Leo Sun, The Motley Fool
5 min read
In This Article:
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Amazon’s e-commerce and cloud businesses will continue to expand.
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Kroger’s scale makes it a better long-term play than many other supermarkets.
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Coca-Cola is an evergreen beverage maker that is built to withstand recessions.
At Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) latest annual meeting on May 3, Warren Buffett announced that he would step down as its CEO at the end of the year. That announcement wasn't surprising, since the celebrated investor will turn 95 in August. Buffett had also previously appointed Greg Abel, the CEO of Berkshire Hathaway Energy, as his successor.
Abel has been with Berkshire for 25 years, but he isn't an acclaimed stock picker like Buffett. He probably won't stray too far from Buffett's playbook of investing in stable and cash-rich businesses, but he also might fail to spot as many good long-term investments.
So instead of waiting to see if Abel can add some new long-term winners to Berkshire's massive portfolio, investors can simply buy three of Buffett's older picks -- Amazon (NASDAQ: AMZN), Kroger (NYSE: KR), and Coca-Cola (NYSE: KO) -- and hold them forever.
Amazon is the largest e-commerce and cloud infrastructure company in the world. Berkshire bought its first shares of Amazon in the first quarter of 2019, and it now holds 10 million shares with a market value of $2.05 billion. That represents 0.7% of Berkshire's entire portfolio.
Amazon generates most of its revenue from its retail business, but most of its profits come from its Amazon Web Services (AWS) cloud platform. AWS' high profits enable Amazon to expand its Prime ecosystem with discounts and other lower-margin strategies. The company serves 220 million Prime members worldwide.
Over the long term, Amazon's retail business -- which includes its e-commerce marketplaces and Whole Foods Market stores -- should continue to grow as it locks in even more Prime subscribers. AWS should also benefit from the secular expansion of the AI market as more companies expand their cloud infrastructure to accommodate the latest AI applications.
From 2024 to 2027, analysts expect Amazon's revenue and earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 10% and 17%, respectively. Amazon's retail business faces some near-term pressure from the tariffs and it might not seem cheap at 33 times forward earnings, but it's still one of the best long-term plays on the growing e-commerce and cloud markets.
