If you've got $300 ready to put to work in stocks, the Berkshire Hathaway portfolio is a great place to look for promising investments.
The investing skills of CEO Warren Buffett have delivered a compound annual return of about 20% to Berkshire Hathaway shareholders over the last 57 years. That would have turned a $300 initial investment into more than $10 million.
Let's take a look at three top stocks in the Berkshire Hathaway portfolio that would be great starter stocks for investors to buy today.
1. Amazon
Amazon (AMZN 0.58%) is a smaller holding for Berkshire Hathaway. It was likely picked by Ted Weschler or Todd Combs, two managers who oversee smaller portions of the conglomerate's $306 billion in equity investments. But Amazon is the kind of dominant, market-leading business that would appeal to Buffett, too.
In fact, Berkshire Hathaway Vice Chairman Charlie Munger called Amazon an "utter phenomenon of nature" in an interview with CNBC a few years ago. He added that he wouldn't bet against Amazon's future and that the e-commerce titan could grow for a long time.
The 2022 market sell-off has provided investors with a great opportunity to buy the stock at a more attractive valuation. The stock fell 50% over the last year as more people returned to in-person shopping and Amazon's sales growth slowed.
The good news for investors is that Amazon might be turning the corner. Net sales, excluding the impact of currency changes, grew 19% year over year in the third quarter. That was a sharp acceleration over the second quarter's 7% growth. Amazon got a boost from its Prime Day sale, during which members purchased more than 300 million items.
The perks of free shipping and entertainment services like Prime Video are powerful levers management has at its disposal to continue winning over new customers.
The slower sales growth in 2022 sent the stock down to its cheapest price-to-sales ratio in seven years, but Amazon's future still looks bright. Companies continue to migrate their data systems over to the cloud, which is fueling the robust growth of Amazon Web Services.
What's more, despite two decades of impressive growth, Amazon still controls just a small fraction of the enormous $5.7 trillion online retail market, which is expected to grow to more than $8 trillion by 2026.
Considering these tailwinds, Amazon has plenty of opportunities to expand its business over the long term. Even if you can only afford to buy one share right now, Amazon stock could be a seed that takes root and grows much larger over time.
2. Kraft Heinz
Berkshire Hathaway's position in Kraft Heinz (KHC -0.19%) is one of the conglomerate's largest, and it's also the food company's top shareholder, owning about 26% of the total shares outstanding. What does Buffett see in the cheese and condiments maker? It's all about the power of brands.
Kraft Heinz delivered a solid increase in adjusted sales last year despite a tough macroeconomic environment. Management has successfully raised prices to offset its higher costs without losing sales. It's the type of performance you would expect from a company that owns grocery store staples such as the iconic Heinz Ketchup brand and Kraft Mac & Cheese.
Kraft Heinz is also gaining market share. While its top growth brands (Heinz, Kraft, Philadelphia, Lunchables, and Primal Kitchen) grew by 12% in the last quarter, the company also managed to get solid growth from struggling brands like Jell-O and Capri-Sun.
Management sees a significant growth opportunity in the food service space. Kraft Heinz owns one of the top sauce brands in Heinz, which gives it a strong foothold in the fast-food market, but the company controls just a low-single-digit percentage of the sauces category across the food service market.
For investors, the best part is that they can buy the stock at a value price. Shares trade at a forward price-to-earnings ratio of 15, a discount compared to the average stock's price-to-earnings ratio of about 20. Kraft Heinz's dividend also yields an above-average 3.93% at the current share price. Shareholders should see the stock increase in value over the next decade while getting paid to hold shares.
The company's strong sales growth and low valuation help explain why the stock has already outperformed the broader market over the last year -- up 13.4% at the time of this writing.
3. Coca-Cola
Berkshire Hathaway has held Coca-Cola (KO -0.46%) stock for over 30 years, and it continues to hold all 400 million shares it has bought. The reason Buffett doesn't sell is that the beverage giant is a highly profitable business that pays regular dividends, and people still consume more than 2 billion servings of Coke products every day.
While people do pay more attention to their sugar intakes these days, Coke is still a growing business thanks to a large portfolio of brands extending to coffee and energy drinks. Since 2012, Coke has increased unit sales volume across all brands from 27.7 billion to 31.3 billion as of 2021.
As with Kraft Heinz, the power of Coca-Cola's brands allowed the company to pass on its higher costs to the consumer through price increases without feeling a sales hit. Adjusted revenue increased by 16% year over year in the third quarter, with unit case volume up 4%. Coca-Cola should be able to grow for a long time since it only controls 14% of the market for hot and cold beverages.
Combine its steady unit sales growth with a highly profitable business and its long record of paying dividends, and you get a stock that should continue delivering reliable returns for many years.
The stock is not as cheap as Kraft Heinz, with a forward price-to-earnings ratio of 25 based on this year's estimates. But Coca-Cola's dividend yields an above-average 2.8% at the current share price, and it has increased its annual payouts for 60 consecutive years.
