2 Warren Buffett Stocks to Buy and Hold Forever

Warren Buffett is the most famous investor in the world. It’s known for a number of reasons, including its preferred holding period, which is forever.

For those trying to emulate Buffett’s investing style, finding stocks with solid long-term prospects is key. This is one of the things the Oracle of Omaha insists on. And thankfully, it doesn’t leave investors in the dark.

Many of the stocks Buffett has invested in have the makings of businesses that can provide excellent returns to investors who sit back and enjoy the ride. Let’s consider two examples: Visa (V -1.06%) and Buffett’s Berkshire Hathaway (BRK.A 0.23%) (BRK.B -0.02%).

1. Visa

It’s worth investing in and staying with Visa for a number of reasons. Its business is highly profitable, boasts high margins, benefits from a strong moat that keeps competitors at bay, and has excellent long-term growth prospects. Let’s unpack a little more.

First, Visa is the leading provider of digital payment networks. It helps facilitate millions of card transactions daily and pays a fee for each one.

The company doesn’t issue credit cards — that’s the role banks play in this equation. It only operates a payment processing network.

This means that Visa is insulated from credit risk or the possibility that borrowers will not pay with the credit card. And since it has already established this network, additional transactions do not add much to the cost of goods sold, resulting in high margins. Visa’s gross and net margins are typically around 80% and 50%, respectively.

V Gross profit margin (quarterly) data from YCharts.

Second, Visa’s competitive advantage comes from the network effect — the value of its platform increases with use. The more consumers join the company’s payments ecosystem, the more attractive it becomes to merchants, and vice versa.

For businesses that don’t yet accept credit cards as a form of payment, Visa is the way to go if they change their mind. New payment processors will have trouble convincing companies to join their networks when those companies can join Visa, which already has millions of consumers.

Third, Visa still has plenty of room to grow. Although the company’s business has grown by leaps and bounds, the transactions it seeks to replace, which include cash and checks, are still common.

Visa sees a $20 trillion opportunity — it generated about $35 billion in revenue in the 12-month period. This is a huge growth track. It won’t capture the entire market by itself, but capturing even a fraction — say 5% — would keep revenues and earnings moving in the right direction for a while.

And here’s a bonus reason to invest in Visa – its dividend. The company has grown its payouts by 333% over the past decade. Reinvesting the dividend will help increase long-term returns for Visa and its shareholders.

2. Berkshire Hathaway

Visa has been one of Warren Buffett’s favorite stocks for more than a decade. But Berkshire Hathaway, the company he ran for decades, might top that list.

What makes Berkshire Hathaway such an outstanding stock to own? In short, his management team. By buying shares of the company, investors let the best investors ever help them achieve market-beating returns.

Some might point out that Buffett is 90 years old and won’t be around forever. And his longtime partner, Charlie Munger, died almost a year ago. However, Buffett is smart enough to know that he is not immortal and has built a business and culture that should outlive him.

Consider that Berkshire Hathaway is actually a fairly small operating company. It owns a lot of subsidiaries, including famous brands in various industries. Insurance giant Geico might be one of Berkshire Hathaway’s most famous businesses, but it also owns popular battery company Duracell, clothing specialist Fruit of the Loom and more. The company’s subsidiaries, which operate with a high degree of independence, give it significant diversification.

Will the company remain as successful once Buffett is gone? The available evidence suggests that it will.

Buffett has already chosen his successor, Greg Abel, currently vice president of Berkshire Hathaway’s non-insurance operations. He would not have chosen Abel unless he believed the man could reasonably run Berkshire Hathaway. Even though Buffett’s long tenure is coming to an end, this great company is in good hands and should continue to deliver excellent returns for a long time to come.

Investors can confidently hold Berkshire Hathaway stock forever.