Warren Buffett has guided Berkshire Hathaway to market-crushing returns through good times and bad, and the Oracle of Omaha's investment conglomerate has now posted a total return of roughly 3.5% year to date. That might not sound like much, but it's pretty darn impressive considering that the S&P 500 index's return level is down 15% in 2022.
With a tip of the hat to Buffett's impressive market-beating mojo, a panel of Motley Fool investors has identified a trio of great stocks in the Berkshire portfolio that have what it takes to deliver fantastic performance. Read on to see why they identified Amazon (AMZN -1.65%), Kroger (KR -0.43%), and Apple (AAPL 0.52%) as stocks that can help you crush the market over the long term.
Image source: The Motley Fool.
An incredible company at a great price
Keith Noonan (Amazon): The market has fallen out of love with Amazon. Some of this is due to investors fleeing growth stocks in search of safer options amid risk factors including rising interest rates, high inflation, and other sources of macroeconomic uncertainty.
With the tech-heavy Nasdaq Composite index down roughly 25% this year alone, there's definitely a broader shift at play, and it's not shocking to see Amazon stock impacted by the trend. There have also been some individual, company-specific catalysts driving sell-offs, and Amazon shares are now down roughly 43% from the high they hit last year.
Following surging demand created by pandemic-related conditions, Amazon's e-commerce business is now growing at a much slower clip. Making matters worse, the company is also seeing segment expenses increase due to elevated shipping costs and other inflationary pressures. Those factors alone might have been enough to put some investors off of the stock, but Amazon is also in the midst of a massive spending push to expand its infrastructure and improve its technology resources.
In short, there's a perfect storm of catalysts leading to big losses at the e-commerce business right now, and it's hurting the company's overall profitability. On the other hand, the long-term outlook for Amazon's online-retail segment remains incredibly promising, and its cloud services business is fantastically profitable and continues grow at an impressive clip.
With near-term business headwinds and market volatility currently shaping sentiment on the stock, long-term investors have an opportunity to build positions in one of the world's best companies at a great price.
When in doubt, push a pawn
James Brumley (Kroger): A pawn is the foot soldier of the chess board. They can't do a lot, but there are lots of them, and they serve their purpose. The cliche "when in doubt, push a pawn" is just a clever way of saying when you don't know what move to make, moving a pawn forward is a relatively low-risk decision that might end up helping quite a bit.
The Kroger Company is a proverbial pawn. The grocery business is neither high-growth nor high-profit, but it's the sort of business that performs the same in any environment. Not even inflation is a major stumbling block for the industry, since higher prices can be passed along to consumers, who have to eat.
To this end, know that Kroger shares are performing surprisingly well against an otherwise bearish backdrop. The stock's up 20% since the end of last year while the S&P 500 is down 15%, largely because investors -- with few other dependable choices -- are seeking out reliable consumer goods names. If this economic malaise is going to persist, there's no reason to think Kroger shares won't continue to outperform.
Take a bite out of this Buffett favorite
Daniel Foelber (Apple): At first glance, Apple doesn't look like the kind of company that Buffett would fancy. After all, Berkshire Hathaway's holdings tend to be value stocks with solid fundamentals and safe cash flows. But over 38% of Berkshire's public equity portfolio is in Apple stock. And for good reason.
Apple may be a tech company. But its business model is, in many ways, more like a consumer goods company. High-functioning smartphones and computers have become consumer staples in today's society. And for many folks, tablets and wearables like smartwatches and AirPods are essential products, too.
What separates Apple from other companies is its ability to grow its total reach, retain existing customers, and increase customer spending year after year through price increases and new product offerings. For many customers, switching from Apple to competing products isn't even a question because Apple integrates its consumer tech arguably better than any company in the world.
What's more, Apple has been able to grow earnings and buy back shares at such a rapid pace that its stock is still not expensive even though it has increased by over 600% in the last 10 years. Down over 20% from its high, Apple sports a price-to-earnings ratio under 24 and is the only U.S. company with a trailing-12-month net income of over $100 billion. Apple has growth, its stock is a good value, it makes a ton of money, and it dominates its industry.
Apple's sales would likely slow in a recession as consumers resist upgrading to the shiniest new thing. But even with a slowdown in its business -- Apple would still be set up to return a massive profit and use excess cash to buy back its own stock. Given rising interest rates, fears of a recession, and ongoing inflation, it's hard to think of a safer tech stock than Apple.
