When it comes to investing greats, Warren Buffett is arguably in a class of his own. Since the 1950s, the Oracle of Omaha grew his net worth from $10,000 to north of $88 billion. Mind you, this $88 billion figure doesn’t include the $37 billion he’s generously donated to charitable organizations over the past 14 years.
He’s also done quite well for Berkshire Hathaway‘s (NYSE:BRK.A)(NYSE:BRK.B) shareholders as the company’s CEO. Between 1965 and 2019, Berkshire delivered an average annual return of 20.3%. That works out to an aggregate gain of 2,744,062%, which created over $400 billion in value for the company’s investors.
Long story short, when Buffett buys and holds a stock, investors tend to pay close attention.
Right now, five Buffett stocks stand out as particularly attractive. If you have, say, $5,000 in investable capital that won’t be needed to pay bills or cover emergencies, you should consider putting that money to work in the following brand-name companies.
BERKSHIRE HATHAWAY CEO WARREN BUFFETT. IMAGE SOURCE: THE MOTLEY FOOL.
Even though it was added to Berkshire Hathaway’s portfolio by one of Buffett’s investing lieutenants (Todd Combs or Ted Weschler), e-commerce kingpin Amazon (NASDAQ:AMZN) has all the makings of a core portfolio holding that still offers significant long-term upside.
You’re likely familiar with Amazon because of its leading online marketplace. Amazon controls between 39% and 44% of all e-commerce in the United States (estimates vary depending on your source). That’s well over 30 percentage points higher than the next-closest competitor. Despite retail margins being nothing to write home about, Amazon has been able to turn its retail popularity into well over 150 million global Prime subscriptions. Each and every one of these subscriptions incentivizes members to stay within Amazon’s ever-growing product, content, and services ecosystem.
The real driving force behind Amazon’s long-term growth story is Amazon Web Services (AWS). AWS is the company’s cloud infrastructure service, and it grew by a healthy 30% in 2020 despite the worst economic downturn in decades. Whereas Amazon generated just shy of $9.4 billion in operating income on $341 billion in sales from its other operating segments, AWS was responsible for $13.5 billion in operating income on $45 billion in sales. Put simply, as AWS becomes a larger part of total sales, Amazon’s cash flow will catapult higher.
IMAGE SOURCE: GETTY IMAGES.
Bristol Myers Squibb
Brand-name healthcare stocks are usually great ways to put your money to work. Since people don’t get to choose when or how they get sick, there tends to be a steady level of demand for drugs and devices, no matter how well or poorly the economy is performing. That’s why value stock Bristol Myers Squibb (NYSE:BMY) is such a great buy right now.
There’s no question that some of Bristol Myers’ momentum is coming from its acquisition of Celgene, which it completed in November 2019. This deal brought blockbuster cancer drug Revlimid into the fold. For more than a decade, Revlimid’s sales have rocketed higher on the heels of increased duration of use and multiple label expansions. Best of all, long before it was acquired, Celgene arranged for Revlimid to be protected from a flood of generic competition until early 2026. That gives Bristol Myers Squibb a five-year runway to pile on the cash flow for a drug that will likely top $12 billion in annual sales.
There’s also plenty to like in the organic pipeline. Eliquis continues to be the top-selling oral anticoagulant in the world, and cancer immunotherapy Opdivo offers numerous label expansion opportunities. Opdivo is already generating about $7 billion in sales annually, and could potentially top $10 billion if future clinical studies bear fruit.
IMAGE SOURCE: BANK OF AMERICA.
Bank of America
Admittedly, bank stocks are currently facing a number of challenges. This includes historically low interest rates (which hurt interest income-earning potential) and rising delinquency rates tied to the coronavirus recession. Nevertheless, history has proved time and again that buying bank stocks toward the end of a recession is almost always a smart move.
Bank of America is the most interest-sensitive of the big banks. While lending rates aren’t likely to rise considerably before 2024, BofA will be in line to see the biggest boost to interest income when the economy comes roaring back and interest rates do begin ticking higher.
Bank of America has also done a solid job of controlling expenses by consolidating some of its branches and investing heavily in digitization. It’s considerably cheaper for BofA to handle transactions online and through its mobile app than in person or by phone. It’s ongoing shifts like this that will make BofA more profitable and allow for hearty capital return programs.
IMAGE SOURCE: SIRIUS XM.
Not only is Sirius XM a legal monopoly, but it brings a significant competitive advantage to the table that virtually no other terrestrial and online radio operators can offer. Whereas terrestrial and online radio almost exclusively rely on advertising revenue to drive top- and bottom-line growth, Sirius XM generates almost 80% of its revenue from subscriptions to its satellite radio service. Subscribers are far less likely to cancel their service during an economic downturn than advertisers are to reduce their spending. As a result, Sirius XM finds itself in much better shape during downturns than its peers.
Something else for investors to consider is that Sirius XM operates a partially fixed-cost business. Though revenue sharing and talent acquisition costs can vary, the company’s transmission and equipment costs are predominantly fixed no matter how many new subscribers it signs up. That’s a recipe for steadily growing operating margins over the long run.
IMAGE SOURCE: GETTY IMAGES.
Lastly, one of the best Buffett stocks you can buy with $5,000 is payment facilitator Visa (NYSE:V).
As you might imagine, Visa is a cyclical company that counts on an expanding U.S. and global economy to grow. The coronavirus recession threw a monkey wrench into its 10-year streak of increasing credit card purchasing volume traversing its network. But the good news here is that periods of expansion usually last for many years, whereas recessions are measured in quarters.
Visa is the unquestioned dominant player in the U.S. — the biggest market for consumption in the world. Between 2009 and 2018, Visa’s share of credit card network purchase volume grew by more than 9 percentage points to 53%. That’s over 30 percentage points higher than its next-closest competitor, Mastercard.
It’s also a company that’s resisted the urge to lend. By strictly sticking to payment facilitation and avoiding lending, Visa doesn’t have to worry about any increases in loan delinquencies when recessions arise. Not having to set aside capital for loan/credit losses is precisely why Visa’s profit margin hovers at or above 50%.
Currently down 7% in 2021, Visa is begging to be charged by long-term investors.