When it comes to picking great stocks, Berkshire Hathaway (BRK.A 1.18%) (BRK.B 1.30%) CEO Warren Buffett is in a class of his own. Over the last 55 years, Buffett has helped Berkshire's stock achieve a compound annual average gain of 20.3%, which more than doubles the total return of the S&P 500, inclusive of dividends. Overall, $100 invested in Berkshire Hathaway stock at the beginning of 1965 would have been worth over $2.7 million by Dec. 31, 2019.
When Warren Buffett buys a stock, Wall Street and retail investors pay attention. The Oracle of Omaha has a knack for picking out winners. There's a good chance that Berkshire Hathaway's portfolio is holding a number of companies with the potential to outperform over the long run.
Here are four Buffett stocks that have the tools and intangibles to be surefire winners over the next decade.
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Bank of America
Bank stocks are possibly the furthest thing from investors' minds at the moment. That's because the Federal Reserve's dovish monetary policy and unlimited quantitative easing measures are going to hamper the net interest income earning potential of banks for at least a few years. Add on the expectation of rising loan delinquencies associated with the coronavirus disease 2019 (COVID-19) recession, and you have a recipe for compressed earnings growth.
However, none of this is going to be of long-term concern to money-center giant Bank of America (BAC 3.35%). Among the big banks, none is more interest-sensitive than BofA. This implies that when the Fed does begin to raise its federal funds rate by mid-decade, Bank of America is going to be the prime beneficiary. In other words, its earnings could expand at a more pronounced rate than any of its peers. That's an attractive proposition with the company currently valued at 84% of its book value.
Furthermore, Bank of America's digital engagement trends are very promising. Digital sales (mobile and online) represented 44% of consumer sales during the recently ended third quarter, up from 29% in the prior-year period. In total, there were 2.3 billion digital logins in Q3 2020. Since online and mobile transactions cost BofA so much less than in-person and over-the-phone interactions, these cost savings should boost the company's bottom line.
Image source: Amazon.
Amazon
E-commerce kingpin Amazon (AMZN -2.56%) was purchased by one of Buffett's investing lieutenants early in 2019. Even with a market cap of close to $1.6 trillion, it should remain a core holding with significant upside for long-term investors.
Although retail margins are usually very thin, there's plenty of opportunity for Amazon to pivot its retail dominance into added profits. The company's superior logistics have helped sign up more than 150 million Prime members worldwide. The fees Amazon collects from these members pad its margins and help it undercut other retailers on price. It also doesn't hurt that folks willing to pay for a Prime membership are more likely to do their shopping with Amazon rather than a brick-and-mortar competitor.
Yet retail isn't Amazon's fastest-growing industry. Over the long run, the company's cloud infrastructure segment, Amazon Web Services, is what makes this company a bargain. With COVID-19 forcing employees out of the office and pushing small- and medium-sized businesses online, the building blocks of cloud infrastructure have become more important than ever. That's great for Amazon because cloud margins are light-years higher than retail and ad-based revenue. AWS will likely play a key role in Amazon tripling its annual operating cash flow by 2023 or 2024.
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Visa
If history has proved anything, it's that payment processor Visa (V -0.59%) can't be held down for long, if at all. Like BofA, it's dealing with weakness from the COVID-19 recession as consumers holster more of their cash. Still, the future remains bright for this Buffett stock.
Visa is the most dominant payment facilitator in the U.S. -- the largest economy in the world by gross domestic product. Between the trough of the 2009 Great Recession and 2018, the amount of purchase volume traversing its networks surged by 156%, with Visa picking up close to 10 percentage points of market share in the U.S. Since periods of economic expansion last considerably longer than economic contractions or recessions, buying and holding Visa is a smart numbers bet.
Also, don't overlook Visa's role in the payment processing space. While some of its peers act as both payment facilitators and lenders, Visa sticks to the facilitation side of the equation. When economic contractions and recessions arise, Visa doesn't have to worry about any direct impacts from rising loan delinquencies. This is why its profit margin is usually above 50%, and why the company emerges from downturns much faster than other financial stocks.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Berkshire Hathaway
A final stock that should be a surefire winner over the next decade is (drumroll) Berkshire Hathaway. Though Buffett's own company doesn't show up in his investment portfolio, he and his right-hand man Charlie Munger have approved the repurchase of nearly $13 billion in Berkshire Hathaway stock over the past two years.
As noted earlier, Buffett and his team have a knack for making investors money. As CEO, the Oracle of Omaha has overseen the creation of more than $400 billion in value for Berkshire Hathaway's shareholders.
Berkshire has been so successful partly because Buffett has loaded his company's portfolio with cyclical, multinational companies. Like Visa, Buffett is playing the numbers game and simply betting on bull markets lasting considerably longer than periods of contraction. As long as U.S. GDP expands over time, Buffett's portfolio should do well.
Buffett and his team have also acquired around five dozen diversified businesses over many decades. In many instances, these are businesses that can thrive in any economic environment. If not for Buffett's investment in Apple, which has gained about $80 billion (unrealized), Berkshire's acquisition of insurer GEICO might be the Oracle of Omaha's greatest investment of all time.
