When Warren Buffett chooses stocks, he looks for companies with great long-term stories. The billionaire investor once said, "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes." And this means, when searching for great forever stocks to buy, you could turn to Buffett for inspiration.
Now is the perfect time to do just that. Some of Buffett's holdings have slipped amid today's economic woes -- but they still have what it takes to deliver excellent financial and share price performance over time. Let's check out two Buffett favorites to buy on the dip.
1. Amazon
Amazon (AMZN -1.64%) has suffered from headwinds linked to the economy as well as a couple of internal challenges. Rising inflation has lifted costs -- and hurt customers' buying power. Amazon also has found itself with excess capacity after a rapid buildout of its fulfillment network. Finally, the company last year took a pre-tax valuation loss on its stock investment in Rivian Automotive.
With the bad news out of the way, let's move on to the good news. And we'll start by this: The problems mentioned above are temporary. And Amazon is working to manage them.
For example, it's improving its cost structure and making moves to increase productivity across its fulfillment network. This includes job cuts and a shifting of investment into areas that should boost growth over time -- such as its cloud computing business, Amazon Web Services (AWS). These moves should help Amazon limit the damage now and excel over the long haul.
Amazon has several revenue streams. But e-commerce and cloud computing stand out as the biggest drivers of future growth. That's because Amazon is a leader in these areas -- and both markets are set to climb in the double digits throughout this decade.
So, once the economic situation improves, Amazon should benefit from its position in these markets. Importantly, AWS has been the biggest contributor to Amazon's total operating income in recent years.
Amazon shares have lost 38% over the past year. That leaves Amazon stock trading at two times sales -- near its lowest by that measure since 2015. This looks like a solid entry point -- to invest in a company that should continue to dominate in two major industries.
2. Johnson & Johnson
Warren Buffett is a big fan of dividend stocks. And Johnson & Johnson (JNJ -0.69%) is a champion in this category. The healthcare giant makes the list of Dividend Kings. These are companies that have lifted their dividends for at least the past 50 years.
J&J pays an annual dividend of $4.52 at a dividend yield of 2.88%. That's higher than the average yield paid by pharma companies, according to data from the NYU Stern business school.
There are other reasons to like J&J beyond the dividend. The company has reported increasing revenue over time -- and last year sales topped $94 billion. That's thanks to a portfolio of billion-dollar products. And J&J's vast pipeline should add to that portfolio over time -- it includes more than 100 candidates.
J&J continues to be optimistic about reaching its goal of $60 billion in pharmaceutical sales by 2025. That business generated about $52 billion in revenue last year.
J&J this year is reaching an important transition point. The company is spinning off its consumer health business. This leaves J&J with its higher growth pharmaceuticals and medtech businesses. The move should make it easier for the company to deliver stronger revenue growth over time.
Let's take a look at share performance. The stock slipped nearly 15% this year until just recently. It rebounded as J&J proposed a settlement to resolve lawsuits over its talcum powder. Now, the stock is down about 6%.
This still leaves J&J trading for 15 times forward earnings estimates -- down from about 18 last year. Considering the company's steady growth potential, dividend payments, and a potential end to the talcum powder lawsuits, this looks like the perfect time to buy J&J on the dip.
