It's hard to beat Warren Buffett's knack for making money, which is why so many investors keep a sharp eye on the stocks Buffett buys through his holding company, Berkshire Hathaway (BRK.A -0.34%) (BRK.B -0.01%).
That doesn't mean every Buffett stock is worth your money, but some of his portfolio looks too good to pass up. Of the nearly 50 stocks Buffett currently owns, here are five you might want to buy now and hold forever.
A longtime Buffett favorite
Johnson & Johnson (JNJ 0.29%) is one of the longest-held stocks in Buffett's portfolio, and there are solid reasons you also might want to buy and hold this healthcare stock.
Johnson & Johnson recently spun off its slow-moving, low-margin consumer health business -- known for brands like Tylenol, Motrin, Neutrogena, and Band-Aid, among others -- into a wholly owned subsidiary called Kenvue. The idea is to focus exclusively on its growth-oriented businesses of pharmaceuticals and medtech, primarily medical devices.
It looks like a smart move. By 2025, Johnson & Johnson expects to generate $60 billion in sales from pharmaceuticals, up from $52 billion in 2022. As for medtech, the acquisition of Abiomed in December added another $1 billion platform and a new vertical, heart recovery, to Johnson & Johnson's portfolio. The healthcare giant estimates the addressable heart-recovery market size in the U.S. to be nearly $35 billion.
These businesses should ensure Johnson & Johnson remains a cash-flow machine -- in just the past five years, it generated nearly $96 billion in free cash flow (FCF) and returned more than 60% of it to shareholders in the form of dividends and share buybacks. This year, Johnson & Johnson increased its dividend for the 61st consecutive year. It's hard to give such a solid Buffett stock a pass.
Betting on oil, and dividends
Buffett went big on oil stocks over the past year or so, with Chevron (CVX 0.57%) turning out to be one of his favorites. Even after the sale of some shares, Chevron was still Berkshire Hathaway's fifth largest holding at the end of the first quarter.
Image source: The Motley Fool.
Chevron has historically shrugged off the volatility in crude oil prices and delivered superior returns to shareholders, with dividends playing a major part. Chevron has increased its annual dividend payout for 36 consecutive years now, including a 6% raise earlier this year.
One of Chevron's biggest strengths is its capability to flex production to adjust to market conditions. So in 2022, it made the most of the boom in oil and gas prices and ended the year with record production, earnings, and FCF.
Over the next five years, Chevron expects its upstream earnings per barrel to nearly double at the Brent crude price of only $60 per barrel. It is also targeting more than 10% growth in annual FCF through 2027. So if you buy Chevron stock now, you don't really have to worry about earnings or dividend growth for years, and that's what makes this 3.8%-yielding Buffett stock such a great long-term buy.
The EV stock you can't afford to miss
Another Buffett stock to buy and hold is BYD (BYDDY -2.62%). I don't blame you if you haven't heard about this Buffett holding. It's a Chinese electric-vehicle (EV) maker, and Berkshire Hathaway discloses its position in the company only through filings on the Hong Kong stock exchange. Buffett sold some shares of BYD in recent months, but as of the last filing from early May, Berkshire still owned nearly 10% stake in the EV maker.
BYD isn't just any EV company -- it wants to surpass Tesla (TSLA 1.85%) this year in terms of global EV sales. And that's not a farfetched idea. Although Tesla is the world's largest manufacturer of battery electric vehicles (BEVs), BYD's sales for BEVs and plug-ins combined already tops Tesla's. BYD is now eyeing Tesla's crown in EVs and targeting sales of 3 million units in 2023. That's huge.
The biggest reason BYD stands out, though, is that it's also the world's second largest battery manufacturer, after CATL. Batteries are the most important component of EVs, so BYD's vertical integration is a bigger competitive advantage than one could imagine. In fact, just earlier this month, even Tesla started sourcing batteries from BYD for a version of its Model Y SUV.
With BYD's NEV sales jumping 93% year over year in Q1 and gross margin rising significantly to almost 18%, it's the go-to Buffett stock to own if you want to bet on the red-hot EV industry.
The no-brainer Buffett stock
Visa (V 0.65%), the next Buffett stock to buy, has crushed the S&P 500 in the past couple of decades. The stock's superior performance is a reflection of its steady earnings and cash flow growth, hefty margins, and solid growth catalysts. Given the opportunities ahead of Visa, this stock should continue to outperform.
As one of the largest payments processing companies in the world, Visa aims to drive the global shift of trillions of dollars in cash spending to card and digital payments. It's doing so by targeting consumer payments through core products like co-branded credit and debit cards, offering all kinds of payments from person-to-person to government-to-consumer and everything in between, and providing value-added services like open banking, risk management, and advisory.
In its fiscal year that ended Sept. 30, 2022, Visa reported payments volumes of $11.6 trillion, processed transactions worth $193 billion, generated a revenue of $29.3 billion, and earned a solid net profit of $15 billion on it.
Those staggering numbers, and Visa's continued growth in the 2023 -- its revenue hit a record quarterly high of $8 billion in Q2 -- makes it a no-brainer Buffett stock to own.
Buffett loves this investing idea
Although Berkshire Hathaway mostly owns individual stocks, Buffett swears by exchange-traded funds (ETFs). The legendary investor even entered a bet with an active hedge fund manager in 2008, proclaiming that an index fund could beat the manager over the next 10 years. It was a landslide victory for Buffett, and he has consistently owned two ETFs, including the SPDR S&P 500 ETF Trust (SPY 1.19%).
The SPDR S&P 500 ETF holds the same stocks in the same proportion as the S&P 500 index. So by buying its units, you can gain immediate exposure to 500 large-cap stocks across 11 sectors and 24 industries. The top five sectors by weight include information technology, healthcare, financials, consumer discretionary, and industrials. Apple and Microsoft are currently the index fund's two largest holdings, followed by Amazon, Nvidia, Alphabet, Tesla, and Berkshire Hathaway.
In a CNBC interview from 2017, Buffett advised investors to "consistently buy an S&P 500 low-cost index fund" through "thick and thin, and especially through the thin." This Buffett advice holds up just as well today, which makes it worth considering putting money into one of Buffett's favorite, the SPDR S&P 500 ETF.
