It’s never a bad idea to borrow an idea — or two, or more — from the world’s most successful all-around stock picker.
If you’re looking for the best stocks to buy and hold forever, borrowing a pick or two from Warren Buffett is never a bad idea. He’s not called the Oracle of Omaha for nothing, after all. There’s a reason his Berkshire Hathaway (BRK.A 0.30%) (BRK.B 0.24%) has been able to outperform the S&P 500 (^GSPC 0.57%) over the years.
Here’s a rundown of three of your best Warren Buffett bets right now, while they’re arguably undervalued.
Coca-Cola
The Coca-Cola Company (KO 0.26%) is the world’s biggest beverage name, including brands like Gold Peak tea, Minute Maid juices, Dasani water, and a slew of others in addition to its namesake cola.
It does about $46 billion worth of business every year right now, but regularly raises its top and bottom lines. Ditto for its dividend, which has been upped every year for the past 62 years. This reliable income is a key reason Buffett has stuck with this cash cow since first stepping into it in 1988.
And don’t look for this streak to end anytime soon, if ever. Unlike rival PepsiCo, Coca-Cola doesn’t bottle the bulk of its products. Most of its revenue comes from the sale of branded concentrate to franchised bottlers, which in turn handle the production and distribution that get its products on store shelves.
Although this arrangement means less revenue relative to the amount of its beverages consumers are drinking, it’s a higher-margin model since the bottlers shoulder most of the cost-based risk. Higher profit margins, in turn, mean more per-share earnings that support continued dividend payments.
Berkshire Hathaway’s 400 million shares of Coca-Cola are worth nearly $26 billion, by the way — the conglomerate’s fourth-biggest holding. That in and of itself is a hint worth taking.
Apple
So, what’s Berkshire Hathaway’s single-biggest holding? Buffett — or at least one of his lieutenants — has been shedding its stake in Apple (AAPL 0.94%) for some time now. However, its remaining 300 million shares (worth $69 billion) leave Apple as Bearkshire’s top investment. Again, take the hint.
When Berkshire began buying Apple in 2016, it caught people a little off-guard. Buffett has generally not been a fan of technology stocks, explaining that it’s difficult to figure out what they’re worth simply because their technologies can be difficult to understand; they may or may not keep competitors at bay.
As time has marched on, though, the Apple purchase has made more and more sense. Its customers are fiercely loyal, and the company makes perpetually competitive products. The launch of its services (apps, digital content, and the like) also now drives the kind of recurring revenue that Buffett has often sought, accounting for about one-fourth of Apple’s current top line.
Berkshire has shed half of its stake in the consumer technology giant this year alone, but don’t read too much into that. Buffett is not afraid to load up on a company he believes in, but even by his standards, Apple was becoming a dangerously big position at roughly half the value of all his investments in publicly traded investments.
He may also be wary of sitting on such a profitable pick when tax rates on capital gains may be about to rise.
The average newcomer like yourself, though, wouldn’t face these concerns. The same reasons he liked it then still apply for newcomers now: its leadership in the smartphone market and the growth in services revenue that the iPhone is increasingly driving. Last year’s services business improved another 12%, extending a well-established growth trend.
Berkshire Hathaway
Lastly, although it’s rarely pointed out when talking about Warren Buffett’s stock picks, you should know that Buffett himself doesn’t necessarily personally own Apple, Coca-Cola, or any of the other tickers found within the Berkshire Hathaway portfolio.
He does, however, own a massive amount of Berkshire Hathaway shares — on the order of 15% of Berkshire (which now has a market cap right around $1 trillion), and roughly one-third of the conglomerate’s voting shares. As the cliché inelegantly but accurately explains, he eats his own cooking. In other words, Buffett is on the same side of the table as Berkshire’s shareholders.
It takes some of the excitement out of poaching a few of the Oracle of Omaha’s picks for yourself. But investing should first and foremost be about results, and Berkshire Hathaway certainly delivers them. While it doesn’t happen every single year, given enough time, Berkshire itself readily outperforms the broad market.
This is at least partly the result of Buffett’s (and his management team’s) patience with Berkshire’s holdings, something many investors struggle with. But it’s also because the bulk of its value isn’t in the publicly traded stocks it holds, but rather in the privately held entities it owns.
These include cash drivers like flooring company Shaw, Duracell batteries, Pilot travel centers, Clayton Homes, and Geico auto insurance, to name a few. These are great companies you simply can’t hold any other way.
Just bear in mind that while Berkshire is collecting lots of recurring cash from its holdings, it’s not dishing this money out in the form of dividends, which it doesn’t pay. Rather, it’s amassing this money, waiting for the next big buying opportunity — something else Warren Buffett has demonstrated incredible patience for.
So don’t let Berkshire’s current record-breaking cash hoard of $325 billion deter you from buying in. When the right opportunity comes along, Buffett will begin buying it before announcing it.
