At Berkshire Hathaway's (BRK.A -0.32%) (BRK.B -0.71%) latest annual meeting on May 3, Warren Buffett announced that he would step down as its CEO at the end of the year. That announcement wasn't surprising, since the celebrated investor will turn 95 in August. Buffett had also previously appointed Greg Abel, the CEO of Berkshire Hathaway Energy, as his successor.
Abel has been with Berkshire for 25 years, but he isn't an acclaimed stock picker like Buffett. He probably won't stray too far from Buffett's playbook of investing in stable and cash-rich businesses, but he also might fail to spot as many good long-term investments.
So instead of waiting to see if Abel can add some new long-term winners to Berkshire's massive portfolio, investors can simply buy three of Buffett's older picks -- Amazon (AMZN -0.33%), Kroger (KR 0.06%), and Coca-Cola (KO -0.08%) -- and hold them forever.
Berkshire Hathaway's CEO Warren Buffett. Image source: The Motley Fool.
1. Amazon
Amazon is the largest e-commerce and cloud infrastructure company in the world. Berkshire bought its first shares of Amazon in the first quarter of 2019, and it now holds 10 million shares with a market value of $2.05 billion. That represents 0.7% of Berkshire's entire portfolio.
Amazon generates most of its revenue from its retail business, but most of its profits come from its Amazon Web Services (AWS) cloud platform. AWS' high profits enable Amazon to expand its Prime ecosystem with discounts and other lower-margin strategies. The company serves 220 million Prime members worldwide.
Over the long term, Amazon's retail business -- which includes its e-commerce marketplaces and Whole Foods Market stores -- should continue to grow as it locks in even more Prime subscribers. AWS should also benefit from the secular expansion of the AI market as more companies expand their cloud infrastructure to accommodate the latest AI applications.
From 2024 to 2027, analysts expect Amazon's revenue and earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 10% and 17%, respectively. Amazon's retail business faces some near-term pressure from the tariffs and it might not seem cheap at 33 times forward earnings, but it's still one of the best long-term plays on the growing e-commerce and cloud markets.
2. Kroger
Kroger is America's largest supermarket operator by annual revenue. It also owns a wide range of other banners -- including Fred Meyer, Ralphs, Dillons, Fry's Food Stores, King Soopers, and Baker's -- and it nearly merged with Albertsons in a $24.6 billion deal last year. Berkshire started to invest in Kroger in the fourth quarter of 2019, and now owns 50 million shares worth nearly $3.4 billion. That's 1.2% of its entire portfolio.
Kroger stayed ahead of its competitors with three core strategies: bolstering its digital and loyalty programs, launching more private label products, and expanding its smaller advertising and health services segments. Kroger's scale helped it resist inflation, recessions, and other macro headwinds, and the company is diversifying supply chains to mitigate the impact of the Trump administration's unpredictable tariffs.
Kroger's bid for Albertsons was scuttled by antitrust regulators, but Kroger subsequently allocated a lot of that cash toward a fresh buyback plan worth up to $7.5 billion. From fiscal 2024 (ended this February) to fiscal 2027, analysts expect revenue and EPS to grow at a CAGR of 2% and 13%, respectively. Kroger stock still looks cheap at 14 times forward earnings, it pays a decent forward yield of 1.9%, and it's a good forever play on the resilient supermarket sector.
3. Coca-Cola
Coca-Cola, the world's largest beverage company, has been in Berkshire's portfolio since 1988. Its 400 million shares are now worth $28.6 billion and account for 10% of its total holdings. Buffett even often claims to drink about five cans of Coca-Cola every day.
Coca-Cola might seem like a risky investment, since soda consumption rates are declining worldwide. However, the company has diversified its portfolio with more brands of bottled water, sports drinks, energy drinks, teas, fruit juices, coffee, and even alcoholic beverages to offset that pressure. It also refreshed its classic sodas with new flavors, smaller serving sizes and sugar-free versions.
Coca-Cola isn't heavily exposed to the tariffs because it only sells concentrates and syrups. Its bottling partners, which function as independent businesses, actually produce and sell the finished drinks. Those bottlers currently face higher tariffs on aluminum, but they can easily offset that pressure by using more plastic bottles. They could also raise prices and pass some of those costs on to the consumer.
From 2024 to 2027, analysts expect Coca-Cola's revenue and EPS to increase at a steady CAGR of 4% and 11%, respectively. The company's stock looks reasonably valued at 25 times forward earnings, pays a high forward yield of 3%, and it's a Dividend King that has raised its payout for 63 consecutive years. All of those strengths make Coca-Cola a great stock to buy and hold forever.
