Warren Buffett is arguably the most successful investor of all time. His strategy of buying high-quality companies and holding them for long periods of time has shown just how powerful the buy-and-hold thesis can be.
The good news is you can invest just like Warren Buffett, too. We asked three of our Foolish contributors to each name a stock that Warren Buffett either owns, has owned, or would probably find quite attractive given his investing ideals. Our contributors came up with Mastercard (NYSE:MA), McCormick & Co. (NYSE:MCK), and Kinder Morgan (NYSE:KMI).
Ready. Set. Charge!
Sean Williams (Mastercard): If you're looking for a stock that screams "Warren Buffett," look no further than a longtime holding in his own portfolio: Mastercard.
Buffett is not one to often chase after high-growth stocks such as Mastercard, but the simplicity of Mastercard's business is what makes it so perfect.
Mastercard is a credit transaction facilitator, and as long as consumers are purchasing goods and services, Mastercard is probably doing just fine. Yet when the U.S. or global economy runs into trouble, Mastercard still manages to find ways to excel. Because Mastercard isn't a direct lender, it doesn't have to worry about loan delinquencies, as nearly all of its peers do. Essentially, Mastercard utilizes its merchant network to create a sustainably high-margin business that could be run by practically anyone.
Mastercard also has exposure throughout the world. While it clearly relies on developed countries to fuel its top and bottom lines, Mastercard can weather recessions pretty well thanks to its presence in emerging markets, and its ongoing push to develop networks in underdeveloped regions, such as Africa and the Middle East.
Mastercard also ranked 76th on Interbrand's 2016 Best Global Brands ranking. That implies that the MasterCard brand is well known worldwide, which reduces its needs to advertise. Plus, it certainly doesn't hurt that the barrier to entry for credit transaction processing is exceptionally high, meaning Mastercard's merchant network is well insulated against competition.
With Mastercard logging 8% constant-currency sales growth and 10% full-year EPS growth in 2016, there appears to be little standing in its way. It's a set-it-and-forget-it Buffett stock if this Fool has ever seen one.
Spice up your portfolio
Demitri Kalogeropoulos (McCormick): Buffett has purchased several branded food companies, and it's easy to see why the famous investor is attracted to these businesses. After all, someone's tastes, whether in candy, chewing gum, or sodas, tend to stay constant over the years. The combination of branding and persistent demand supports two favorite Buffett metrics: pricing power and predictable growth.
Spice and flavoring specialist McCormick fits this model well. It owns a deep portfolio of spice and herb brands that millions of people use each day, including McCormick, Lawry's, and Old Bay. Sales rose 4% last year despite a weak sales environment in key markets such as the United States. Profitability hit a five-year high of 41.5% of sales .
CEO Lawrence Kurzius and his executive team expect sales growth to tick up to a 6% pace in the current fiscal year as global spice demand shifts toward healthier and more flavorful foods. Their long-term industry forecast predicts a 5% compound annual growth rate over the next five years, but as the branded leader in the space, its expansion can easily outpace that figure. Rising prices, combined with significant cost cuts, meanwhile, should deliver another year of impressive profit growth. The stock wouldn't qualify as a screaming bargain right now at over 26 times trailing earnings. But investors get plenty of value at that premium price.
A stock Buffett (used to own) himself
Rich Smith (Kinder Morgan): I'll preface my pick with this quote from Roger Lowenstein's classic biography, Buffett: The Making of an American Capitalist:
As they rocked on the Russells' front-porch glider in the stillness of the Midwestern twilight, the parade of Nashes and Studebakers and the clanging of the trolley car would put a thought in Warren's mind. ... "All that traffic, he would say to her. 'What a shame you aren't making money from the people going by." As if the Russells could set up a toll booth on North 52nd Street. "What a shame, Mrs. Russell."
If you're a fan of Warren Buffett, you can't not have heard this story, or not understand why Warren Buffett loves businesses that operate like toll booths, or not want to own one of them yourself. A tollbooth, by definition, is the only game in town, the only way to get from Point A to Point B across a given route, and thus largely immune to competition. It's also exactly the kind of business that oil and gas pipeline operator Kinder Morgan, Inc. runs.
Sometimes called "the undisputed leader in energy infrastructure," Kinder Morgan controls America's largest energy pipeline -- 84,000 miles of pipelines transporting petroleum, gas, and other fuel products from Points A to Points B across the land. It's taken the company more than 80 years to assemble this empire, and would probably take a competitor nearly as long to match it -- meaning Kinder Morgan is basically immune to competition for the foreseeable future.
Granted, an asset of this quality doesn't come cheap. Kinder Morgan stock sells for a rich multiple of 68.5 times earnings -- a fact that may have contributed to Buffett's decision to exit the investment late last year, at a fat profit. On the other hand, other analysts who follow the stock believe that Kinder Morgan's lock on the energy transportation market will permit the company to grow earnings at better than 35% annually over the next five years.
Even if Buffett is no longer a fan of Kinder Morgan stock, maybe you should consider it because all of the structural components that made Buffett love the stock still hold true.
Demitrios Kalogeropoulos has no position in any stocks mentioned. Rich Smith has no position in any stocks mentioned. Sean Williams has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Kinder Morgan and Mastercard. The Motley Fool recommends McKesson. The Motley Fool has a disclosure policy.