Warren Buffett likes to make investments for the long term. Although his company, Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), does sometimes sell stocks after shorter periods, many of its holdings have been Buffett favorites for decades.
If you're looking for stocks that you can also hang on to for the long term, Berkshire's current portfolio offers several great options. I especially like the business models for Apple (NASDAQ:AAPL), Johnson & Johnson (NYSE:JNJ), and United Parcel Service (NYSE:UPS). Here's why these Buffett stocks are ones you can buy and hold for decades.
Buffett isn't known for being a fan of technology stocks. That's mainly because he doesn't like buying stocks with businesses that he can't understand. However, Berkshire Hathaway now owns more than $18 billion worth of Apple stock. I have no doubt that Buffett understands Apple's business very well.
What Buffett likes most of all is a business that has a strong moat. Many tech companies don't have much of a moat, but Apple does. For one thing, Forbes has ranked the Apple brand as the most valuable in the world for seven consecutive years.
Even more important, though, is Apple's "stickiness." The more customers are emerged in the company's ecosystem (including iPhones, iPads, iTunes, Apple Watch, and its App Store), the less likely they are to switch to a competitor.
Is it possible that Apple's current products could become obsolete over time? Sure. But I think it's more likely than not that new products from the company cannibalize the older products rather than losing to other competitors. The iPhone supplanting the iPod is a good example of this. Apple has the cash and the cash flow to invest in the research (and acquisitions) needed to stay on top -- something I expect it to do for a long time to come.
Johnson & Johnson
Buffett has owned Johnson & Johnson stock since 2006. Berkshire's position in the healthcare giant now stands at roughly $41 million. That's down considerably from Berkshire's initial stake, but J&J remains one of only three healthcare stocks in its portfolio.
One big reason why Johnson & Johnson should remain a strong business for decades to come is its track record. The company has adopted and thrived in the midst of significant healthcare changes since its founding in 1886.
Investors should like the fact that Johnson & Johnson's management is fully committed to delivering strong shareholder returns over the long run. You can look at pretty much any time period and see that J&J has outperformed its peers. Over the past five years, the company was one of only six to increase its market cap by more than $150 billion. (Apple and Berkshire Hathaway, by the way, were two of the others to do so.)
J&J's size and financial resources definitely contribute to its moat. I'd argue that its scope of operations is just as important. No company has the broad reach across the healthcare sector as Johnson & Johnson does, with its consumer healthcare products, medical device, and pharmaceutical business units ranking among the largest operations in their respective areas of focus. J&J's scope of operations gives it some synergies and market insight that competitors don't have.
United Parcel Service
United Parcel Service (UPS) is another stock that caught Buffett's attention in 2006. Berkshire bought a sizable position in the packaged goods delivery company that year. Since then, Berkshire has sold a lot of its initial stake in UPS but still owns around $6.4 million worth of the stock.
As you might expect, there's a high barrier to entry in the delivery business. UPS itself is proof of that. The company has greatly increased its capital expenditures in an attempt to keep up with growth in delivery volume.
This volume growth stems in large part from online shopping. There is a sustained and seemingly unstoppable trend for Americans (and customers across the world) to do more of their shopping online. This means more business for delivery companies -- and UPS is the biggest.
UPS should also be a significant beneficiary of new technologies. The company is already reaping rewards from investments in new systems such as its On Road Integrated Optimization and Navigation (ORION) system, which uses advanced algorithms to determine the optimal route for each delivery. The potential for self-driving vehicles could also dramatically lower UPS' cost structure in the coming decades.
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