You’d struggle to find an investor with a better long-term track record than Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) CEO Warren Buffett. Since 1965, Berkshire’s share price has grown by a 20.3% annual rate, equating to an aggregate gain of 2,744,062%. That’s more than a 2,700,000% outperformance of the benchmark S&P 500.
What’s remarkable about Buffett’s outperformance is that he isn’t doing anything other investors couldn’t themselves do. The Oracle of Omaha’s not-so-secret formula for success has involved buying and holding brand-name companies with clear-cut sustainable competitive advantages.
While not all of Buffett’s selections have been winners, the vast majority will end up in the profit column. In 2021, five Buffett stocks stand out as being particularly attractive and should be bought hand over fist by investors.
When in doubt, pound the table on the third-largest publicly traded company in the U.S., Amazon (NASDAQ:AMZN). Despite its $1.63 trillion market cap, Amazon is still very much a growth stock, and it has plenty of upside to come.
As most folks know, Amazon is the market share leader in U.S. online sales. Estimates vary from source to source, but it’s believed that Amazon controls anywhere from 38% to 44% of U.S. e-commerce and is, at minimum, 30 or more percentage points higher than every other online competitor. Although retail margins tend to be razor-thin, the company has been able to use its e-commerce popularity to encourage shoppers to purchase more than 150 million Prime memberships worldwide. Given the push online associated with the coronavirus pandemic, it would not be surprising if Amazon surpassed 200 million Prime memberships in the fourth quarter.
Even more important to Amazon’s growth thesis is cloud infrastructure segment Amazon Web Services (AWS). AWS has grown sales by 29% from the prior-year period in each of the last two quarters and is on pace for $46 billion in annual run-rate revenue. The margins associated with cloud services are considerably higher than retail, which means that as AWS grows into a larger percentage of total sales, Amazon’s operating cash flow will skyrocket.
Just because Warren Buffett has been reducing his stake in money-center bank Wells Fargo (NYSE:WFC) doesn’t mean you should do the same. If you have a long-term investing horizon, scooping up shares of Wells Fargo could net you quite the bargain.
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