If you're looking for your next great all-around stock pick, you can't go wrong borrowing one or two ideas from Warren Buffett. At Berkshire Hathaway, his investment portfolio regularly outperforms the broad market. Better still, his holdings are chosen for their long-term potential. More often than not, you can buy a stock owned by Berkshire and safely plan on staying in the position for years on end.
To this end, here's a rundown of three stocks Warren Buffett has steered Berkshire Hathaway into that would also be at home in most investors' portfolios.
American Express
Credit card company Capital One is planning on acquiring rival Discover. If the merger is allowed to happen, it certainly seems to pose a threat to American Express (AXP -0.62%). But that potential threat may not be anywhere near as dire as it seems to be on the surface.
While American Express is a credit card company, it's dramatically different than its credit card peers. It would be more accurate to describe its business model as the management of perks and rewards programs that just happen to revolve around charge cards.
Individuals and business alike will pay as much as $695 per year for the right to use an American Express card simply because cardholders receive credit toward air travel tickets, rebates on certain forms of at-home entertainment, spendable credits at a handful of retailers, bonus hotel-stay time, cash back on grocery purchases, and more. Other card companies offer perks, but none of those rival programs hold a candle to American Express'.
The company not only generates fee-based revenue each and every year, of course, but also collects interest payments as well as a small portion of each card-based transaction it facilitates. This is why the company has been such a reliable grower for years now despite plenty of competition.
It's also worth noting that American Express' clientele tends to be more affluent than average, which means its customers are less likely to become delinquent on their payments or outright default on their loans.
In this vein, while higher interest rates and a challenging economy are now leading lenders to report bigger write-downs, American Express' past-dues and write-offs are holding more or less level. Ironically, this stock could be a relative safe haven should the economy continue to weaken.
Berkshire Hathaway is holding nearly 152 million shares of American Express, by the way -- a position it's been sitting on since 2006. It's also Berkshire's third-biggest holding, if that tells you anything.
Apple
American Express may account for a significant chunk of the Berkshire Hathaway stock portfolio, but it's a distant third to the fund's single-biggest position. That honor belongs to Apple (AAPL -0.35%). This $174 billion trade makes up half of Berkshire's holdings in publicly traded companies.
There's no denying the iPhone maker's very best days may be in the rearview mirror. Last quarter's top line was up a modest 2% year over year, bouncing back only a bit from the 3% revenue lull reported for the fiscal year ended in September. iPhone revenue remains relatively stagnant, and IDC reports that unit sales of iPhones have actually been declining for over a year now. Given that the popular smartphone makes up over half of Apple's business, this trend is more than a little concerning.
The company is pivoting, though. Take its services arm as an example. Sales of apps and digital content are now the organization's second-biggest business. And, while still miles behind the iPhone in terms of the total amount of operating profit it produces, Apple's operating profit margins on its services business are ridiculously high at 70% of its revenue. Indeed, this division now accounts for roughly one-third of the company's bottom line. As this services unit grows, it's going to make an oversized impact on Apple's overall net income.
It's not just the ongoing growth of its services business keeping Buffett and his acolytes on board with Apple. The company's finally venturing into other businesses lines that mesh well with its existing technologies. For instance, it's reinventing its voice-activated assistant Siri now that artificial intelligence is making such tools wildly useful. Its recently launched Vision Pro goggles represent the next step in the evolution of augmented reality as well, even if it's not yet perfectly clear how this tech can be best monetized.
The point is, Apple's got several different levers it can pull here even if the iPhone itself has peaked.
Coca-Cola
Last but not least, add The Coca-Cola Company (KO) to your list of Warren Buffett stocks you may want to consider buying for yourself.
It's not a complicated, sexy pick. But that's kind of the point. When you own a stake in Coca-Cola, you own a piece of a cash-generating juggernaut that's easy to defend. This cash is then turned into dividends, which have not only been paid like clockwork every quarter for decades, but have now been raised in each of the past 62 years. There are only a handful of companies out there that can make the same (or better) claim.
The secret to Coca-Cola's success? There are three of them actually, although they're not exactly secrets. The first of these is Coca-Cola's ability to build and maintain brands that consumers love and purchase without even thinking about it. More than mere marketing, Coca-Cola is part of a lifestyle, and even part of the global culture.
The second pillar of The Coca-Cola Company's consistent success is its business model. It's not quite what you may think it is. It's never actually bottled all of its products, and in recent years it's done very little of its own bottling. Rather, its core business is selling concentrated flavor syrups to bottlers that then take on the burden -- and the inconsistent costs -- of producing the products you find placed in stores.
This model is a much more consistent one than bottling itself, since the cost of creating and handling these syrups is minimal compared to the labor-intensive and input-intensive process of creating the final products that consumers buy.
Finally, while you certainly know the company's namesake cola, The Coca-Cola Company is far more diversified than you might realize. In addition to familiar sodas like Sprite and Fanta, Coca-Cola is also the name behind Powerade sports drinks, Minute Made juices, Gold Peak tea, Dasani water, and more. It's got something to sell to everyone at any given time.
The 400 million shares of Coca-Cola Berkshire Hathaway's been holding since 2006 are worth a total of nearly $24 billion, by the way. That makes it Berkshire's fourth-biggest holding.
