The ultimate goal of investing is to make money. This allows you to better your future, the future of your family, and possibly even that of the world at large. And the best way to become a successful investor is to pick out a few all-time great investors and emulate their investing habits and behaviors.
Value investors need look no further for a role model than Warren Buffett, Berkshire Hathaway's chairman and CEO. Alongside his business partner, Charlie Munger, Buffett has built Berkshire Hathaway into the largest holding company in the world.
This is why it's worthwhile to consider the company's dozens of stock holdings for your portfolio. Here are two quality stocks with the potential for double-digit upside in 2023 alone to think about buying and holding for the long haul.
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1. Floor & Decor: A specialized player in a huge industry
Since its founding in 2000 in Atlanta, Georgia, Floor & Decor (FND -0.11%) has grown into a $7 billion (by market capitalization) home improvement retailer in a niche market. How did the company achieve this laudable feat in such a short time?
The company's large, warehouse-format stores differentiate it from Home Depot and Lowe's. By focusing exclusively on hard-surface flooring, it can stock roughly 4,100 products in its stores, which is an unmatched product offering. It also sources its products right from manufacturers for greater cost savings.
Thanks to these differentiating factors, $10,000 invested in Floor & Decor when it went public in April 2017 would be nearly $24,000 now. Investing the same amount in the S&P 500 index would have returned just $18,000 in the same time with dividends reinvested. And with just 178 warehouse-format stores and five design studios through the U.S., the company has plenty of room for additional growth.
That is how analysts anticipate that Floor & Decor's earnings will compound at 19.4% annually over the next five years. For context, this is almost triple the home improvement retail industry average of 6.6%.
With such a promising forecast, it's easy to understand why Berkshire Hathaway owns a 4.5% stake in the retailer worth approximately $340 million. And trading at a forward price-to-earnings (P/E) ratio of 22.1, the stock isn't much more expensive than the home improvement retail industry average forward P/E of 17.5.
This is why analysts have a 12-month share price target of $89 for Floor & Decor, approximately 25% upside from the current $71 share price.
2. RH: A lucrative business strategy
RH's (RH -4.17%) $6 billion market cap positions it as a leading luxury home furnisher. The company's size and scale attract the best and brightest designers and artisans to its brand, which sets it apart from the competition. This allows RH to appeal to wealthier potential customers, those unlikely to be hit hard by economic downturns.
And the company's luxury products also result in luxury margins. RH's 24% operating margin is much higher than the industry average of 16%.
Thanks to the company's competitive advantages, it has vastly outperformed the S&P 500 index over the last 10 years. A $10,000 investment in RH would have blossomed into $84,000, while the S&P 500 index would have turned that same amount into $33,000 over that time with dividends reinvested.
With plans in place to expand its design galleries to every major market throughout the world, RH could have loads of growth left in its future. This should power its potential for more market-beating total returns, which explains why Berkshire Hathaway owns a 10% stake (worth $632 million) in the company.
RH's forward P/E ratio of 14.8 is also within reason, considering that the specialty retail industry's average multiple is 15.3. This is why analysts have a 12-month price target of $304 for RH, which would work out to a 14% gain from the current $267 share price.
