Famed investor Warren Buffett has had a long history of outperforming the stock market. Since taking over as chief executive officer of Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) in 1965, Buffett has returned investors nearly 20% annually, enough to turn a $100 investment into $4.4 million today.
Buffett's long-term success is attributable to several factors, one key being that Berkshire invests in high-quality companies with robust economic moats and stellar cash flows. Here are three Buffett stocks you can confidently buy and hold for the next decade.
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1. Chubb
Insurance companies' cash flows make them appealing investments, which is why Buffett has invested in them for decades. Insurance companies can make appealing investments because their products are always in demand, and premiums can rise alongside economic growth and inflation, making them excellent cash flow machines.
Not just any insurer will do, however. As one of the world's largest property and casualty insurance companies, Chubb(NYSE: CB) has displayed excellent risk management compared with its peers. Chubb is a prudent insurance underwriter and has done an excellent job of balancing claims costs and expenses with the premiums collected, consistently beating industry peers.
Last year, Chubb generated $15.1 billion in free cash flow, which it can use to pay dividends, buy back shares, or invest in bonds and stocks. Its excellent cash flow and strong competitive moat are why it has raised its dividend payout for 31 consecutive years.
Chubb has built up its knowledge through decades of underwriting and understanding risks and rewards, making it difficult for new entrants to take market share. The company is positioned to grow in step with the economy. It can also provide a hedge against the possibility of higher inflation and interest rates, making it an excellent stock to hold for the next decade and beyond.
2. American Express
When CEO Stephen Squeri took over the top role at American Express(NYSE: AXP) in 2018, Warren Buffett told him the company's brand is "the most important thing about American Express." What makes American Express stand out is its appealing offers that attract high-spending consumers and its customers' longtime loyalty to the brand.
The famed American Express Black Card reportedly requires as much as $500,000 in annual spending just to receive an invitation. Its Platinum Card, with a $695 annual fee, appeals to high-spend customers and offers perks from high-end travel providers, luxury hotels, airlines, and clothing lines.
American Express is a high-end brand that commands higher processing fees than its peers. While some retailers don't take the card, it's worth it for American Express users who enjoy valuable rewards.
The company also holds onto credit card loans, earning interest income, and has benefited from the rising interest rate environment. Last year, net interest income surged 33% and was up another 20% in the first half of this year. While holding these loans exposes it to credit risk, American Express' high-end customers should continue to spend more than others amid inflation or an economic slowdown.
3. Moody's
Moody's Corporation(NYSE: MCO) operates a credit rating business and enjoys a robust economic moat. That's because breaking into the credit rating industry is difficult due to high barriers to entry since it takes time to build up a reputation as a trusted resource for assessing the creditworthiness of companies and debt instruments.
Regulations also make it difficult for newer entrants to knock off longtime incumbents. Moody's is the second-largest credit rating company in the U.S., with a 32% market share. Only S&P Global, with its 50% market share, is larger.
Moody's has struggled in recent years due to low debt issuance volumes. However, its robust analytics business has helped buoy its earnings during the downturn in its ratings business.
The good news for investors is that issuance volumes have begun picking up in a big way. In the first six months of this year, Moody's Investor Services (where it accounts for its rating business) adjusted operating income surged 51% year over year.
With its robust economic moat, the company is well positioned to benefit from pent-up demand for debt issuance and should continue to be a key player in capital markets for years to come.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of August 6, 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, Moody's, and S&P Global. The Motley Fool has a disclosure policy.
