Many investors closely track Berkshire Hathaway's (BRK.A 0.77%) (BRK.B 0.78%) massive equities portfolio, which is currently worth $304 billion, for investment ideas. Those stocks were picked by Warren Buffett, one of the world's most celebrated investors.
But over the past two years, Buffett sold a lot of Berkshire's top stocks, boosted its cash and Treasury holdings to record levels, and stopped buying back shares of the company. Those red flags suggest the market is getting overheated. After all, the S&P 500 is now hovering near record highs and trades at a historically high 31 times earnings.
Still, many of Berkshire's top stocks are solid investments that should continue rising over the long term. So if you can ride out the near-term volatility, I believe these three evergreen Buffett stocks are still worth buying: Coca-Cola (KO 1.27%), Visa (V 1.94%), and Amazon (AMZN -0.61%).
Coca-Cola
Berkshire initially invested in Coca-Cola, the world's largest beverage company, in 1988. Today, that $26.4 billion stake is its fourth-largest holding and accounts for 8.7% of Berkshire's portfolio. Buffett even claims to drink five cans of Coca-Cola every day.
Buffett might love Coca-Cola, but its stock might seem like a risky investment because soda consumption rates are declining across the world. But over the past few decades, it expanded its portfolio with more brands of bottled water, sports drinks, energy drinks, juices, coffee, and even alcoholic beverages to curb its dependence on its sugary carbonated drinks. It also refreshed its classic sodas with new flavors, healthier versions, and smaller serving sizes to attract new customers.
Coca-Cola only sells syrups and concentrates for its drinks, and it relies on its independent bottling partners to produce and distribute the finished beverages. That capital-light model keeps its margins high and generates plenty of cash for its dividends. That's why Coca-Cola is a Dividend King that has raised its payout annually for 63 consecutive years.
From 2024 to 2027, analysts expect Coca-Cola's earnings per share (EPS) to grow at a CAGR of nearly 11%. Its stock still looks reasonably valued at 21 times next year's earnings, and it should remain a stable evergreen investment regardless of the macroeconomic challenges.
Visa
Berkshire started to invest in Visa in 2011, three years after its public debut. That stake is now worth $2.9 billion and accounts for 1% of its portfolio. Visa owns the world's largest card processing network, but it doesn't actually issue any cards or handle the associated accounts.
Instead, Visa partners with banks and financial institutions to issue co-branded cards. Those partners handle the accounts and shoulder the debt, while Visa generates most of its revenue by charging "swipe fees" (2%-3% of a transaction's value, which it shares with the partner bank) as well as other small processing fees every time a card accesses its payment network.
That capital-light "toll road" model insulates Visa from credit crunches, but it still fares better in a healthy economy where consumers swipe their cards more frequently. Therefore, economic headwinds can throttle its growth by curbing consumer spending. It's also faced constant pressure from trade groups and regulators to reduce its swipe fees.
But from 2024 to 2027, analysts still expect Visa's EPS to grow at a CAGR of nearly 14%. Its stock isn't too pricey at 28 times next year's earnings, and it should head higher as the macro environment stabilizes and it overcomes its regulatory challenges.
Amazon
Berkshire acquired its first shares of Amazon in 2019, and its $2.2 billion stake now accounts for 0.7% of its portfolio. Amazon is the world's top e-commerce and cloud infrastructure company, and it's also becoming a major advertising company through the digital ads it integrates into its online marketplace and streaming media services.
Amazon generates most of its revenue from its retail business, which has already locked in more than 240 million Prime subscribers worldwide, but it generates most of its profits through its cloud business. That unique business model enables it to subsidize the growth of its lower-margin retail business with its higher-margin cloud revenues.
That's why Amazon can afford to offer steep discounts, free delivery options, cheap hardware devices, streaming media services, and other loss-leading perks to gain more Prime subscribers. Meanwhile, the secular expansion of the AI market is driving more companies to ramp up their spending on its profit-boosting cloud storage and computing services.
From 2024 to 2027, analysts expect Amazon's EPS to grow at a CAGR of 19%. Its stock isn't expensive at 29 times next year's earnings, and it should remain one of the simplest ways to profit from the growth of the e-commerce, cloud, and AI markets.
