant. Buffett typically isn’t a fan of technology stocks, or stocks that don’t pay at least some dividend. And to be fair, it might not have solely been Buffett’s call. Berkshire doesn’t own a bunch of it, either. It’s only sitting on 10 million shares collectively worth $2.2 billion. That’s less than 1% of the total value of Berkshire Hathaway’s stock portfolio, and only a tiny fraction of Amazon itself.
Still, there’s an interesting parallel between Berkshire and Amazon that Buffett has to like even if he’s not said as much.
Think about it. One of the most compelling reasons to own a stake in Berkshire Hathaway is its flexibility. Although Buffett and his team clearly like owning publicly traded enterprises, its stock holdings only account for about one-third of Berkshire’s total value. Another one-third consists of privately owned businesses like Dairy Queen, Burlington Northern Santa Fe, Geico Insurance, Fruit of the Loom, and dozens of others. Still, another one-third of Berkshire’s current value is nothing more than the aforementioned cash hoard, which currently stands at just under $350 billion; Berkshire shareholders appreciate Buffett’s patience with deploying cash.
So what’s the parallel with Amazon? Simply put, Amazon enjoys a similar flexibility.
No, Amazon doesn’t use its excess cash to invest in other companies’ stocks. It is willing to invest in brand new unrelated ventures, though, like cloud computing, which has quietly become the company’s biggest cash cow. It was also willing to acquire grocery store chain Whole Foods Market back in 2017 despite being different than the rest of its businesses. Amazon.com itself has also evolved as an online sales platform, by virtue of focusing less on selling products and more on managing its advertising business. The company collected over $56 billion worth of high-margin ad revenue from its sellers last year alone.
This isn’t to suggest Amazon will be the next Berkshire Hathaway. But, perhaps without even realizing it, Berkshire owns a stake in one of the market’s most adaptable and evolvable companies.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has positions in Coca-Cola. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and Goldman Sachs Group. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
3 Warren Buffett Stocks to Hold Forever was originally published by The Motley Fool