During Berkshire Hathaway's (BRK.A -0.34%) (BRK.B -0.01%) annual meeting last weekend, CEO Warren Buffett made the following pronouncement:
Stocks have an enormous advantage and ... if you bet on America, and sustain that position for decades, you're going to do better than, in my view far better than, owning Treasuries securities.
Since the legendary investor took the helm of Berkshire in 1965, it has generated compounded annual gains of more than 20%, and by the end of 2019, it had increased in value by a massive 2,744,062%. Given his track record, investors could do far worse than follow the example of the Oracle of Omaha.
In times like these, making sure that your emergency fund is topped off should be a high priority. But if you've done that and still have some free cash leftover that you don't expect to need for the next three to five years -- $3,000 for example, though any amount will do -- now's a good time to invest in strong businesses. And among Berkshire Hathaway's holdings, I think these three, in particular, have plenty of room to run in the years to come.
Image source: The Motley Fool.
1. Visa
If there's one industry that's a no-brainer when it comes to periods of economic uncertainty, it's probably payment processing. Even with consumers reining in their spending to get through the tough times, they still have essential purchases to make, and no company is better positioned to benefit from that spending than Visa (V 0.65%).
The payments leader accounted for 53% of U.S. credit card network purchase volume, amounting to nearly $2 trillion in payments processed in 2018 -- dwarfing its three largest rivals combined. Perhaps even more importantly, unlike several of its primary competitors, Visa doesn't lend money. That represents a huge advantage at a time when unemployment is clocking in at a staggering 14.7% and the risk of credit delinquency and default continues to ratchet higher.
Finally, the company still has a long road for growth ahead, particularly in international markets. Visa estimates that around the world, people still make about $21 trillion worth of purchases with cash each year, and there are nearly 2 billion consumers without payment accounts, giving the company a large, and potentially lucrative, market opportunity to tap for growth.
Apple recently released the budget-conscious iPhone SE. Image source: Apple.
2. Apple
There's no denying that Apple (AAPL 0.64%) was hit hard by the COVID-19 pandemic. In its fiscal second quarter, which ended March 28, the company eked out revenue gains of just 1% year over year, thanks to strength from its services and wearables segments. But iPhone sales -- the largest single contributor to Apple's top line -- slumped by 7%. To put that into context, revenue in its fiscal first quarter climbed 9%, while iPhone sales jumped 8%.
Yet all is not lost for Apple. In a somewhat prescient step, it recently reintroduced a lower-cost iPhone SE, a move it had been planning for some time. With a starting price of just $399, the device should appeal to budget-conscious smartphone shoppers who might otherwise have waited to upgrade.
Then there's Apple's services segment, where revenues rose 17% year over year to an all-time record last quarter, despite the coronavirus headwinds -- or perhaps aided by them. The success was broad-based, with record sales from the App Store, Apple Music, video, and cloud services, as well as across most countries. Clearly, the segment got a boost from consumers under stay-at-home orders.
The wearables, home, and accessories segment also had a record-setting quarter, with revenue up 23% year over year, led by strong demand for AirPods and the Apple Watch.
This stock is still selling at a discount to its pre-coronavirus levels, but once investors realize Apple isn't a company on the brink, that sale won't last long.
Image source: Amazon.
3. Amazon
While Amazon (AMZN 1.30%) may not check all the boxes of the typical Buffett stock, the legendary investor's view on it is well-documented.
Amazon has "far surpassed anything I would have dreamt could have been done. Because if I really felt it could have been done, I should have bought it," Buffett said back in 2018. "I had no idea that it had the potential. I blew it."
It's also worth noting that it wasn't Buffett who finally pulled the trigger on putting it into Berkshire's portfolio, but one of his top-level subordinates, likely Todd Combs or Ted Weschler.
After initially falling as the pandemic began to make its impact felt in the U.S., Amazon stock recovered those losses and kept rising, holding up far better than most stocks since mid-February. Year to date, it's now up by around 29%, while the S&P 500 is still down by around 9%. Amazon services, from e-commerce to streaming video, and from cloud computing to Twitch, have become indispensable to consumers and businesses alike during the pandemic.
The tech titan reported its first-quarter earnings last week, and the results were remarkable. Net sales climbed 26% to nearly $76 billion and the company generated $4 billion in operating profits, despite coronavirus-related headwinds. Amazon has a bold vision for adapting to these unprecedented conditions, and it plans to spend $4 billion in the coming quarter to reduce the danger of its employees contracting COVID-19 at work, or exposing customers to it. News of that massive outlay initially sent the stock downward, but it's classic Amazon to be looking far into the future.
E-commerce represented just 11% of the total retail sales in the U.S. and the trend continues to gain steam. The new customers and new spending Amazon has acquired during the pandemic will still be around long after the crisis recedes, with even more to come.
