Although Berkshire Hathaway (BRK.A 0.10%)(BRK.B 0.66%) CEO Warren Buffett's annual performance has been a bit hit and miss as of late, it's undeniable that his buy-and-hold investment strategy has worked wonders over the long term. According to Buffett's 2019 annual shareholder letter, the broad-based S&P 500 has returned a hearty 19,784% between 1964 and 2019, inclusive of dividends. By comparison, the per-share market value of Berkshire Hathaway has gained 2,744,062% over the same time frame.
Buffett's ability to identify businesses with sustainable competitive advantages and, most important, to hold those companies for extended periods of time, is why he's run circles around the stock market for more than five decades.
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I'll never sell these Buffett stocks
Currently, Buffett and his team own 48 securities, factoring in the Berkshire Hathaway annual meeting admission that all four major airlines were sold in their entirety. Of these 48 securities, four are currently companies in which I own a stake. And out of these four business, three of them I'd never consider selling.
Bank of America
First off, there's Buffett's second-largest holding by market value, Bank of America (BAC 0.67%). The nearly 948 million shares Buffett owns equates to more than $22 billion in market value.
About one decade ago, Bank of America was a mess. The company was reeling from a mountain of lawsuits filed against Countrywide Financial, which BofA acquired during the financial crisis, and the credit quality of its loan portfolio was relatively poor. Today, though, Bank of America is (thankfully) a shell of what it was 10 years ago. It put settlement charges tied to the mortgage meltdown in the rearview mirror years ago, and the credit quality of its loan portfolio has improved immensely.
Just as important, BofA has done an admirable job of controlling its expenses to improve its operating efficiency. This has been done by closing some of its physical branches and promoting digital banking and mobile bank apps to court the next-generation of banking customers. At the end of March 2020, Bank of America had nearly 30 million mobile banking customers, up 10% year over year, with a third of all consumer banking sales occurring in the digital space. It should be noted that digital transactions are a fraction of the total cost of in-person transactions.
Bank of America has also been rewarding its shareholders with steady dividend growth in recent years and an aggressive share repurchase program. Although these buybacks are currently suspended due to the coronavirus disease 2019 (COVID-19) pandemic, BofA has reduced its outstanding share count from north of 10 billion to under 8.7 billion.
I have faith in CEO Brian Moynihan, trust in the Bank of America brand, and approve of the strategies being implemented to drive growth. I see no reason to ever sell my BofA stake.
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Mastercard
Even though it's a fairly recent addition to my personal portfolio, the second Buffett stock that I have no intention of ever parting ways with is credit services provider Mastercard (MA 0.23%). Berkshire Hathaway owns 4.93 million shares of Mastercard, currently worth about $1.4 billion.
One of the greatest things about the payment-processing business model is that the infrastructure costs associated with entering it are relatively high. Thus, Mastercard only has a small handful of very serious competitors to deal with, which makes its marketing and business growth strategy easier to plot out than what you might find in other crowded industries within the finance sector.
Another very important thing to note is that Mastercard isn't a double-dipper. By this, I mean it acts solely as a payment facilitator for merchants and doesn't lend money, unlike some of its peers. Though the global economy spends far more time expanding than contracting, which does favor those businesses earning interest on the money they've lent, recessions can expose double-dippers to rising delinquency rates. Mastercard doesn't have these delinquency worries, which is why its gross margin often approaches 50% on a trailing-12-month basis.
This is also a company with plenty of opportunity domestically and abroad. Mastercard holds 22% of all U.S. credit card market share by network purchase volume -- being No. 2 in the U.S. is pretty enviable given how reliant on consumption the U.S. is for GDP growth -- and it has a massive opportunity in currently underbanked regions in Africa, the Middle East, and southeastern Asia.
I believe a double-digit growth rate is sustainable over the long term for Mastercard, making it a no-brainer stock to hang onto.
Image source: Amazon.
Amazon
Lastly, I have no plans to ever sell my stake in e-commerce giant Amazon (AMZN +2.18%). Even though Buffett himself didn't purchase Amazon, one of his team members has built up a 537,300-share position worth almost $1.3 billion.
As you're probably well aware, Amazon's e-commerce presence is unrivaled in the United States. According to eMarketer, Amazon controls approximately 38% of all U.S. e-commerce, as of June 2019. Being such a monster in the retail space allows Amazon to "hook" consumers on its ecosystem of products and has been imperative in leading to more than 150 million Prime membership purchases. The revenue collected from Prime memberships helps Amazon offset some of its weak retail margins, as well as undercut brick-and-mortar retailers on price.
Amazon has also grown into a veritable monster in the cloud services arena. Amazon Web Services (AWS) wound up generating $10.2 billion in sales in the first quarter, up 33% from the prior-year period. Despite only accounting for 13.5% of total sales, AWS was responsible for $3.08 billion of the company's $3.99 billion in Q1 operating income. Since AWS's margins are substantially higher than on the retail or advertising side of the equation, Amazon should see its cash flow explode higher as AWS becomes a larger component of total sales.
Believe it or not, Amazon is also somewhat of a value stock, if you take a good look at its cash flow and cast aside traditional valuation metrics like the price-to-earnings ratio. Over the past decade, Amazon has historically been valued at between 23 and 37 times its year-end cash flow. Assuming AWS continues to grow into a larger percentage of total sales, Amazon is currently valued at less than 12 times Wall Street's consensus cash flow for 2023.
My money is on Amazon to become the first publicly traded company to hit a $2 trillion valuation.
