Equity markets are struggling due to President Donald Trump's decision to impose tariffs on imported goods from every country. Many investors are panicking; that's why stocks are falling.
However, one investor likely remaining calm is Warren Buffett, the greatest of them all. The Oracle of Omaha has seen administrations come and go, policies shift by the dozens, and many other events that have affected equities in his time as the head of Berkshire Hathaway. And throughout it all, Buffett has delivered market-beating returns.
So in times like these, it's a great idea to peek into the man's portfolio. What stocks does Buffett own that are worth holding onto through market volatility and beyond? Let's consider two prime candidates: Apple (AAPL 0.96%) and Mastercard (MA 0.46%).
NASDAQ: AAPL
Key Data Points
1. Apple
Let's start with the bad news: Apple heavily depends on various Asian countries, including India and China, to manufacture its iPhones. Trump's tariffs will almost certainly increase the company's costs. Apple still makes most of its money from sales of iPhones (though they're no longer the growth driver they once were). With recent developments threatening to undercut the company's profits, it's no wonder the stock is down by 27% this year.
Apple might struggle in the short term, but its long-term view remains promising. Let's consider three reasons.
First, Apple is looking for ways to get around this problem. It recently announced a four-year, $500 billion investment in the U.S., partly to build up its manufacturing capacity. It's unclear what the end result will look like, but it might be a way for the company to avoid tariffs.
Second, Apple might choose not to absorb the increased costs and to pass them on to customers. For many businesses, that would lead to market-share losses. However, the result could be very different for Apple, which has arguably the most valuable brand name in the world. Companies with strong brand names tend to benefit from pricing power -- they can increase their prices without losing significant market share. That's not to say Apple won't lose some business if it chooses to raise prices on iPhones, but it should still deliver decent financial results after the fact.
Third, one of Apple's long-term plans is still to ramp up its high-margin services segment. The various subscriptions it offers through the cloud would be far less susceptible to tariffs. Apple now boasts more than 1 billion paid subscriptions across 2.35 billion devices in circulation, so there's plenty of room to grow its paid subs even within its current installed base. Some of the company's initiatives, from fintech to healthcare, also have attractive long-term prospects. Though services can't replace iPhone sales yet, this segment has been the fastest-growing one for a while.
Apple's strong cash flow allows it to find ways to avoid tariffs by investing in manufacturing facilities in the U.S. It has a brand name that can survive price increases. And there are attractive growth opportunities within its services unit. Those factors mean the stock is still a buy for investors looking at the next five years and beyond.
NYSE: MA
Key Data Points
2. Mastercard
Payment-network giant Mastercard might be an outstanding stock in the current environment. On the one hand, the current economic situation might eventually lead to a recession and a pullback in economic activity. That would mean less spending on various goods and services, fewer credit and debit card transactions powered by Mastercard's network, and lower revenue for the company, all else being equal. However, tariffs can also cause price increases, leading to inflation.
That would mean the company will collect more in transaction fees, since these are calculated as a fraction of the total amount of the transaction. Mastercard collects more fees if someone spends $7 instead of $5 on the same item. If tariffs lead to inflation, the increased fees it would get could help make up for a decrease in economic activity, should that also happen.
Of course, that's not the only reason to invest in Mastercard. Even in a non-inflationary environment, it's a great stock to own. Mastercard's payment network is a leader in the niche with only one noteworthy competitor: Visa. And Mastercard has an advantage over its longtime rival: It has more exposure to international markets (outside the U.S.), where there's more room to grow.
Cash and checks haven't disappeared yet -- far from it -- and e-commerce is still growing. These tailwinds will allow Mastercard to generate growing revenue and earnings for a long time, long after the current uncertainty has passed. That's why the stock is a buy on the dip.
