Building a portfolio capable of earning strong returns over long periods is not easy, but there are some basic principles we can try to follow to simplify the task. One is to start with companies that are well established in their fields and have robust operations. Some speculative stocks might have a place in a well-built portfolio, but it shouldn't be a prominent place.
Another principle to follow is diversification. Filling a portfolio with stocks from a single industry is usually not a wise strategy. Of course, many stocks on the market could serve as excellent anchors for a well-rounded portfolio. The members of the so-called "Magnificent Seven" immediately come to mind.
Even without including those, though, it's possible to start strong with these three top stocks: Berkshire Hathaway (BRK.A -0.13%) (BRK.B -0.06%), Shopify (SHOP 3.98%), and AbbVie (ABBV 0.38%).
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A well-run, diversified conglomerate
Led by Warren Buffett, who is often regarded as the greatest investor of all time, Berkshire Hathaway has consistently produced impressive returns over the long term. The company accomplished this feat largely thanks to Buffett's philosophy. The Oracle of Omaha and his team built a conglomerate with dozens of subsidiaries across various industries, including railroads, energy, insurance, and apparel.
It's hard to find a single corporation that's more diversified than Berkshire Hathaway. And that's before we consider the company's portfolio, which includes investments in corporations across even more sectors. Berkshire Hathaway's diversified operations are a major strength that allows it to navigate challenging economic downturns.
Some might point out that Buffett will step down from his role as CEO by the end of the year. Can Berkshire Hathaway continue to perform well post-Buffett?
My view is that it can. Buffett has been working on picking his successor for a long time. Stepping into the role is Greg Abel, current VP of Berkshire Hathaway's non-insurance operations. There will be others to help him who have also been with the company for a while, some of whom have had significant roles. Buffett's philosophy will outlive his tenure as the head of Berkshire Hathaway.
That, combined with the robust and diversified business it has built, should allow the company to continue performing well for a long time. Berkshire Hathaway is a top stock to build your portfolio around for those reasons.
Betting on the growth of e-commerce
What Shopify lacks in diversification, it makes up for in growth potential. The company is a leader in e-commerce through its platform that helps merchants create online storefronts. Shopify's services are adapted to modern commerce. Merchants can not only customize their online stores thanks to the thousands of apps Shopify offers, but they can also market and sell their products across social media channels. Shopify is seeing tremendous success, with rapidly growing gross merchandise volume and revenue.
The company's free cash flow and margins have also been healthy in recent quarters. Further, there is significant growth potential ahead for the e-commerce specialist. The industry is projected to grow rapidly for the foreseeable future and beyond, thanks to the convenience it offers both consumers and merchants.
Meanwhile, Shopify has built a moat thanks to network effects and its app store's switching costs. Though the company isn't yet profitable, the lead it has in its corner of the e-commerce industry, coupled with its growth opportunities, make it a top stock to buy and hold as a core holding of your portfolio.
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AbbVie is a pharmaceutical leader. The company sells drugs, a class of products that remains in high demand regardless of economic conditions. The company's immunology lineup appears particularly strong, thanks to products such as Skyrizi and Rinvoq. These two drugs have been growing their sales at a good clip since they first earned approval in 2019.
So, they haven't even been on the market for that long, yet management predicts they will reach combined sales of $31 billion by 2027, which is $4 billion higher than previous projections. Skyrizi and Rinvoq should help AbbVie drive solid top-line growth well into the 2030s.
The company's portfolio features many other medicines that are helping move the needle. Furthermore, AbbVie has a robust pipeline that should enable it to overcome patent cliffs over the long term. It lost patent exclusivity for Humira, its top-selling medicine, in 2023, but was able to return to top-line growth the following year, an impressive achievement.
Lastly, AbbVie is a terrific dividend stock, offering a forward yield of 3.2%. The company is a Dividend King, boasting 53 consecutive years of payout increases. AbbVie is a reliable, income-paying stock to start your portfolio with today.
