If you follow stocks, then you've undoubtedly heard of legendary investor Warren Buffett and his conglomerate Berkshire Hathaway (BRK.A 0.72%) (BRK.B 0.85%). Inside Berkshire Hathaway is an equities portfolio that now exceeds $300 billion after an absolutely insane run. In total, Buffett has steered Berkshire to a more than 2,744,062% in per-share market value gains over the last 55 years.The stock has also averaged a 20% annual return since 1965.No wonder Buffett has made such a large fortune and is considered one of the fathers of investing.
With such a pristine resume, it's a good idea for investors to take a page from Berkshire's playbook. With that said, we put together a panel of Motley Fool contributors who identified three stocks in Berkshire's portfolio that look like great long-term investment opportunities: Amazon (AMZN 0.05%), U.S. Bancorp (USB 0.68%), and Berkshire Hathaway itself. Read on to see why these Buffett stocks are no-brainers right now.
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Keith Noonan (Amazon): Berkshire Hathaway started building a position in Amazon stock in 2019, and it's a move that Buffett regrets not making sooner. The Oracle of Omaha is most famous for seeking out value plays, but it's also clear that he doesn't have an overly rigid distinction between "value" and "growth" when it comes to great companies.
Speaking on Berkshire's decision to initiate its position in Amazon, Buffett had this to say: "The idea that value is somehow connected to book value or low price/earnings ratios or anything -- as Charlie has said, all investing is value investing. I mean, you're putting out some money now to get more later on."
With its growth-dependent valuation and complex business, Amazon might not look like the kind of stock pick that Buffett and vice chairman Charlie Munger are best known for. However, when it comes to Buffett-favored qualities such as moat, brand strength, and consistently high-level business execution, vanishingly few companies have a stronger overall profile.
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Amazon is one of the best companies in the world. With market-leading positions in e-commerce and cloud-computing services, the tech giant is at the center of industries that have played massive roles in shaping the modern world. In addition to its core online retail and cloud-services businesses, the company has also secured a third-place position in the digital advertising market, and its fast-growing ads business will likely continue to take market share from Alphabet and Facebook through the next decade.
Even better, Amazon isn't just resting on its laurels -- as incredible as they are. The company's recently announced push into the smart television space shows that it's committed to building out a broader hardware ecosystem, and the tech giant's early leadership in voice-based operating systems and top-tier data analytics resources suggest it's in a great position to continue expanding its family of products and services.
Amazon is a company that's built for the future -- and one that's building the future. If you're looking to start out relatively small with your investment, the option to purchase fractional shares opens the door for an easy entry point. Whether you're just getting started investing or a seasoned pro like Buffett, your future self will probably thank you for buying Amazon stock.
A longtime Buffett bank
Bram Berkowitz (U.S. Bancorp): A Buffett bank since 2007, the Minnesota-headquartered U.S. Bancorp survived the huge bank sell-off by Buffett and Berkshire Hathaway during the brunt of the pandemic. Berkshire did slightly trim its stake in U.S. Bancorp but in general maintained its overall position in the company after selling off a slew of popular mega banks and other regional banks. Yes, it looks like U.S. Bancorp is Buffett's large regional bank of choice on his bank roster going forward.
And the pick certainly makes sense. U.S. Bancorp has consistently generated strong, risk-adjusted returns over the last decade. Aside from its strong fundamentals, what sets U.S. Bancorp apart from its peers is the bank's unique payments business, which includes a retail payments solutions group, global merchant acquiring, and corporate payments. The segment typically contributes a quarter of the bank's annual overall profits.
The payments business struggled during 2020, as consumer spending and corporate spending stalled, but has rebounded nicely this year. Management at the bank has been investing heavily in the payments business, and there are significant cross-selling opportunities remaining, as well as other products the bank can sell as it looks to further integrate the commercial bank and payments business. Management said earlier this year that it expects to provide more details on this plan some time before the end of the year.
As a longtime strong performer, U.S. Bancorp is not cheap and currently trades at roughly 250% tangible book value, which is a bank's equity minus its goodwill and intangible assets, and ultimately a measure of what the bank would be worth if it were to be immediately liquidated. That's certainly on the expensive end of bank valuations, but again the bank is fundamentally strong, and there is a lot more U.S. Bancorp can do with its payments business. If this pans out, a higher valuation is certainly warranted, so I'll certainly be watching for updates on the payments business in future earnings calls.
Buffett's absolute favorite stock to buy
Nicholas Rossolillo (Berkshire Hathaway): When it comes to quarterly stock purchases, there's one name Warren Buffett has been betting on the most lately: His own. Buffett and company have repurchased some $30.5 billion of Berkshire Hathaway in the last year, $12.6 billion of that during the first half of 2021. While the pace of repurchases has slowed as of late (down from the second half of last year when Berkshire Hathaway shares were still down during the start of the pandemic), clearly Buffett thinks his holding company is still a compelling value.
I agree. Shares of Berkshire Hathaway are up nearly 90% over the last trailing five-year stretch, but the sprawling industrial conglomerate's price-to-book value is virtually unchanged over that span of time. And as effects of the pandemic gradually ease, various wholly owned businesses in insurance, energy, transportation, and manufacturing (like GEICO insurance and BNSF Railroad, to name just two) will continue to rebound. Even in tough times, this company is a cash-generating machine and will always provide more capital from which Buffett can make more repurchases -- or go shopping for other stocks to add to the portfolio.
Granted, a proposed 2% tax targeting corporations that repurchase billions of their own shares could further slow Berkshire Hathaway's shareholder return of cash. Two percent is a small figure in the grand scheme of things for a company with $141 billion in cash and short-term equivalents ready to deploy, but it could nevertheless influence stock buybacks if the law is eventually passed. Perhaps some of this capital will be redirected away from purchasing more Berkshire stock in the coming quarters. Time will tell.
But in the meantime, Berkshire Hathaway is a great buy, yielding instant access to many top names across essential sectors of the global economy. The dozens of subsidiaries operating under the Berkshire Hathaway banner are best-in-class and still look like a great value for the long haul -- and if you buy now, you're in pretty good company.
