Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is a legend in the investing world. Since taking over the top role at Berkshire Hathaway in 1965, Buffett has delivered nearly 20% compound annual returns. In other words, if you'd invested $100 in the conglomerate back when Buffett took over and didn't touch it, that investment would be worth over $5.6 million today.
Buffett's success comes because he and his team at Berkshire invest in quality companies with robust competitive advantages, including strong brands and high barriers to entry. He also takes a long-term approach to investing, buying companies he believes can grow over the next decade and holding on to those winners that continue to produce.
Berkshire Hathaway has a large portfolio of stocks that meet these criteria and make a pool for investors to choose from. If you have $1,000 to invest today, here are three excellent Buffett stocks you can buy and hold for the long term.
Image source: The Motley Fool.
American Express
American Express(NYSE: AXP) has a long history of excellent performance thanks to its strong brand. Despite competition from Visa, Mastercard, and banks that issue cards through them, American Express has held firm thanks to its branding, which customers associate with luxury.
In an interview with Bloomberg a few years ago, Buffett said he "could do all kinds of things with hundreds of billions of dollars, but I can't put in the minds of people what is in their minds about American Express."
This strong brand is why American Express has been a staple in Berkshire Hathaway's portfolio for over 30 years. Since 1995, Berkshire's stake in the credit card company has grown from around $1.3 billion to $35.1 billion, or a 27x increase.
American Express and its strong brand benefit from a growing U.S. economy, but can also benefit during inflationary times, as rising prices mean more consumer spending. It also benefits from higher interest rates, which allow it to earn more interest on its credit card loans.
Not only that, but its robust customer base can withstand economic downturns better than competitors, which is why the company continues to thrive today.
Chubb
Warren Buffett is a huge fan of investing in insurance companies, dating back to his days as a student at Columbia Business School. At the time, Buffett learned under Benjamin Graham, who invested in GEICO in 1948, one of the best-performing investments during Graham's career.
Berkshire Hathaway acquired GEICO in 1995 but continues to add insurance companies to its investment portfolio. Chubb (NYSE: CB) is one of its recent purchases, with Berkshire Hathaway accumulating over 27 million shares in the property and casualty insurer over the past year.
What makes Chubb appealing is its disciplined underwriting and strong cash flows. Over the past two decades, Chubb has displayed excellent underwriting -- an extremely important skill to have in the highly competitive insurance industry. The company has consistently beaten its peers, which translates directly into cash flows, some of which fuel its dividend, which it has raised for 31 consecutive years.
Chubb is a solid company that should continue to grow as the global economy grows. It should also benefit as customers look to protect themselves from rising risks, including those from climate-related catastrophes and evolving cybersecurity threats.
Moody's
When a company issues debt, investors want to understand how risky the debt is and how likely it is that the company will be able to repay it over time. That's where credit rating agencies, like Moody's(NYSE: MCO), come in.
Moody's is the second-largest credit rating agency in the United States, with a 32% market share. Only S&P Global has a larger share of the market, at 50%. The difficulty of breaking into the credit rating industry, due to regulations and investor trust, makes Moody's a strong company with a robust competitive advantage.
Over the past several years, the company has been hampered by the higher interest rate environment, which put pressure on corporate debt issuance across the U.S. It appears those headwinds will now flip into tailwinds, with the Federal Reserve cutting its benchmark interest rate by 50 basis points in September.
Moody's has already seen issuance volumes pick up. In the first half of this year, adjusted operating income for Moody's Investor Services (where it accounts for its rating business) surged 51% year over year. The Fed's first interest rate cut since 2020 should spur more demand for corporations looking to issue debt and make deals.
With its robust economic moat, the company is positioned to benefit from pent-up demand for debt issuance and should continue to be an important player in capital markets for years to come.
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 $740,704!*
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 September 23, 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.
