Warren Buffett's investing savvy through his holding company Berkshire Hathaway (BRK.A -0.06%) (BRK.B -0.11%) has made more millionaires than almost every other company in history. For instance, a $1,000 investment made in the stock when Buffett stepped in as CEO in 1965 would now be worth $18 million.
Though Buffett's investing objectives may not perfectly align with yours, it's still worth tracking his portfolio because of his record for picking long-term winners. Here are five stocks from the Oracle of Omaha's portfolio that you should consider buying and holding forever.
The first stock in Berkshire Hathaway's portfolio to buy is the pharma stock AbbVie (ABBV -0.85%), with Berkshire's stake in AbbVie currently valued at $2 billion. AbbVie's dividend yield of 4% is triple the S&P 500's 1.3%.
And based on AbbVie's dividend payout ratio of 40.9% last year, the company has plenty of room to continue upping its dividend. That explains why the most recent dividend increase was a robust 8.5%.
Even with its top-selling drug in the world called Humira set to face biosimilar competition in the U.S. starting next year, AbbVie should be fine. That's because AbbVie has several dozen indications in its pipeline at various stages of development. Recent approvals like Rinvoq's eczema indication in the U.S. should help AbbVie to quickly bounce back from Humira's U.S. patent expiration while earlier-stage drugs in development should secure the company's long-term future.
This helps to explain why analysts expect AbbVie will produce a 5% annual earnings growth over the next five years. And at a forward price-to-earnings (P/E) ratio of 11.8, the stock is a solid value pick. This is despite the fact that the general drug manufacturer industry average forward P/E ratio is 10.6. AbbVie's track record justifies a slightly higher valuation multiple compared to its industry.
2. Bristol Myers Squibb
The next Buffett stock to think about purchasing is pharma stock Bristol Myers Squibb (BMY 0.56%). Berkshire Hathaway's position in Bristol Myers Squibb is worth $1.4 billion.
Bristol Myers Squibb's dividend yield is an enticing 3.2%. Given the company's 26.1% dividend payout ratio last year, there is tons of flexibility to keep growing the dividend. That's probably why the company recently hiked its quarterly dividend 10.2% to $0.54 per share.
Despite each of its top three selling drugs set to have patents expire sometime this decade (Revlimid, Opdivo, and Eliquis), Bristol Myers Squibb is well prepared. This is evidenced by the 50+ compounds that it currently has under development.
At a forward P/E ratio of 8.1, the risks of Bristol Myers Squibb's upcoming patent expirations look to be more than priced in at this time. That's because this is well below the general drug manufacturer industry average of 10.6. This creates an attractive buying opportunity for income and value investors.
The third stock in Berkshire Hathaway's portfolio to consider buying is the payments processing stock Visa (V 0.60%), with Berkshire's stake in Visa valued at $2.2 billion. Visa's 0.7% dividend yield is approximately half of the S&P 500's yield. But with a payout ratio of 21.7% in its previous fiscal year, there appear to be many years of dividend growth in Visa's future. The most recent 17.5% dividend increase supports this argument.
Visa looks positioned to come out of the COVID-19 pandemic stronger than ever. According to research released last year, 59% of North Americans and Europeans tried a new payment method in the last 12 months. Visa has the size and scale to expand into the payment methods of the future, which is why analysts anticipate the company will deliver 18% annual earnings growth in the next five years.
At the current $228 share price, Visa is priced at a forward P/E ratio of 26.5. While this is well above the credit services industry average of 15.6, this premium is deserved because Visa doesn't carry the credit risk of its peers. This is an appealing price to pay for the stock's growth prospects over the long haul.
Another Buffett stock to contemplate purchasing is the payments processing stock Mastercard (MA 0.80%). Berkshire Hathaway's position in the stock is worth $1.6 billion. Mastercard's 0.5% dividend yield isn't going to turn any heads, but it's still about as much as a high-yield savings account offers. Given that Mastercard's dividend payout ratio was 21% last year, the stock's dividend should grow like a weed. Mastercard's recent 11.4% payout increase is proof of this argument.
And just like Visa, Mastercard should benefit from recent interest in new payment methods. That spells out why analysts are forecasting 25% annual earnings growth through the next five years. The superior growth to Visa arguably justifies the higher forward P/E ratio of 29. And like Visa, Mastercard doesn't extend credit to customers, which translates into a lower-risk business model and makes it a great buy for growth investors.
The fifth stock in Berkshire Hathaway's portfolio to ponder buying is the telecom stock Verizon (VZ 0.49%), with Berkshire's stake in Verizon valued at $8.4 billion. Verizon yields a massive 4.8% at the current share price. And investors can count on the payout to continue growing because the company's payout ratio last year was 46.8%.
This low payout ratio leaves Verizon with the capital necessary to roll out 5G in the markets that don't yet have the next generation of wireless communications. As a result, analysts are expecting Verizon will produce a 4% earnings growth each year over the next five years. Since Verizon is trading at a current P/E ratio of less than 10, the stock looks to be an appealing value and income play. Income investors looking for a slow and steady grower would do well to consider buying Verizon.