Warren Buffett is a legend on Wall Street. Since becoming CEO of Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) in 1965, Buffett turned a failing textile business into one of the largest companies in the world today. His company has averaged 20% annualized returns since then, crushing the S&P 500's performance over the same period.
One key to Buffett's long-term success is his buy-and-hold approach to investing. He focuses on buying and holding high-quality businesses for a long time, ignoring short-term market fluctuations and allowing winning investments to compound over time. Here are four incredible stocks that Berkshire Hathaway has continuously held for 13 years or more.
Image source: The Motley Fool.
American Express (held by Berkshire since 1993)
Companies with strong brands tend to have good customer loyalty and the advantage of name recognition as compared to peers. American Express(NYSE: AXP) has one of the strongest brands, and when current CEO Stephen Squeri took over, Buffett told him, "The most important thing about American Express is the brand and the customers that aspire to be associated with the brand."
American Express attracts many customers, but its focus on high-earning, high-spending customers makes it stand out.
The coveted Black Card is American Express' luxury spending card and reportedly requires between $500,000 to $1 million in annual spending to be invited. Meanwhile, its Platinum Card commands a $695 annual fee and appeals to high-spending consumers with expensive tastes. It offers perks and rewards from high-end travel providers, luxury hotels, airlines, and high-end clothing lines.
American Express' strong brand is why it can command higher processing fees than competitors. The company also earns fees from interest income for credit card loans its customers take out. In the first quarter, the company raked in $3.8 billion in net interest income, up 26% from the year before.
Moody's (held by Berkshire since 2000)
Moody's(NYSE: MCO) is one of the largest credit rating agencies in the world, with a distinct competitive advantage of its own. It's the second-largest credit-rating agency in the U.S., holding a sizable 32% share of the total market. Only S&P Global's 50% share is larger.
It's difficult for new competitors to enter the credit-rating space. It takes companies time to build up a reputation as a trusted resource for assessing the creditworthiness of bonds and other instruments. Despite credit-rating agencies' role in the 2007-08 financial crisis, they've maintained their stronghold on the market as investors and large institutions are hesitant to trust newcomers.
Moody's is a play on the U.S. economy and, more specifically, corporate debt issuance. In recent years, the company has struggled with low issuance volumes, especially from corporate borrowers. As a result, its adjusted operating revenue from its Moody's Investors Servies (MIS) segment fell 33% over two years.
This slowdown over the past few years has led to pent-up demand for debt issuance. The first quarter showed green shoots of potential new growth as issuance volumes rose and its MIS segment operating income grew 51%.
Mastercard and Visa (held by Berkshire since 2011)
Visa(NYSE: V) and Mastercard(NYSE: MA) are two businesses with incredible network effects, giving them a robust competitive advantage in the payments space. A couple of years ago, the two companies combined for $22.2 trillion in total volume through their networks, trouncing the next closest competitor, American Express, which had $1.5 trillion in total volume.
Their pivotal roles in the payments industry make Visa and Mastercard compelling investments. The two companies essentially hold a duopoly over competitors as the de facto card issuers that banks turn to.
As a result, they have incredible profit margins and cash flow. In the last year, Visa's free cash flow was $19.7 billion, with a profit margin of 54%, while Mastercard's free cash flow was $10.6 billion, with a profit margin of 46%.
According to Allied Market Research, the global credit card payments market is projected to grow 8.8% annually through 2032. With their outsized role in the payments industry, Visa's and Mastercard's robust payment networks have them well-positioned for future growth.
Should you invest $1,000 in American Express right now?
Before you buy stock in American Express, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and American Express wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $713,416!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of June 3, 2024
American Express is an advertising partner of The Ascent, a Motley Fool company. Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Mastercard, Moody's, S&P Global, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
