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This article was originally published on Fool.com. All figures are in US dollars unless otherwise noted.
Warren Buffett has a lifetime of investing experience and has rightly earned his reputation as one of the greatest stock pickers in history. From 1965 to 2021 his company, Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B)recorded an average annual return of 20.1% – absolutely surpassed S&P500 10.5% return of the index over this distance.
If you have some money left over just waiting to be used, some clues from the Oracle of Omaha could help you turn that money into a much larger sum. Read on for a look at two Buffett-backed stocks that look like sure-fire winners to long-term investors.
1.Amazon
Inflation and rising interest rates have caused investors to be far more cautious about growth stocks this year. Inflationary pressures have also led to rising costs for Amazon‘s (NASDAQ:AMZN) e-commerce business, and those headwinds coincided with the company making some massive infrastructure and technology investments that hurt the company’s profitability.
To make matters worse, the big investments in the company’s e-commerce business have coincided with weaker demand as pandemic-related conditions have eased in many parts of the world.
With so many negative catalysts occurring simultaneously, it’s not surprising that Amazon has declined significantly this year. The tech giant’s share price is down around 20% so far in 2022, and 29% from last year’s peak. Despite large sell-offs, the decline in profitability has caused the company’s price-to-earnings (P/E) ratio to skyrocket. However, the stock still appears to be a big winner for long-term investors.
AMZN PE ratio data through YCharts
Amazon’s e-commerce business is suffering from growing pains, but the company’s efforts to increase its scale and infrastructure advantages are likely to pay off. While the online retail business accounts for the majority of the company’s sales, it has relatively low margins; In fact, it doesn’t contribute nearly as much to the bottom line as Amazon Web Services (AWS), the company’s cloud infrastructure business — even when terms are more favorable.
But warehouse and delivery automation will make the e-commerce business a lot more profitable in the long run, and that trend could prove very rewarding for patient shareholders.
In the meantime, investors can rest assured that AWS is on track to continue delivering profitable growth. The segment posted second-quarter revenue growth of 33% year over year and an operating income margin of 29%, and the long-term demand outlook for cloud infrastructure services remains incredibly favorable.
With leadership positions in two promising industries and a fantastic track record of innovation and execution, Amazon is built to succeed.
2. Berkshire Hathaway
Berkshire has made big gains this year by investing in an energy company Western Petroleum and video game publisher Activision Blizzard, Inc.(NASDAQ: ATVI), which is on course to be acquired by Microsoft Corporation (NASDAQ:MSFT). Buffett’s investment conglomerate has continued to outperform the market in 2022 thanks to its value-based approach and focus on backing quality companies.
Apple, Bank of America, Coke, raftersand American Express stand out as the investment conglomerate’s top five stock holdings, and an investment in Berkshire Hathaway gives your portfolio exposure to those stocks, as well as the company’s wholly-owned insurance, energy and other subsidiaries.
The company also has a massive cash pile to work with. At the time of the last filing, Berkshire had $105.4 billion in cash, and keeping plenty of cash on the sidelines has proved a smart move given this year’s turbulent stock trading. Since the S&P 500 index is down about 15% this year and that Nasdaq Composite With the index down about 25%, Buffett now has an opportunity to scout for stocks and potential acquisitions.
News that Berkshire has invested in a stock often sends that company’s stock price higher, so owning a stake in the investment conglomerate gives you exposure to those companies before news of Buffett’s latest purchases hits the lines. Berkshire’s market-crushing track record speaks to the quality of its management team, which includes Buffett, Vice Chairman Charlie Munger, and a few younger minds who have also come on board — all working to grow your wealth.
This article was originally published on Fool.com. All figures are in US dollars unless otherwise noted.
