If you want to earn strong returns in the stock market, it can be advantageous to see what the best investors are buying. Warren Buffett certainly falls within that esteemed group. The Oracle of Omaha has generated fortune-building gains for Berkshire Hathaway's shareholders for nearly 60 years by investing in high-quality businesses with attractive long-term growth prospects.
Here are two of Buffett's favorite stocks in Berkshire's $373 billion investment portfolio.
1. Occidental Petroleum
Buffett has been buying shares of Occidental Petroleum (OXY -0.15%) aggressively over the past year. It's easy to see why. The oil and gas producer owns some of the most valuable acreage in the shale-rich Permian Basin. It's also a leader in the potentially multitrillion-dollar market for decarbonization solutions.
Berkshire first invested in Occidental in 2019 as a part of a deal to help finance the latter's acquisition of Anadarko Petroleum. Buffett's investment conglomerate has purchased shares on multiple occasions since then. Berkshire now owns roughly 28% of Occidental's shares, currently valued at more than $14 billion, along with preferred shares and warrants that could allow it to boost its stake in the oil driller.
Buffett is no doubt attracted to Occidental's prized assets in the Permian Basin. The company's operations in the oil- and gas-rich region, which spans from West Texas to southeast New Mexico, are well situated to supply the U.S. and international markets with dependable and cost-effective energy.
CEO Vicki Hollub has also positioned Occidental to be a leader in the promising area of carbon capture, utilization, and storage (CCUS). The forward-thinking executive wants to help build a global network of direct air capture (DAC) facilities. DAC technology, which can remove carbon dioxide from the atmosphere, is expected to play a key role in enabling governments and businesses to achieve their net-zero emissions goals.
All told, carbon capture services could become a $4 trillion market by 2050, according to ExxonMobil. Occidental, in turn, believes that its carbon management operations could eventually eclipse its traditional oil and gas businesses.
2. Apple
Like Occidental, Apple (AAPL -0.35%) is well-positioned to benefit from the long-term growth of massive global markets. With artificial intelligence (AI) set to boost the functionality of its popular devices, the tech titan's profits are poised to climb from their already stratospheric levels.
Buffett is clearly a fan. Berkshire Hathaway owns roughly $170 billion worth of Apple stock -- more than five times as much as its second-largest position.
Buffett appreciates Apple's fortress-like balance sheet and staggering profitability. With cash and investments of more than $170 billion as of Dec. 30, 2023, and net income of over $100 billion during the trailing 12 months, the iPhone maker displays an unparalleled level of financial fortitude.
Buffett also understands the value of Apple's brand. People trust that -- unlike many other high-tech products -- Apple's devices simply work and are intuitive to use. And once someone buys one of the tech specialist's phones or computers, they tend to remain a loyal customer. These factors give the company a level of pricing power that its rivals do not possess, which helps Apple earn higher profit margins.
Moreover, with over 2.2 billion devices in use worldwide, Apple has a huge base of customers who are eager to buy its latest products and services. That allows the company to enter new markets and quickly win sales despite charging premium prices. Investors are likely to see this trend play out once again with the tech giant's recent entrance into the augmented reality headset market following the launch of its innovative Apple Vision Pro device.
Apple could also be on the verge of an enormous iPhone upgrade cycle. In September, analysts at Morgan Stanley noted that after more consumers chose to wait longer to buy a new phone in 2023, the average iPhone replacement period stood at an all-time high of 4.4 years. With many of these phones nearing the end of their useful lives, there could be enormous pent-up demand for the iPhone 16 due out later this year.
Additionally, in January, Bank of America analyst Wamsi Mohan posited that forthcoming AI-powered features will boost iPhone sales in the coming years. Mohan expects the rising popularity of generative AI applications to drive demand for AI-enabled devices in 2024 and 2025, which should also help to support higher services revenue for Apple.
With these powerful growth drivers set to propel the tech leader's profit growth, Apple's stock is a solid buy today.
