These businesses can help you build wealth for retirement.
Warren Buffett has created tremendous wealth for Berkshire Hathaway shareholders over the last 58 years. From 1965 through 2023, the gains amounted to 4,384,747%. The company’s $284 billion stock portfolio is a treasure trove of solid investment ideas.
Recently, three Motley Fool contributors were asked to highlight outstanding Berkshire-held stocks that they think would make great long-term investments. They selected Amazon (AMZN -0.27%), Ulta Beauty (ULTA 1.41%), and Apple (AAPL -0.12%). Here’s why.
Incredible opportunities, amazing price
Jennifer Saibil (Amazon): The interest in all things related to artificial intelligence (AI) is sky-high, and Amazon is one of the companies taking full advantage of what AI can offer. It has been using various forms of AI for years and continues to innovate by incorporating recent advancements. As the world’s leading cloud services provider, it’s now benefiting from this expanded AI investment. Amazon offers a slew of AI services that go beyond the generative AI tasks (like AI-created content and images) that began capturing the world’s attention almost two years ago. Its offerings take on all sorts of tasks that end up bringing incredible value to its clients.
Notably, Amazon Web Services (AWS) offers programmers several solutions to take care of tedious coding tasks, including writing code from prompts and debugging, to free up time for creative work. These could be game-changing solutions for AWS clients, and management is seeing a strong response.
Amazon partners with AI leaders like Nvidia, but it’s also developing its own AI infrastructure to meet the demand. Management said that over the past 18 months, it has launched more than double the AI and machine learning features of all its competitors combined. It’s well-positioned to maintain its lead in cloud computing and add new customers.
Amazon uses AI throughout its multiple business segments, beginning with its core e-commerce unit. Its treasure trove of data related to consumer preferences and shopping habits can be leveraged to offer shoppers more precise search results and recommendations. It’s using this same data pool to enhance its advertising business, which helps advertisers reach customers on its e-commerce site as well as its Prime streaming network.
Amazon grew revenue by 10% year over year in the second quarter and nearly doubled its operating income. Despite that strong showing,Amazon stock fell after its recent earnings report because it fell slightly below analyst expectations and guidance was weaker than the company was looking for. The stock has since recovered somewhat, but it’s still trading at a price-to-earnings (P/E) ratio of 43, which is close to its lowest level in years. Amazon stock will keep climbing, which means now is a good time to catch it on the way up.
Ready for its close-up
Jeremy Bowman (Ulta Beauty): One of Berkshire’s newest stocks, Ulta Beauty, still looks like a great buy, even after the stock bounced after it was first reported on Aug. 14 that Berkshire started a position last quarter.
In many ways, Ulta Beauty looks like a classic Buffett stock. The company is an industry leader with more than 1,400 stores nationwide, making it the largest pure-play beauty retailer. Ulta also offers salon services in its stores, incentivizing in-store visits and adding a competitive advantage over online retailers. However, Ulta has struggled recently, which is why the stock trades at a discount from its previous peak.
Comparable sales in the second quarter fell 1.2%, and the company slashed its guidance for the full year. That said, there’s good reason to bet on the stock making a comeback. First, much of the consumer discretionary sector is facing similar headwinds as inflation has caused consumers to cut back on spending.
Upcoming interest rate cuts should help give the company (and consumer spending) a boost. Ulta also continues to open new stores, with plans to add 60-65 this year, showing its confidence in long-term demand and that there’s room in the market for new stores. It also expects to enter the Mexico market next year, potentially paving the way to more international expansion.
Over the long term, the company plans to operate at least 1,700 stores in the U.S. and has a partnership with Target that it envisions reaching 800 shops positioned in Target stores.
Currently, Ulta trades at a P/E ratio of just 15, which looks like a bargain if the company can get back to growth. Assuming it can get back on track, the stock looks like an easy winner from here.
The most valuable brand in the world
John Ballard (Apple): Buffett has previously said that Apple is better than any business Berkshire owns, which explains why Buffett let the Apple position run up to an enormous stake worth over $150 billion at the end of 2023. Even in light of Berkshire’s recent sales of a portion of its massive Apple stake, Buffett said at this year’s annual meeting that Apple is a wonderful business that will likely remain Berkshire’s largest investment at the end of the year.
Apple’s iPhone sales growth has stalled over the last year, which can be attributed mostly to weak consumer spending trends. It has also dealt with increasing competition in China, but it’s doing fine everywhere else. Importantly, the installed base of active devices continues to hit new highs, reaching over 2.2 billion earlier this year. This growth will likely continue as Apple releases new products, with the Apple Vision Pro headset serving as its newest product line.
In the near term, Apple has a great chance to deliver returns to shareholders after it launches Apple Intelligence. With advanced AI features coming to the iPhone, Apple could gain share in the global smartphone market, stimulate revenue growth, and, most importantly, boost margins from higher sales of apps and subscriptions in its Services segment.
Overall, Buffett values the brand’s stickiness, given that customers are rarely beyond arms’ reach of their iPhones. In Brand Finance’s top 500 list for 2024, it was rated the most valuable brand in the world. Investing in strong brands has been a hallmark of Buffett’s investing style throughout his career, and the brand’s growing value will ultimately deliver returns to shareholders.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has positions in Apple. Jeremy Bowman has positions in Amazon and Target. John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Amazon, Apple, Berkshire Hathaway, Nvidia, Target, and Ulta Beauty. The Motley Fool has a disclosure policy.
Add Comment