Since becoming CEO of Berkshire Hathaway (BRK.A -0.34%) (BRK.B -0.01%) in 1965, billionaire Warren Buffett has run a master class on how to make money.
Even though the Oracle of Omaha isn't infallible, and Berkshire does, on rare occasion, underperform the market, the aggregate return of the company's Class A shares (BRK.A) during Buffett's tenure -- a return of more than 3,600,000% -- is 120 times higher than the total return, including dividends, for the benchmark S&P 500 over the same period.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Buffett's long-term outperformance is tied to a long list of factors, including his narrow research focus and love of dividend stocks. But it could be rightly argued that his willingness to buy and hold great companies over very long periods is the golden ticket to his and his shareholders' success. It can be the key to your success, too.
You can confidently buy the following five Warren Buffett stocks right now and, best of all, never have to sell them.
Johnson & Johnson
The first Buffett stock to buy and hold forever is healthcare conglomerate Johnson & Johnson (JNJ 0.29%).
Perhaps the most distinctive fact I can offer about J&J is that it's one of only two publicly traded companies with the highly coveted AAA credit rating from Standard & Poor's (S&P, a subsidiary of S&P Global). To put this into some context, S&P has more faith that Johnson & Johnson will service and repay its outstanding debt than it does in the U.S. federal government (which has only a AA credit rating) making good on its debts. That says something about the quality and longevity of J&J's operating model.
Something else to consider about Johnson & Johnson is that it's a highly defensive stock. Since we don't get to choose when we get sick or what ailment(s) we develop, there will always be relatively steady demand for prescription drugs, medical devices, and healthcare services in any economic environment. This is what helped J&J grow its adjusted operating earnings every year for more than three consecutive decades.
The company's diverse business segments play a key role in its success as well. While pharmaceuticals generate the bulk of Johnson & Johnson's growth and operating margin, brand-name drugs offer a finite period of sales exclusivity. Thankfully, J&J can lean on its mammoth medical-device segment, which appears perfectly positioned to grow over time as baby boomers age domestically and access to medical care improves internationally.
The cherry on the sundae with J&J is that the company has increased its base annual payout for 60 consecutive years. In terms of safety and stability, Johnson & Johnson checks all the appropriate boxes.
U.S. Bancorp
A second Warren Buffett stock investors can scoop up right now with the intention of never selling is regional-banking giant U.S. Bancorp (USB -0.20%).
Whereas J&J is highly defensive, bank stocks like U.S. Bancorp are cyclical. This means they ebb and flow with the U.S. and/or global economy. When recessions arise, it's not uncommon for banks to see an increase in loan delinquencies and charge-offs.
However, you should understand that periods of economic expansion last disproportionately longer than recessions. After navigating downturns, which typically last a few quarters, U.S. Bancorp often gets to enjoy years of economic expansion, along with their accompanying loan and deposit growth.
To add to this point, U.S. Bancorp's leadership has traditionally been conservative. While money-center banks have been ravaged by riskier derivative investments during recessions, U.S. Bancorp's avoidance of these risks has it exiting downturns much faster than its peers. This is a big reason why the company's return on assets tends to be higher than that of other large banks.
But perhaps the best aspect of U.S. Bancorp is its digital push. As of Feb. 28, 81% of its customers were actively banking online or via mobile app. What's more, 65% of all loan sales were completed digitally, which was up 20 percentage points from the beginning of 2020. Because digital sales are considerably cheaper for banks, this digitization push is helping to make U.S. Bancorp even more efficient.
Image source: Getty Images.
Visa and Mastercard
The third and fourth Warren Buffett stocks you can buy without ever having to sell are payment processors Visa (V 0.65%) and Mastercard (MA 1.33%). I've chosen to put these two companies together because their operating models, and therefore catalysts, are nearly identical.
Just as U.S. Bancorp benefits from economic expansions lasting substantially longer than recessions, so do Visa and Mastercard. These are companies driven by increased consumer and enterprise spending. As the U.S. and global economies naturally expand over time, Visa and Mastercard will reap the rewards.
Aside from being cyclical, one of the biggest reasons these two companies have found success is their market share in the U.S. -- the largest market for consumption in the world. As of 2020, Visa and Mastercard respectively controlled 54% and 23% of credit card network purchase volume in the U.S., based on Securities and Exchange Commission filings by the four largest credit card networks.
Furthermore, Visa and Mastercard don't act as lenders. Although neither company would have any issue generating interest income and fee revenue as a lender, doing so would expose each to the potential for loan losses during inevitable economic downturns. Because both strictly stick to payment processing, neither has to set aside capital to cover loan losses. This oft-overlooked point explains why Visa's and Mastercard's respective profit margins are above 50% and 45%, and illustrates how both companies can bounce back from recessions so quickly.
A final reason to trust Visa and Mastercard is the growth runway for cashless payments. With a large part of the world's transactions still conducted using cash, there's ample organic and acquisitive opportunity for expansion into underbanked regions.
Amazon
A fifth and final Warren Buffett stock to buy and never sell is e-commerce heavyweight Amazon (AMZN 1.30%).
While much of Wall Street is focused on the many headwinds retailers are encountering, it's overlooking the clear-cut competitive advantages offered by an industry titan like Amazon.
For example, a March report from eMarketer projected that Amazon will bring in just shy of 40% of all U.S. retail sales in 2022. That's about 8.5 percentage points higher than Amazon's 14 closest competitors added together. The company's complete dominance of the online retail marketplace has helped it sign up 200 million people for Prime memberships. The fees it collects from Prime help fuel its logistics network and undercut its competition on price.
While retail is what Amazon is best known for, the company's cloud services segment, Amazon Web Services (AWS), is its cash cow. AWS is the world's leading cloud infrastructure provider, with sales consistently growing by 30% to 40% over the past couple of quarters. What's important here is that cloud service operating margins are significantly higher than online retail operating margins. As AWS grows to become a larger percentage of total sales, Amazon's operating cash flow should soar.
And it's not just AWS. The company's other higher-margin segments, such as subscription services and advertising, contribute to Amazon's cash flow generation and should provide a long-term lift.
