Warren Buffett has often said "forever" is his favorite stock holding period. He has always gravitated toward companies that make products that constantly stay in demand.
In truth, there are no actual "forever" stocks. Even a dominant company can move from the pinnacle of its industry into irrelevance, much like Sears or Kodak in decades past.
Fortunately, some Warren Buffett investments will likely remain fixtures in American business for decades. To that end, investors should look at Buffett-held companies such as Apple (AAPL -0.35%), Amazon (AMZN 3.43%), and Floor & Decor (FND 2.66%).
1. Apple
Apple makes up about 45% of the Berkshire Hathaway portfolio for good reasons. Its consumer products, such as the iPhone, have become necessities in today's connected society. And despite a market cap approaching $3 trillion, investors should still consider it a compelling choice.
Admittedly, in a sluggish world economy, the company's product lines do not draw the double-digit increases of past years. Nonetheless, its Apple Services division has picked up some of the slack. Apple Services, which includes AppleCare, iCloud, and Apple TV+, remains on a growth trajectory despite slower spending.
For the first nine months of fiscal 2023 (ended July 1), revenue was $294 billion, 3% lower than year-ago levels. Still, Apple Services revenue increased by 7% even as product sales fell. Moreover, operating costs rose 9% during that time, leading to its net income of $74 billion in the first three quarters of fiscal 2023. During that period, profits dropped by more than 6%.
That has not stopped Apple stock from rising almost 40% this year, taking the company's P/E ratio to around 30. Additionally, with $178 billion in liquidity, its solid balance sheet is likely one reason Buffett's team continues to hold a massive Apple position. That and continued demand for Apple's products arguably make it worth the premium cost.
2. Amazon
Another solid business that attracted the attention of Buffett and his team is Amazon -- but for reasons one may not expect. Most consumers know Amazon best for its e-commerce and services like Amazon Prime. Still, within its two e-commerce-related segments, its advertising, subscription, and third-party seller services may be masking sluggish online sales growth.
Instead, Amazon's strongest growth has come from its cloud infrastructure product, Amazon Web Services (AWS). It also accounts for the majority of the company's net operating income.
For the first two quarters of 2023, its $262 million in net sales grew 10% versus the same period in 2022. Amid slower growth in operating expenses, it also returned to profitability. Amazon earned $9.9 billion for the first six months of the year, reversing the $5.9 billion loss for the same time frame in 2022.
Not surprisingly, AWS's operating profit of over $10 billion during that period carried the company. Nonetheless, investors should remember that online sales make the advertising, third-party seller services, and subscription businesses possible. For this reason, Amazon can arguably justify mediocre returns or even modest losses in the online selling business.
Investors seem to agree, as the stock has risen nearly 70% this year despite a roughly 110 P/E ratio. As long as AWS and the site-related businesses can grow rapidly, Amazon should continue to have a bright future.
3. Floor & Decor
Floor & Decor may appeal to investors who missed the growth in Home Depot and Lowe's in decades past. It carved out niches in hard flooring, decoratives, and fixtures, offering more variety than general home improvement stores. That bulk buying allowed it to keep its costs low, thus keeping the company competitive.
Moreover, Floor & Decor is in the midst of a nationwide expansion. As of the end of Q2, its store count stood at 203 locations in 36 states. This number includes 14 of the 32 stores needed to meet its expansion goal for 2023.
That build-out helped its net sales for the first half of the year rise to $2.3 billion, a 7% increase from the same period in 2022. Admittedly, this lags behind the 24% sales growth reported in 2022, but the expansion continues despite rising interest rates and a sluggish economy. Also, investors may balk at paying 39 times earnings amid the slowdown, though that valuation is about average for Floor & Decor historically.
Still, the retail stock has risen 50% this year, indicating that Buffett's team made an excellent choice. As the company continues to expand to new markets and add stores within its footprint, Floor & Decor will likely continue heading higher.
