Many are drawn to Warren Buffett’s investing style because it makes sense to the average investor. Adopting his philosophy can lead to extraordinary results if executed well and with patience. What does he advocate? Berkshire Hathaway‘s CEO has a propensity to invest in companies with competitive advantages over their rivals.
Buffett also likes to buy stocks for Berkshire when the stocks are trading for less than their intrinsic value. Still, it’s a company’s competitive advantages that ensure it will be around for decades, compounding the investment’s value.
If you want to invest like Buffett, Apple (AAPL 1.12%) and American Express (AXP 1.47%) would be two good stocks to buy and hold long-term. Here’s what Buffett likes about these two companies, and why they should grow for a long time in Berkshire’s portfolio of stocks.
1. Apple
Buffett has said Apple was better than any business Berkshire owns. The qualities he likes about Apple are its powerful brand and the attachment people have to their iPhones.
Apple is investing a lot of money in technology, especially artificial intelligence (AI), but Buffett sees it as a strong consumer brand more than anything else. The company rakes in $385 billion a year in revenue, with around half that coming from iPhone sales.
There haven’t been any significant changes to the iPhone, the iPad, or Mac computers in years, but Apple continues to generate a fairly stable base of revenue across its product portfolio. The company’s installed base of active devices hit a new all-time high of more than 2.2 billion in the most recent quarter.
Apple’s large customer base provides it with enormous profits that the company can invest in developing new products, such as its recently launched Vision Pro “spacial computing” headset, not to mention AI-powered features to make its products better and keep customers on a continuous upgrade path. Apple’s $100 billion in annual profits, in combination with its high 58% return on invested capital, point to more returns for shareholders in the years to come.
2. American Express
American Express is one of the longest-held positions in Berkshire Hathaway’s portfolio. While the stock underperformed the broader market over the last 10 years, it has slightly outperformed the S&P 500 index over the last five. A big reason for that is the company’s resilient business model.
The average Amex cardholder tends to spend more than the users of rival credit card brands. It’s for this reason that merchants are willing to accept it and pay its higher transaction fees. The company invests some of the revenue from those fees into the premium rewards and services it provides to its cardholders — offerings that help insulate the business from its competitors.
Despite sluggish consumer discretionary spending last year, American Express earned $8.3 billion in profit on $60 billion of revenue net of interest expense in 2023. Its revenue rose 14% on a constant-currency basis. Those were impressive results for a 173-year-old company, and they were consistent with management’s long-term goal to grow revenue by 10% or more per year and earnings per share at a mid-teens percentage.
American Express is an old company but it’s seeing strong growth from millennials and Gen Zers. This is a good indicator that the brand is stronger than ever and should remain a rewarding investment.
American Express is an advertising partner of The Ascent, a Motley Fool company. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
