Warren Buffett, arguably the most successful investor in U.S. history, has proven the effectiveness of the buy-and-hold strategy. Buffett has amassed a personal fortune by holding positions for decades armed with a long-term vision, which is why I've chosen the three following companies from Buffett's Berkshire Hathaway (NYSE: BRK.A) portfolio to discuss.
These companies fit the Buffett profile as they are innovative, dominate their industries, and have the potential to consistently outperform the S&P 500.
Apple (NASDAQ:AAPL) is a dominant company selling phones, tablets, and wearables. The iPhone generated 55% of its 2019 revenue of $142 billion, but the device has seen a consistent decrease in demand, with lower year-over-year sales in each of the four quarters in fiscal 2019. To offset this decline, Apple recently launched a lower-priced iPhone 11, which is expected to have greater popularity in China and India; that should widen the company's reach.
Wearables such as the Apple Watch, AirPods, and Beats headphones have shown impressive growth, as revenue from the wearables segment increased 18% year over year during the fourth quarter. It now provides 19% of Apple's total revenue, up from 15% in 2018.
Apple CEO Tim Cook stated during the fourth-quarter earnings announcement that wearables generated year-over-year growth of 50% in every market the company tracks -- showing strength in his strategy of diversifying away from the iPhone as a primary revenue generator. Evercore ISI analyst Amit Daryanani predicts Apple's wearables will generate $60 billion in revenue by 2023.
As 5G becomes available for Apple devices, a race is expected between the company and competitors Huawei and Samsung, both of which are reaching for market share. Strategy Analytics predicts that Apple will win the market share race, even with its expected late start. It's expected to launch 5G-compatible devices during the third quarter of fiscal 2020.
Buffett is bullish on Apple; it's one of Berkshire Hathaway's largest holdings, valued at $65.14 billion at the time of this writing -- 27.8% of Berkshire's portfolio. With a diversified revenue stream, Apple is successfully adapting to shifting consumer demands, while generating significant growth in new product segments. That's why it's a long-term hold.
The second-largest e-commerce company globally behind Alibaba by gross merchandise value, Amazon (NASDAQ:AMZN) is the exemplar of an industry disrupter. Two of its recent disruptive acquisitions have been Whole Foods Market and PillPack. Amazon acquired Whole Foods for $13.7 billion in 2017 to enter the brick-and-mortar retail space. And in 2018, it paid $1 billion to acquire PillPack, an online pharmacy set to move the pharmaceutical industry online. With over 40 subsidiaries in Amazon's pocket, its diversity of revenue is extensive -- which is part of the reason Berkshire Hathaway purchased 537,300 shares.
Within the U.S., Amazon's share of e-commerce is estimated at 37.7% by eMarketer -- down from the 2018 estimate of 47%. Shrinking market share can be attributed to other retailers such as Walmart and Target fighting back and expanding their own e-commerce platforms. However, there's plenty of room for growth, both within the U.S. and internationally.
Research and development is a key focus for Amazon's growth, as a significant portion of its R&D money is being spent on new brick-and-mortar stores that are expected to launch in 2020. Amazon's current storefronts in operation include Amazon Go, Amazon Books, and Whole Foods, which generated $17.2 billion, or 7.4% of total revenue, in 2018.
With a reported Prime membership total of 100 million members, Amazon is investing heavily in membership offerings to drive growth in this area -- including streaming video and audio. Strategically, Amazon is just getting started. It's diversifying revenue and generating a synergistic approach to acquisitions, strengthening the core e-commerce business -- which makes Amazon a perfect growth stock to buy and hold for decades.
Warren Buffett is fully aware of the current transition to a cashless economy, which is why Berkshire Hathaway owns 10.5 million shares of Visa (NYSE:V), valued at approximately $1.9 billion. The cashless economy is growing globally, and Market Reports World says the global digital payments market is expected to rise from $3.42 trillion in 2018 to $7.64 trillion by 2024, representing a compound annual growth rate (CAGR) of 13.7%. Currently, 85% of global transactions are still in cash, which leaves plenty of room for growth.
Visa operates on the tollbooth business model, receiving a payment every time a customer uses its services. A common misconception is that the company underwrites each Visa-branded credit card, which isn't true. Visa provides cross-border transaction services, fraud protection, payment security, and transaction processing services. This shields the company from the risk of borrower default and makes Visa's business model highly sustainable.
As the adoption of cashless transactions consistently moves in Visa's favor, shareholders stand to benefit, since the company's costs are low -- leaving cash on the table to reinvest in expansion and to return to shareholders. The trend of Visa's growth will be long-term and consistent.