My Best Warren Buffett Stock to Buy Now and Hold Forever

Under Warren Buffett's leadership, Berkshire Hathaway stock is up 527% over the past 20 years, easily beating the 295% return of the broader S&P 500. That outperformance is due in large part to Buffett's expertise as a stock picker. Berkshire's investment portfolio generated nearly $78 billion in gains last year alone.

Buffett, through Berkshire, currently has a stake in 49 different companies, and many of them look like long-term market beaters. But Amazon (AMZN -1.64%) stands out from the pack. It has established itself as a key player in three high-growth industries, and with shares trading 34% off their high, now looks like a great time to buy.

Here's what you should know.

Strong competitive position

Last year, Amazon captured 41% market share in U.S. e-commerce sales. That dominance is due in large part to its first-mover status and its expansive logistics infrastructure. With an arsenal of warehouses, trucks, and planes, the company can control shipping costs and the buyer experience to a greater degree than most of its peers, and it has consistently set the bar for fast delivery.

In the coming months, Amazon plans to flex its logistics muscles through Buy With Prime, a recently announced service that extends the benefits of its Prime membership program to third-party websites. Merchants that operate direct-to-consumer storefronts will be able to outsource fulfillment to Amazon, and consumers will get the same fast and free shipping experience they have come to expect.

Image source: Getty Images.

Beyond e-commerce, Amazon also operates the leading public cloud platform. Amazon Web Services (AWS) captured 33% market share in cloud infrastructure services the first quarter, easily outpacing the 21% market share captured by Microsoft Azure. To put Amazon's dominance in perspective, AWS has six times more customers than Azure.

Finally, thanks to the popularity of its online marketplace, Amazon has become a key player in digital advertising. The company captured 11.6% market share in the U.S. last year, and that figure is expected to reach 14.6% by 2023, according to eMarketer.

Solid financial performance

Amazon battled rising costs and an unrealized loss from its stake in Rivian Automotive in the first quarter, and those headwinds led to the company's first loss according to generally accepted accounting principles (GAAP) in several years. But those obstacles are temporary, and Amazon's financial performance has still been solid over the past three years.

Data source: YCharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

Turning to the future, Amazon still has plenty of space to grow. Online sales in the U.S. totaled $960 billion last year, according to the Department of Commerce, but that figure accounted for only 14.6% of total retail sales. That means e-commerce is still an expanding industry.

Additionally, global cloud spend will more than double in the next four years, surpassing $900 billion by 2025, according to research company Gartner. As the clear leader, AWS should benefit greatly from that trend. Better yet, because AWS' operating margin hovers consistently around 30% -- much higher than the operating margins of mid-single digits in its retail business -- the company should become more profitable as cloud computing becomes a more meaningful contributor to total revenue. That same logic also applies to Amazon's growing digital ad business.

Compelling valuation

Soaring inflation and rising interest rates have left many investors feeling uncertain about the economy, and that has sparked a significant sell-off in the stock market. Amazon has fallen 34% from its high, and shares currently trade at 2.6 times sales -- near their cheapest valuation in five years. Perhaps more compelling, the stock trades at a PEG ratio of 0.93, which suggests that it is slightly undervalued.

That's why Amazon is my top Buffett stock to buy right now.