Few, if any, investors have been more consistently successful over the long run than Berkshire Hathaway (BRK.A 1.18%) (BRK.B 1.30%) CEO Warren Buffett. Folks might find his buy-and-hold tactics a bit boring, but they certainly can't argue against the results. Since he took control of Berkshire Hathaway in the mid-1960s, the company's Class A shares (BRK.A) have averaged an annual return of 20%. Including Berkshire's almost 21% year-to-date share price appreciation through June 27, 2021, we're talking about an aggregate return of almost 3,400,000%!
The Oracle of Omaha, as Buffett has affably come to be known, has a knack for spotting companies with plain-as-day competitive advantages. Of the four dozen securities that currently make up Berkshire Hathaway's $307 billion investment portfolio, the following three are stocks you're never going to have to sell.
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Johnson & Johnson
Even though healthcare conglomerate Johnson & Johnson (JNJ 1.49%) is a relatively small holding in Buffett's portfolio, it's a company that investors can confidently buy and never have to worry about selling.
Just how confident can you be that J&J is a rock-solid company? According to credit ratings agency Standard & Poor's, only two publicly traded companies hold the highest rating possible (AAA). One of those two is Johnson & Johnson. This means S&P has more faith that J&J will be able to repay its debt than it does that the AA-rated U.S. government will be able to make good on its outstanding debt.
What makes Johnson & Johnson such a special company is its three operating segments, each of which brings something important to the table. For example, J&J's consumer healthcare products division is slow-growing. However, it generates highly predictable cash flow and sells inelastic products that are purchased no matter how well or poorly the U.S. economy is performing.
J&J is also a global leader in medical devices. While near-term margins remain under pressure due to increasing competition, the long-term outlook for devices is particularly bright. As the U.S. and global population age, devices will be leaned on to a greater degree over time to improve quality of life.
Johnson & Johnson's third operating segment is brand-name pharmaceuticals. This is where the company currently generates the bulk of its sales and earnings growth. But since brand-name therapies have a finite period of exclusivity, medical devices and consumer healthcare products can step in to fill the gaps, so to speak, when exclusivity issues arise.
As the icing on the cake, J&J is riding a 59-year streak of increasing its base annual dividend.
Healthcare stocks simply don't get safer than Johnson & Johnson.
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Visa
Another Warren Buffett stock you'll never have to sell is payment-processing giant Visa (V -0.59%).
Visa is the beneficiary of a numbers game where long-term investors pretty much never lose. On one hand, recessions and economic contractions are inevitable. As a cyclical company that's dependent on higher spending, Visa is not impervious to pain. The thing is, recessions and economic contractions tend to be very short-lived. Comparatively, periods of economic expansion usually last for multiple years, if not a decade. Buying and holding Visa allows you to take advantage of these disproportionately longer periods of expansion in the U.S. and global economy.
Visa is also the kingpin in the highly lucrative United States. As of 2018, it controlled 53% of U.S. credit card network purchase volume. That's more than double that of its next-closest competitor, Mastercard. With approximately 70% of U.S. gross domestic product driven by consumption, Visa is at the heart of U.S. economic growth.
Interestingly, the world's top payments processor isn't a lender. Although some of its peers have chosen to lend in order to collect interest income and fees, this has never appealed to Visa. It might sound like an opportunity, but Visa avoids having to set aside capital when those inevitable economic contractions or recessions arrive. This avoidance of credit delinquencies is precisely why Visa is so quick to bounce back from recessions, and it perfectly explains why its gross margin is regularly 50% or higher.
But perhaps the greatest thing about Visa is that its growth story is nowhere near complete. A vast majority of the world's transactions are still being conducted in cash. Expanding to underbanked regions of the world, or using acquisitions as a pivot to grow in developed markets (e.g., the Visa Europe acquisition in 2016), are all ways Visa can maintain its superior growth rate for a long time to come.
Image source: Amazon.
Amazon
The final Buffett stock you'll never have to part ways with is e-commerce juggernaut Amazon (AMZN -2.56%). It's worth pointing out that while Amazon is part of Berkshire Hathaway's portfolio (ergo, a Buffett stock), it was added by two of the Oracle of Omaha's investing lieutenants, Todd Combs and Ted Weschler, and not Buffett himself.
What makes Amazon such a rock-solid company is that it's absolutely dominant in two niches. First, as almost everyone is probably aware, Amazon is the leading online retailer in the United States. An April 2021 report from eMarketer pegged its share of U.S. online sales at 40.4%, or more than five times higher than the next-closest competitor.
Although retail margins are generally nothing to write home about, Amazon has been able to use its utter dominance of the online retail space to sign up north of 200 million people to a Prime membership. Prime members tend to spend a lot more than non-Prime shoppers, and the fees Amazon collects from Prime help it to buoy its thin retail margins.
What folks might not realize is that Amazon sits atop the cloud infrastructure services industry, as well. Amazon Web Services (AWS) controls almost a third of the infrastructure-as-a-service (IaaS) market. More importantly, cloud services boast considerably higher margins than retail or advertising. Even though AWS only accounts for an eighth of the company's total sales, it's been consistently producing roughly 60% of total operating income.
Between the higher fees Amazon is generating from Prime, the steady uptick in online sales market share, and AWS's rapid growth, Amazon could triple its operating cash flow by mid-decade. In other words, it's an unstoppable growth stock.
