For nearly six decades, Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett has put on a moneymaking clinic for Wall Street and everyday investors. Since taking over as CEO in 1965, he's overseen an average annual return for Berkshire's Class A shares (BRK.A) of a sizzling 20.1%. Through the end of 2021, this worked out to an aggregate return of 3,641,613%.
In other words, riding the Oracle of Omaha's coattails is a strategy known to make patient investors richer.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
With the benchmark S&P 500 delivering its worst first-half return since 1970, a number of Berkshire Hathaway's holdings are now bargains. What follows are three Warren Buffett stocks long-term investors can confidently buy hand over fist in September.
Johnson & Johnson
Although it's not a particularly large holding within the Oracle of Omaha's portfolio, healthcare stock Johnson & Johnson (JNJ -0.46%) checks all the appropriate boxes to be a screaming buy in September.
On a broad-themed basis, the beauty of healthcare stocks is that they're defensive. No matter how poorly the U.S. economy and/or stock market perform, it doesn't change the fact that people will continue needing prescription drugs, medical devices, and healthcare services. This creates a base level of demand for healthcare companies that simply doesn't go away, regardless of what's happening with the domestic or global economy.
To add to the above, Johnson & Johnson is quite a bit "safer" from an investment standpoint than your typical stock. Based on credit ratings from Standard & Poor's (S&P), a subsidiary of S&P Global, J&J is one of only two publicly traded companies to hold the coveted AAA credit rating. That's one notch higher than the U.S. federal government (AA), and it demonstrates that S&P has more faith in J&J servicing and repaying its outstanding debts than it does in the U.S. government doing the same.
Aside from being a defensive and time-tested company, Johnson & Johnson's operating segments work perfectly together to hedge its growth over time. For example, pharmaceuticals make up the majority of J&J's sales, growth, and operating margin. However, brand-name drugs have a finite period of sales exclusivity. To counter future revenue slowdowns from patent cliffs, J&J can lean on its leading medical device segment. With the global population aging and access to medical care improving, medical device makers look poised to capitalize over the long run.
Johnson & Johnson happens to be a passive-income powerhouse as well. It pays out one of the largest nominal-dollar dividends on the planet and has increased its base annual payout for 60 consecutive years. Only a small handful of public companies have longer active streaks of growing their base annual dividend.
Valued at close to 15 times Wall Street's forecast earnings for 2023, Johnson & Johnson looks like an absolute bargain.
STORE Capital
The second Warren Buffett stock to buy hand over fist in September, and a name that's certainly more under the radar than Johnson & Johnson, is real estate investment trust (REIT) STORE Capital (STOR).
The REIT operating model is pretty straightforward. REITs aim to acquire properties that can be leased out for an extensive length of time. They typically reap the rewards of rental income and property-management fees, all while avoiding the normal corporate income-tax rate as a REIT. The caveat is that REITs have to return the lion's share of their earnings to their shareholders in the form of a dividend. This is why STORE Capital is Berkshire Hathaway's highest-yielding stock (5.6% yield).
However, STORE Capital is a bit of a different beast in the REIT space. That's because it specializes in triple-net leases, which are sometimes called "NNN leases." A triple-net lease requires the tenant to cover all property costs. In addition to paying monthly rent, they'll cover utility expenses, property maintenance (like repairs and landscaping), and even tax and insurance on the property.
Although the resulting monthly rental payment is lower because the tenant is taking on more financial responsibility, it also means STORE Capital's cash flow uncertainty has been virtually eliminated. This cash flow transparency comes in especially handy in an inflationary environment like the one we're in now.
The other factor that allows STORE Capital to stand out is its strategy to purchase, in the company's own words, "profit-center real estate." Put simply, STORE Capital buys properties that are critical to the success of the businesses it leases to. In theory, this should make it far less likely that the company's tenants default on their payments.
As of the end of June, 99.5% of its slightly more than 3,000 owned properties were leased, with a weighted-average lease term of 13.2 years. What's more, STORE Capital boosted its full-year adjusted funds from operations guidance at a time when virtually all publicly traded companies are sounding a cautious tone with their guidance.
The recent pullback in STORE Capital's shares is the perfect opportunity for value and income investors to pounce.
Image source: Amazon.
Amazon
The third and final Warren Buffett stock to buy hand over fist in September is e-commerce leader Amazon (AMZN 3.43%).
Over the course of more than two decades, Amazon has gobbled up online retail market share and now stands as a towering presence over its competition. This year, Amazon is expected to bring in about $0.40 of every $1 in U.S. online retail sales, according to a report from eMarketer. No other competitor is even remotely close.
But even though Amazon generates most of its revenue from its online marketplace, retail sales aren't its key valuation driver. Rather, it's the company's fast-paced and significantly higher-margin ancillary operating segments that represent Amazon's -- and investors' -- golden ticket to riches.
As I've previously noted, Amazon has used the success of its online platform to rapidly grow its base of global Prime subscribers. As of April 2021, the company had more than 200 million subscribers. With these folks paying $139 annually or $14.99 monthly, Amazon is on track to potentially hit $35 billion in annual run-rate subscription revenue this year. That's a lot of extra capital the company can use to grow its logistics network, undercut brick-and-mortar retailers on price, and reinvest in high-growth projects.
Arguably the linchpin of Amazon's operating cash flow growth is cloud infrastructure service provider Amazon Web Services (AWS). According to a recently released report from Canalys, AWS controlled an estimated 31% of global cloud-service spending during the second quarter. Cloud growth is still in its very early innings, and despite accounting for just a sixth of Amazon's net sales, AWS is producing the bulk of the company's operating income.
On a combined basis, growth from AWS, subscription services, and advertising has the potential to triple Amazon's operating cash flow by mid-decade. Based solely on operating cash flow -- since Amazon reinvests most of its cash flow -- Amazon appears cheaper than it's ever been as a publicly traded company.
