Perhaps no one's stocks ideas are more sought after than Warren Buffett's, the investor extraordinaire and CEO of Berkshire Hathaway. Heck, we even wrote an entire free report on the guy.
While Buffett's Berkshire is the holding company for a bunch of well-known business such as Geico, Fruit of the Loom, and Dairy Queen, it holds nearly $100 billion worth of stocks that everyday investors can buy. Since Berkshire's portfolio has more than 40 stocks, we asked three of our analysts to pick one of the stocks they think investors can buy today and hold for the rest of their lives.
Jordan Wathen: American Express (NYSE:AXP) takes my No. 1 spot for three reasons. First, in the processing business, it has charged the highest merchant fees of any processor for decades. Visa, MasterCard, and Discover Financial Services simply don't have the ability to charge a premium price for their services. American Express does, in part because it focuses on higher-income consumers.
Secondly, American Express has an advantage is signing up new cardholders. Because American Express earns in two ways -- swipe fees, and fees and interest on credit card balances -- it can afford to spend more to capture new customers. Most credit card companies, like Capital One Financial, only earn from interest and penalty fees. So when it comes to promoting their products, American Express has a huge advantage in that its customers are inherently worth more over time.
Finally, the company is a "cannibal" -- a true Charlie Munger stock that eats itself over time by buying back its own shares. In the past 12 months, the company repurchased 4% of all shares outstanding. As it matures, more capital will likely flow back to shareholders through a combination of dividends and repurchases. With average returns on equity over the past two years topping 20%, the company is a consistent cash cow that can afford to reward shareholders for years to come, making it the perfect buy-and-hold Buffett stock.
John Maxfield: Reading Berkshire Hathaway's 13F -- a form that discloses an investment manager's holdings of publicly traded stocks -- is a bit like touring the pantheon of American business. In it, you'll find large holdings of Coca-Cola, ExxonMobil, Wal-Mart, Procter & Gamble, and Wells Fargo, among others, all of which are exceptional businesses that have rewarded shareholders handsomely throughout the years.
But if a person were to choose only one stock in this portfolio to buy today and hold forever, it's critical to look into the future and not the past. This precludes, in my opinion companies like Wal-Mart and, to a lesser extent, Berkshire's vast holdings of energy stocks -- in addition to ExxonMobil, Buffett's company holds large positions in Phillips 66, ConocoPhillips, and National Oilwell Varco.
This isn't to say that companies like these are certain to be bad investments. Indeed, if I were a betting man, I'd guess they'll perform admirably over years, if not decades, to come. Yet it doesn't take a wild imagination to conclude that the tide is turning against the likes of Wal-Mart and ConocoPhillips thanks to innovative technologies introduced by companies like Amazon.com and Tesla Motors.
The most ideal stock in Berkshire's portfolio, in turn, is one that marries the old and the new -- one that has proved its mettle but still has arguably its best days ahead. And it's for this reason that I'd choose UPS (NYSE:UPS).
There are three things I feel comfortable predicting. First, the population of the United States will continue to expand. Second, our economy will continue to be fueled by the consumer. And third, our purchasing habits will continue to migrate in favor of e-commerce. Together, these factors seem to cement a positive trajectory for UPS going forward -- absent, of course, Amazon's dream of delivery drones, but that entails another discussion altogether.
Although it is one of the smallest positions in the Berkshire Hathaway public portfolio, standing at only $14 million, or 0.02% of the total, I think it is the best for the long haul. When you consider Buffett had no qualms buying $3 billion of GE during the height of the financial crisis, I also don't think Buffett would bat an eye at my decision, either.
Since we're talking about forever, I'm not going to dive into the current valuation -- although it is compelling -- but instead just look at the broader business. Consider that GE currently has eight business lines, across a wide range of businesses, and it has one of the most diverse revenue streams imaginable.
When I look at GE, I see a company that was brought into being by one of the greatest American minds in Thomas Edison, and has molded itself through the years to one that the essentially mirrors the American economy itself. One of the surest ways to ensure investment success is through diversification, dividends, and disciplined management and GE provides perhaps the greatest example of those things in a single company.
Many people have said that an investment in Berkshire Hathaway is like that of an index fund, but it can be argued that it's even more the case with GE. Buffett once said: "Buy American. I am." And you would be hard-pressed to find a company that provides a better example of that phrase than GE, which is why I would hold it forever.