For decades, Warren Buffett has captivated investors' attention with Berkshire Hathaway's staggering returns. Since becoming CEO in 1965, Buffett's Berkshire Hathaway has delivered compound annual returns of nearly 20%. To illustrate just how mind-blowing that result is, $100 invested in the stock when Buffett took over would be worth over $5.5 million today.
Buffett is stepping down as the CEO of Berkshire Hathaway at the end of this year, leaving behind a legacy unlike any other. But we can still benefit from his skills and insights by digging into Berkshire's portfolio in search of good stocks to buy.
If you have $2,500 that you're ready to invest in high-quality companies now, here are three Buffett-approved stocks you should consider scooping up.
Image source: The Motley Fool.
Visa
Visa (V 0.10%) sits at the center of the global digital payments landscape. With total payment volume of over $14.2 trillion last year, Visa holds the leading market position, outpacing Mastercard and American Express.
Visa's scale is unparalleled, and the company has spent decades developing its payments network. Its strong network effects only get stronger as more merchants come on board and more customers acquire Visa cards, giving it impressive staying power.
Strong network effects are only one part of the equation. Visa collects a small fee on every transaction that passes through its network. Because its network has already been scaled up, its business model does not require significant capital expenditures, giving it high margins. Not only that, but it partners with banks to issue Visa-branded credit cards, and the banks hold all the credit card debt on their balance sheets, so Visa is not exposed to any credit risk.
NYSE: V
Key Data Points
Visa directly benefits from rising digital transaction volumes, and those have been increasing as the economy grows. They also rise more rapidly during periods when inflation is higher. With its robust business model, high profit margins, and strong cash flow, Visa is well equipped to continue rewarding its shareholders.
Moody's
As one of the largest credit rating agencies in the United States, Moody's (MCO 0.39%) plays a pivotal role in global credit markets. It essentially operates in a duopoly with S&P Global -- the two agencies combine to control 80% of the overall credit ratings market. Their next-closest competitor is Fitch Ratings, with a 12.5% share.
This strong market position gives Moody's incredible advantages. Its total addressable market encompasses bond and loan issuance, as well as structured finance, and is tied to global debt issuance, which includes governments, corporations, municipalities, and other entities. Global fixed income debt issuance last year exceeded $27 trillion, underscoring the massive scale of this market.
NYSE: MCO
Key Data Points
Moody's business is tied to credit cycles. When interest rates rise, debt issuance tends to fall, creating a drag on its business. On the flip side, during periods of lower or falling interest rates, demand for credit tends to increase. Moody's also has a large data and analytics segment, which provides it with recurring, subscription-based revenue that can stabilize earnings when credit markets slow down.
Recently, interest rates have been gradually falling, and debt issuance continues to grow. Meanwhile, corporations are increasingly turning to debt markets to finance their expansion of AI infrastructure. With its stable business, large market share, and importance to global credit markets, Moody's is another excellent stock to own for the long haul.
Chevron
Chevron (CVX 0.45%) is a behemoth in the energy industry. It has operations in exploration and production (upstream), pipelines and transportation (midstream), and refining (downstream). That integrated business model provides it with exposure across the entire oil and natural gas value chain.
The oil and natural gas drilling business is highly cyclical; its profits fluctuate in sync with the market prices of these commodities. That's where Chevron's integrated business model has its benefits. Upstream operations are exposed to commodity price shifts, but its pipelines provide it with steady cash flows. Meanwhile, its downstream segment performs well when refining margins (the differences in prices between the raw materials and finished products) are high.
NYSE: CVX
Key Data Points
Chevron is one of the largest producers in the Permian Basin. It also holds a portfolio of 1.78 million net acres in the Delaware and Midland basins in West Texas and Southeast New Mexico. Meanwhile, it is a significant producer of liquefied natural gas (LNG), and produced an average of 251,000 barrels per day last year. It's also the largest producer of LNG in Australia.
It's a major player in the energy sector, which is expected to continue growing in the coming years. Its LNG business could be a beneficiary of the AI infrastructure build-out, as hyperscalers are seeking new electricity-generating capacity powered by flexible, low-carbon fuels that can be deployed quickly to support their growing data centers.
As a key player in the energy sector, Chevron is another excellent Buffett-approved stock to buy today.
