Below you can find a list of Warren Buffett’s 5 best long-term stocks to buy. For a more comprehensive list, please see 15 Best Long-Term Stocks to Buy Now.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a look at the best long-term stocks to buy:
5. Moody’s Corporation (NYSE: MCO)
The credit rating company Moody’s Corporation (NYSE: MCO) is among the favorite stocks of the legendary investor. Berkshire first initiated a position in a rating firm in fiscal 2000 by buying shares worth $499 million. After twenty years, Buffett’s investment in Moody’s is valued above $7.1 billion, accounting for 3.12% of the portfolio.
Shares of the rating firm soared almost 1000% in the past ten years. Moreover, Berkshire has been pocketing massive cash gains in the form of dividends. Moody’s Corporation currently offers an annual dividend of $2.24 per share, with average dividend growth of over 12% in the last five years. Here is what we recently wrote about MCO’s dividends:
Moody’s has been consistently growing its dividend payments over the past decade, from just $0.105 in 2010 to $0.56 in 2020 and there is plenty of room for further growth, with the company generating strong cash flow and having a payout ratio of just 22.4%. Whether or not incoming CEO Robert Fauber, who takes over at the beginning of 2021, makes some noise by taking an even more aggressive stance on the company’s dividend payments, future dividend growth appears promising.
4. The Kraft Heinz Company (NYSE: KHC)
The consumer staple company Kraft Heinz (NYSE: KHC) continues impressing the legendary investor over the past couple of years. Kraft Heinz is Buffett’s fifth-largest stock investment, accounting for 4.26% of the portfolio.
While Kraft Heinz shares underperformed in the past couple of years, Buffett looks optimistic about the future fundamentals. In addition, the company’s strategy of offering significant cash returns to investors makes it a good stock to hold for the long-term.
We talked about KHC in detail a few days ago in this article.
3. American Express (NYSE: AXP)
The credit card company American Express is also among the long-running investments of Oracle of Omaha. Buffett’s investment holding first initiated a position in a credit card company more than five decades ago. American Express currently is Buffett’s fourth-largest investment and it accounts for 6.6% of the portfolio.
According to Insider Monkey analyst, “The credit card company American Express is well known for offering sustainable growth in returns to shareholders. The credit card company currently offers a quarterly dividend of $0.43 per share, yielding around 1.39%. Its average dividend growth in the past five years is above 10%. The credit card company has generated $8.75 billion in the September quarter revenue while its earnings per share came in at $1.30 – up significantly from the quarterly dividend of $0.43 per share.”
We also shared Bill Nygren’s AXP comments earlier this year:
“With American Express, we believed the worst-case scenario was significantly better than all that. We think the company has done an excellent job in improving its cardholder value proposition in recent years by making significant investments in merchant acceptance, cardholder rewards and services, and small-business payment tools. Relative to entering the last financial crises, it has dramatically cut costs and strengthened its balance sheet structure.
The payments-network side of the business is now more competitive with Mastercard and Visa. Given all that, in the adverse Fed scenario, we would still expect American Express to earn $4 to $5 per share this year. Two years from now, we think it should be earning more than twice that. With the stock where it is today [at a recent $96], we believe that’s too cheap for this caliber of business.”
2. Coca Cola (NYSE: KO)
Warren Buffet is one of the biggest fans of Coca Cola. Berkshire Hathaway has been holding the shares of the consumer discretionary company since 1988 when shares were trading below $4. KO shares are currently trading around $53. It currently represents Buffett’s third-largest stock holding valued at $19.7 billion.
In addition to share price gains, Berkshire is likely to collect more than $600 million in annual dividend income from Coca-Cola investment. The firm has earned almost $7 billion in dividends from the Coke investment since 1995.
Here is what our writer Tim Frederick wrote about KO recently:
“Coca-Cola continues to search for new ways to counter sluggish sales of its flagship product. Its foray into coconut water, Zico, was a failure, with the company recently announcing that it was axing that brand. The next experimental drink up the company’s sleeve is a coffee-infused cola, which is expected to launch in January. Coca-Cola’s organic revenue sank by 26% in Q2 and the company believes a full recovery could take years.”
1. Bank of America (NYSE: BAC)
Self-made billionaire Warren Buffett is the largest shareholder of Bank of America (NYSE: BAC). The investment accounts for 10.65% of the portfolio. Buffett’s investment holding Berkshire Hathaway first created a position in Bank of America in 2011 in a deal to buy preferred shares valued at $5 billion.
Berkshire has increased its stake in Bank of America by 9% in the latest quarter. The shares of the second-largest US bank remained under pressure throughout this year amid a near-zero interest rate environment and massive credit losses due to pandemic. Berkshire Hathaway currently holds 1.01 billion shares of Bank of America valued above $24 billion.
Please also see: 10 Best Chinese Stocks To Buy Now and 10 Best Value Stocks To Buy Now According To Seth Klarman
