If you're looking to invest like Warren Buffett's Berkshire Hathaway, you'll need to be ready to strap in for years on end to see your purchases pay off big. The Oracle of Omaha is accustomed to that, but for most everyone else, it's nice to see a bit of growth right away to confirm that their decision was sound.
In that vein, there are a couple of Buffett stocks that are likely to be both short- and long-term winners. You probably won't lose any sleep at night as a result of holding these companies. And you'll likely become wealthier, too.
1. Johnson & Johnson
Though it only makes up 0.02% of Buffett's holdings, Johnson & Johnson (JNJ 0.82%) is a great stock for the steady and long-term wealth compounding he's known for chasing. Since early August 2012, its trailing-12-month (TTM) net income has grown by 116%, topping $18.3 billion. To accomplish that, the company develops and sells a slew of medicines and vaccines, not to mention medical devices and consumer health products like Sudafed and Tylenol.
It's likely that J&J's long track record of success in growing its diversified base of revenue year after year is what attracted Buffett. The only competitive advantages that the company has are its sheer scale compared to competitors and the brand strength of its products, so it doesn't exactly have the wide economic moat that Buffett would normally be looking for.
Nonetheless, a large portion of its product mix speaks to a Buffett preference for generating income without needing to invest more in development. Think about it: You've probably bought Tylenol or Listerine mouthwash many times in your life, and the formulas haven't changed by very much at all, nor have J&J's unit economics for producing them. And the same is true for some of its medical technologies as well: Derivatives of the sterile sutures it first started making decades ago are still used in clinics everywhere.
While it hasn't outperformed the market in the last 10 years, the company delights its shareholders by consistently paying and increasing its dividend. Though Buffett isn't traditionally a lover of dividends, J&J's ability to keep paying and hiking them speaks to its financial stability and health over time, which doubtlessly both attract him. Just be ready to hold your shares for a Buffett-esque period of a few decades to get the most out of your investment.
2. Apple
Apple (AAPL 0.51%) makes up nearly 42.8% of Buffett's portfolio, and it's his single largest holding by far. Its smartphones, computers, peripherals, software, streaming video services, and payment solutions are sold around the globe, and its TTM net income of more than $99.6 billion is significantly larger than the gross domestic product (GDP) of most of the countries in the world.
Plus, Apple is the most valuable brand in the world, which means it has an economic moat that supports customer retention. And Buffett loves wide moats, as they preserve profit margins in the face of determined competition.
Its moat is so effective that its profit margin has actually been increasing over time, albeit slowly. That's quite unusual, as the typical trajectory for massive businesses is that they end up seeing their margin eroded by competition as their markets are saturated. The takeaway for investors is that Apple is so adept at developing new products in its ecosystem and catering to consumer preferences that it's hard for other players to undercut them across the board.
The other appeal of holding this stock for the long haul is that management is aggressive about returning capital to shareholders despite also spending plenty on investments for future growth. Since 2012, it repurchased $529.1 billion of its shares in addition to paying out $128.2 billion in dividends. That's a major part of the reason the return of its shares over the last 10 years crushed the market's return of 263.3%, growing by 782%.
It's forward dividend yield of less than 0.6% isn't good for much more than beer money, but with so many share repurchases, it shouldn't dissuade investors whatsoever.
