While stocks as a whole are selling off, there’s a reason the Oracle of Omaha is sticking with these beaten-down holdings.
He may be one of the best stock-pickers of all time, but that doesn’t mean Warren Buffett is immune to the same setbacks that every ordinary investor experiences from time to time. Plenty of Berkshire Hathaway‘s stock holdings are also well down since the S&P 500‘s mid-February peak that set up the full 10% correction suffered since then.
There’s a reason, however, Buffett reliably outperforms the broad market despite these stumbles. He practices what he preaches, buying quality stocks when they dip, and sticking with quality stocks even when they’re down.
To this end, investors with a couple-thousand bucks’ worth of idle cash in their account right now might want to borrow an idea or two (or three) from the Oracle of Omaha while these stocks are on sale. He appears to be sticking with them despite recent disruptions, which speaks volume about their long-term potential.
1. Amazon
Have you ever heard the expression “don’t throw the baby out with the bathwater”? It’s just a reminder not to get rid of everything just because you’re getting rid of some things.
It’s advice the market’s not heeding with Amazon (AMZN -1.03%) right now. While certainly plenty of companies — and several technology companies in particular — are vulnerable to the economic situation that might await, Amazon isn’t nearly as vulnerable as its stock’s 19% slide since early February would suggest.
Yes, tariffs. Higher import costs could drive up prices on lots of good sold at Amazon.com. They could also inflate the costs of equipment needed to continue expanding its massive cloud computing business, Amazon Web Services.
Take a closer look at this company’s operation, though. Sales of physical goods are its biggest business in terms of revenue, but far from being its top profit center. That honor belongs to high-margin AWS, which now accounts for 58% of Amazon’s operating income. Its cloud computing business is certainly more stable and predictable than its e-commerce operation.
It’s also worth adding that e-commerce is increasingly a means to an end rather than a profit center in and of itself. Of last year’s top line of $638 billion, $17.3 billion of it was advertising revenue Amazon collected for promoting sellers’ listings, while another $11.5 billion of it was subscription revenue for services like Prime or access to audiobooks. These are high-margin models as well, making the low-to-no-margin business of selling goods online worth its cost.
There’s even a case to be made that economic weakness works in Amazon’s favor, by virtue of forcing consumers to shop around for lower prices. In this vein, not once since 1996 has this company’s yearly top line failed to grow despite three technical recessions and several economic lulls during that stretch. At the same time, economic weakness could also force Amazon’s third-party sellers to spend even more on advertising and promotion at the shopping site.
2. American Express
You know it as a credit card company, and broadly speaking, it is.
That description doesn’t quite do justice to American Express (AXP -0.48%), though. It might be more accurate to describe it as a membership-based rewards program that just so happens to manage its business around payment cards. Underscoring this argument is the fact that some consumers are willing to pay up to $695 per year for access to perks like credit toward hotel stays, cash back on shopping, access to airport lounges, and even credit toward the purchase of entertainment. Other credit card companies provide perks, but none quite as impressive as those offered by American Express.
This business model, of course, is the chief reason AmEx shares have tanked to the tune of 20% since late January. If the economy’s slipping into trouble, credit card fees and credit card usage are vulnerable to belt-tightening.
But that theory doesn’t exactly jibe with reality as much as is feared.
While American Express did run into a headwind in 2009 in the wake of the subprime mortgage meltdown, it was far from disastrous. It was also overcome by 2010. And the company’s growth didn’t stall at all in 2022 despite the post-pandemic malaise that pushed stocks into a bear market.
The point is, AmEx’s generally affluent customers are typically able to shrug off economic woes. This stock’s sizable pullback is rooted in fear that’s mostly unmerited.
3. Apple
Finally, add Apple (AAPL 0.32%) to your list of Warren Buffett stocks to buy right now if there’s a little bit of money you’d like to put to long-term work.
Yes, Berkshire has been lightening up its stake in Apple since late 2023, culling its position to less than half of what it was then. Don’t lose perspective, though. Those sales followed a hefty run-up and then more than a year’s worth of stagnation. Buffett is bold and doesn’t mind a lack of diversification, but even he has limits. It’s also worth remembering that Apple is still Berkshire Hathaway’s single-biggest position, making up nearly one-fourth of the conglomerate’s total stock portfolio. That’s hardly an indication of concern about its future.
There’s a very specific reason you might want to dive into a position in Apple while shares are down 18% from December’s peak and trading at a multi-month low. That is, artificial intelligence (AI) could prove quite catalytic for this stock over the course of the next couple of years.
Admittedly, that doesn’t seem to be the case thus far. The iPhone 16 that became available in September is fully capable of running the Apple Intelligence assistant app that debuted in October. But interest has been lethargic. And the investing crowd is getting restless as a result.
As KeyBanc Capital Markets analyst Brandon Nispel recently noted, “With 2025 iPhone growth expectations now 1% (down from 7% just two quarters ago) and key catalysts around Apple Intelligence Siri upgrades now delayed, we think bulls will lose confidence in any upgrade cycle hope,” echoing the sentiment plenty of others are voicing about Apple’s AI business to date.
As the old adage goes, it’s darkest before dawn. So don’t give up hope here. If anything, now’s the time to dig in.
This might help: While the company’s consumer-facing artificial intelligence offerings haven’t really moved the needle much yet, there are analysts who still believe Apple’s day in the sun is coming. It was just never going to be now.
As Jefferies analyst Edison Lee explained late last year: “We like Apple Intelligence long term, as Apple is the only hardware-software integrated player that can leverage proprietary data to offer low-cost, personalized AI services. However, smartphone hardware needs rework before being capable of serious AI, likely by 2026/27.”
Veteran investors know that stocks have a knack for moving preemptively in anticipation of these kinds of causalities.
