Buffett has made a fortune by investing in the American consumer.
Warren Buffett is widely considered one of the world’s best investors. His success spans decades via his holding company, Berkshire Hathway, one of today’s largest corporations. Inside Berkshire, Buffett and his team manage a massive stock portfolio worth over $385 billion.
Investors can learn a lot from following how Berkshire manages it. One clear takeaway is Buffett’s affinity for the U.S. consumer. For example, Apple (AAPL 0.58%), American Express (AXP -0.11%), and Kroger (KR 0.64%) combine for over half of the entire portfolio.
Here is what makes these stocks special and why investors can buy and hold them forever.
1. Apple
The personal electronics giant is Berkshire’s largest holding by a country mile. Apple is 43.1% of Berkshire’s portfolio despite Buffett trimming shares this past quarter. Buffett has called Apple the second-best business Berkshire owns, pointing to consumers’ loyalty to Apple devices. Buffett could be right; there are over 2.2 billion active Apple devices worldwide today.
Apple’s product ecosystem is a beast. Not only do consumers buy phones, accessories, and computers every few years to keep up with the latest technology, but there are multiple ways Apple monetizes its users. It sells various subscription services and takes a cut of all money spent on its app store. Collectively, Apple is a financial juggernaut that generates over $381 billion in annual sales and $101 billion in free cash flow.
CEO Tim Cook returns many profits to shareholders like Buffett, paying dividends and repurchasing shares. The company has reduced its share count by a whopping 36% over the past decade alone, which means Berkshire’s massive stake represents more ownership in the business. Apple’s best growth days might be over, but its generosity in returning cash to shareholders makes it a stock you can tuck away in your long-term portfolio.
2. American Express
Borrowing money has been a core pillar of American consumerism since the credit card was invented decades ago. American Express didn’t invent the credit card, but it’s one of today’s most famous credit card companies. American Express makes money as one of America’s four prominent payment networks. It’s also a bank that provides financial services and carries the loans people accumulate on their American Express cards.
American Express is famous for its service and lucrative rewards programs. The company ranks first among U.S. card issuers in customer satisfaction. The company is also profitable enough to pay a steadily increasing dividend and has bought back enough stock to retire over 30% of its shares this decade. Again, powerful brands and returning profits to shareholders are classic Buffett stock traits.
Credit cards are not going out of style anytime soon. Credit card debt in the United States is at all-time highs. Meanwhile, American Express’s management has noted in earnings calls that millennial and Gen Z consumers are its fastest-growing customer demographic. The future looks bright for American Express, so consider adding the name to your long-term portfolio.
3. Kroger
A grocery store chain isn’t as flashy as Apple or American Express, but Kroger is every bit a classic Buffett stock. Kroger is the largest-supermarket company in the United States and second only to general retailer Walmart in annual grocery sales. Its store footprint spans over 2,700 stores and multiple brands. Kroger could soon grow larger; the company is battling a lawsuit by the Federal Trade Commission over a $24.6 billion merger with Albertsons. If the merger succeeds, Kroger will have over 5,000 locations.
Buffett bought shares in 2019 before the merger came up. The investment thesis is simple: Food and medicine are basic consumer staples. Kroger’s business is recession-proof, evidenced by the company’s history dating back to the 1800s. Kroger’s size gives it a competitive advantage against smaller competitors who can’t source products and sell them at prices as low as Kroger’s.
It probably goes without saying at this point, but yes, Kroger generously returns profits to the company’s investors. The company’s management has raised the dividend by nearly 300% over the past decade while repurchasing over a quarter of its outstanding shares. Whether or not the merger ultimately goes through, Kroger remains a blue chip business worth holding onto.
American Express is an advertising partner of The Ascent, a Motley Fool company. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Walmart. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.
