Warren Buffett is an investing legend. He's led Berkshire Hathaway as CEO for 60 years, to the ripe old age of 95, and turned the company into a $1 trillion conglomerate that has its fingers in everything from energy to insurance and finance.
His investing style is to find great companies and hold -- he once famously said "our favorite holding period is forever." Buffett believes in finding companies that have leading positions in their industries, with great management, revenue, and reliable income. When Berkshire Hathaway invests in a company, people take notice. And when it finally sells, it's a big deal on Wall Street.
Buffett has announced he's stepping down from Berkshire Hathaway at the end of the year, but his investing philosophy continues. In fact, you can duplicate his masterful style by choosing three outstanding stocks -- all from different sectors -- that are currently mainstays in the Berkshire Hathaway portfolio.
Image source: The Motley Fool.
1. Tech stock: Amazon
Berkshire Hathaway doesn't invest in many tech stocks, but Buffett and Co. made an exception for Amazon (AMZN 1.71%). Buffett actually had a chance to invest in Amazon in its infancy, back when the company was an online bookstore, and turned it down.
But rarely is it too late to invest, and Berkshire Hathaway finally began buying Amazon stock in 2019. The conglomerate holds 10 million shares for a position valued at $2.22 billion.
Amazon, of course, has evolved to be much more than a bookstore. The company has a dominant e-commerce site, holding about 37% of the U.S. market. Amazon.com generated nearly $137 billion in revenue for the company in the second quarter, including its international sales.
But it's the Amazon Web Services (AWS) segment that's giving Amazon a lot of its juice lately. Companies are turning to cloud computing providers to provide the computing power they need to run their operations without building hugely expensive data centers -- and the growth of artificial intelligence (AI) makes services like AWS even more popular.
AWS has the leading market share in the cloud computing space, with a 30% market share, and the segment's net sales increased 17% on a year-over-year basis.
2. Bank stock: Bank of America
North Carolina-based Bank of America (BAC 0.78%) is Buffett's favorite bank stock. Berkshire Hathaway holds 605 million shares of BofA stock, which is a total position of $30.3 billion.
Buffett appreciates companies that have a wide competitive moat, and Bank of America fills that bill. The company ranked No. 1 in the use for the number of consumer deposits in the first quarter, and boasts 69 million consumer and small business clients. Bank of America reported $1.2 trillion in combined consumer and wealth management deposits, and is the second-largest bank in the U.S.
Revenue in the second quarter was $26.5 billion, up 4% from a year ago. Net income was $7.1 billion and $0.89 per share versus $6.9 billion and $0.83 per share a year ago.
I think Bank of America is a freight train waiting to roll. With interest rates beginning to fall, BofA should benefit from an increase in mortgage activity as the housing market begins to rebound. Bank of America stock is up 13% on a year-to-date basis, but I expect it and other bank stocks to show strength in the coming quarters.
3. Healthcare stock: UnitedHealth Group
UnitedHealth Group (UNH 0.98%) is a new position for Berkshire Hathaway -- the company purchased its 5.04 million shares in the second quarter, taking a stake currently valued at $1.88 billion.
This is a classic Buffett play. UnitedHealth had an awful first half of the year as it misjudged medical costs and ended up saddled with Medicare Advantage plans that weren't nearly as profitable as expected. The company missed analysts' expectations in the first quarter, which is the first time that's happened since the 2008 financial crisis.
UnitedHealth's shares dropped 38% in the first half of the year. By buying the dip, Berkshire Hathaway is in a prime position to profit as UnitedHealth Group adjusts its pricing and returns to its winning ways. This healthcare stock has already started to rebound, but there's plenty of room to jump on the bandwagon.
The bottom line
Berkshire Hathaway invests in dozens of companies -- because, of course, Buffett understands the benefits of a well-balanced and deep portfolio. Bank of America, Amazon, and UnitedHealth are classic Buffett stocks that reflect his investing style. They are leaders in their industries, have dependable revenues, and long-term relevance.
These stocks offer a durable foundation for buy-and-hold investors who want to copy Buffett's style.
