In this article, we discuss the 5 stocks to buy and hold for the long term according to Warren Buffett. If you want to read our detailed analysis of these stocks, go directly to the 10 Stocks to Buy and Hold for Long Term According to Warren Buffett.
5. Amazon.com, Inc. (NASDAQ: AMZN)
Number of Hedge Fund Holders: 271
Amazon.com, Inc. (NASDAQ: AMZN) is ranked fifth on our list of 10 stocks to buy and hold for the long term according to Warren Buffett. The company operates from Washington as a technology firm. According to the latest filings, Berkshire Hathaway owned 533,300 shares in Amazon.com, Inc. (NASDAQ: AMZN) at the end of the second quarter of 2021. The shares are worth $1.8 billion and represent 0.62% of the portfolio.
On July 30, investment advisory JPMorgan maintained an Overweight rating on Amazon.com, Inc. (NASDAQ: AMZN) stock but lowered the price target to $4,100 from $4,600, noting the earnings miss by the firm in the second quarter and lower-than-expected guidance numbers.
Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. (NASDAQ: AMZN) with 3.8 million shares worth more than $13.1 billion.
In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ: AMZN) was one of them. Here is what the fund said:
“Amazon (AMZN): We sold our last remaining stake in Amazon this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.
I gave some details of how Amazon has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.
Generally, I believe there are three reasons to sell an investment: 1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities.
In the case of Amazon, we decided to sell due to the third scenario. I’m sure Amazon will continue to generate value for shareholders and continue to keep pace with the broader technology sector. However, I’m just not confident it’s as attractive an investment as when we first invested.
With ~51% of US households having an Amazon Prime account (and with very low churn), each of these households continuing to increase their annual spend with Amazon, and few / no real competitors in sight, Amazon is a dominant force that will only continue to accrue value as consumers continue to move from offline to online purchases for their everyday needs. Likewise, the “cash-flow machine” of Amazon Web Services is in a similar position of strength, with AWS now having ~32% market share and continuing to grow at +30% y/y. Because of this, I think Amazon is probably one of the safest investments in the technology sector today.
So why did we decide to sell the investment then? Simply put, Amazon is in a much different place than when we initially invested. Back in 2014, investors were starting to question whether Amazon’s promise of future earnings potential would actually come to fruition.
Operating income had declined from ~$1.4BN in 2010, to ~$676M in 2012, to just ~$178M by the end of 2014. Expenses were outpacing revenue growth, and investors were questioning whether Amazon’s expenses were truly “investments” as they claimed, or whether it was a structural necessity of the business and thus would never flow to investor’s bottom line.
The critical question was ‘what portion of expenses are truly growth investments vs. structural expenses, and as a result, will Amazon ever be capable of generating significant profits?’
Our analysis indicated that these expenditures truly were the former, and led to the belief that the business’ structural margins would inevitably increase over time. This was our differentiated insight / investment edge.
Fast-forward to today, and our thesis proved correct with operating margins having increased from ~0.2% to ~6%. However due to this success and proving this facet out to investors, Amazon investors have much higher confidence and a better understanding of the company today. I’m not sure we have the same level of differentiated insights, as we did back then.
In addition, I believe the departure of Jeff Bezos and his long-time lieutenants signal a regime change. Perhaps it’s now “Day 1.5” instead of the Day 1 mentality that made Amazon so successful (LINK)… The departures within the past couple years include:
- Jeff Bezos – Founder, CEO, Visionary. Started Amazon in 1994.
- Jeff Blackburn – Joined Amazon in 1998. Oversaw Amazon Marketplace, Advertising,
Amazon Studios, Prime Video, Prime Music, M&A.
- Jeff Wilke – Joined Amazon in 1999. Oversaw Amazon Consumer (ecommerce)
business.
- Steve Kessel – Joined Amazon in 1999. Oversaw Physical Stores, Kindle, and Whole
Foods.
Blackburn, Wilke, and Kessel have each arguably created hundreds of billions of shareholder value. On top of this, Bezos is the visionary and culture-setter behind Amazon. When he and his long-time lieutenants take their hands off the wheel, it is probably time for us to as well.
We sold our remaining shares at an average price of ~$3,240. Based on our initial investment, we made a ~10x return in a little over six years, for a ~45% IRR7. We reinvested the proceeds into our existing portfolio, taking advantage of the prices offered by this latest market draw-down.”
4. Visa Inc. (NYSE: V)
Number of Hedge Fund Holders: 162
Visa Inc. (NYSE: V) is a California-based payments technology company. It is placed fourth on our list of 10 stocks to buy and hold for the long term according to Warren Buffett. Latest data reveals that Berkshire Hathaway owned close to 10 million shares in Visa Inc. (NYSE: V) at the end of June 2021. The shares are valued at more than $2.3 billion and represent 0.79% of the portfolio.
On August 17, investment advisory JPMorgan reiterated an Overweight rating on Visa Inc. (NYSE: V) stock and raised the price target to $267 from $249, underlining that the modern players in the payments sector were outperforming expectations.
At the end of the second quarter of 2021, 162 hedge funds in the database of Insider Monkey held stakes worth $27 billion in Visa Inc. (NYSE: V), down from 164 in the preceding quarter worth $26 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Visa Inc. (NYSE: V) was one of them. Here is what the fund said:
“To make room for these new names with more attractive outlooks related to the reopening, we sold out of companies where the thesis is not playing out at the pace we expected including Visa.”
3. VeriSign, Inc. (NASDAQ: VRSN)
Number of Hedge Fund Holders: 41
VeriSign, Inc. (NASDAQ: VRSN) is a Virginia-based firm that provides internet-related services. It is ranked third on our list of 10 stocks to buy and hold for the long term according to Warren Buffett. Securities filings show that Berkshire Hathaway owned over 12.8 million shares in VeriSign, Inc. (NASDAQ: VRSN) at the end of June 2021. The shares are valued at over $2.9 billion and represent 0.99% of the portfolio.
In April, investment advisory Citi kept a Neutral rating on VeriSign, Inc. (NASDAQ: VRSN) stock and raised the price target to $245 from $235. Nicholas Jones, an analyst at the advisory, issued the ratings update.
At the end of the second quarter of 2021, 41 hedge funds in the database of Insider Monkey held stakes worth $6.1 billion in VeriSign, Inc. (NASDAQ: VRSN), down from 42 in the preceding quarter worth $5.6 billion.
2. The Bank of New York Mellon Corporation (NYSE: BK)
Number of Hedge Fund Holders: 52
The Bank of New York Mellon Corporation (NYSE: BK) is placed second on our list of 10 stocks to buy and hold for the long term according to Warren Buffett. The company provides financial services and is based in New York. Regulatory filings reveal that Berkshire Hathaway owned over 72 million shares in The Bank of New York Mellon Corporation (NYSE: BK) worth more than $3.7 billion at the end of the second quarter of 2021, representing 1.26% of the portfolio.
On July 20, investment advisory Argus upgraded The Bank of New York Mellon Corporation (NYSE: BK) stock to Buy from Hold with a price target of $55, citing the second quarter earnings beat of the firm in the ratings update.
At the end of the second quarter of 2021, 52 hedge funds in the database of Insider Monkey held stakes worth $4.9 billion in The Bank of New York Mellon Corporation (NYSE: BK), up from 49 the preceding quarter worth $4.7 billion.
1. Charter Communications, Inc. (NASDAQ: CHTR)
Number of Hedge Fund Holders: 75
Charter Communications, Inc. (NASDAQ: CHTR) is ranked first on our list of 10 stocks to buy and hold for the long term according to Warren Buffett. The company provides communication and internet services. It is headquartered in Connecticut. According to the latest filings, Berkshire Hathaway owned over 5.2 million shares in Charter Communications, Inc. (NASDAQ: CHTR) worth $3.7 billion at the end of June 2021, representing 1.28% of the portfolio.
On August 24, investment advisory Pivotal Research kept a Buy rating on Charter Communications, Inc. (NASDAQ: CHTR) stock and raised the price target to $1,000 from $820, backing the company to deliver solid results in the second half of the year.
At the end of the second quarter of 2021, 75 hedge funds in the database of Insider Monkey held stakes worth $19 billion in Charter Communications, Inc. (NASDAQ: CHTR), up from 74 the preceding quarter worth $16 billion.
You can also take a peek at Billionaire Stan Druckenmiller’s Top 10 Stock Picks and Billionaire Julian Robertson On Interest Rates and His Top Stock Picks For 2021.
