Discover the only 3 stocks billionaire Warren Buffett has continuously owned since 2000

For more than half a century, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett has been giving Wall Street lessons. Based on annualized total returns (including dividends) since the mid-1960s, the “Oracle of Omaha” has nearly doubled the benchmark’s performance S&P 500 (19.8% versus 10.2%, as of December 31, 2023).

On an overall total return basis, this outperformance is even more pronounced: a total return of approximately 36,000% for the S&P 500 versus a return of nearly 5,000,000% for Berkshire Class A shares (BRK.A), as of the close on June 26, 2024.

Buffett’s ability to dominate Wall Street’s most widely followed stock indices is the result of a long list of factors, including:

• A desire to acquire companies that have well-defined competitive advantages.

• Focus on companies that have strong, proven management teams.

• Fill Berkshire Hathaway’s portfolio with cyclical stocks that will benefit from disproportionately long periods of economic growth.

• Concentrating Berkshire’s 44-stock, $387 billion investment portfolio into a handful of Buffett and his team’s best ideas.

• Have enough cash to take advantage of the inevitable Wall Street swoons.

But perhaps the most defining characteristic of Warren Buffett’s investment philosophy is his desire to own great companies for the long term. While the average holding period for stocks is less than a year, the Oracle of Omaha and his top investment associates, Ted Weschler and Todd Combs, seek to hold what they consider to be wonderful companies “indefinitely.”

While you’ll find many holdings in Berkshire’s 44-stock portfolio that have been around for years, only three stocks have been continuously held since 2000.

Coca-Cola: continuously held since 1988

As for the mandate in Berkshire Hathaway’s closely watched $387 billion investment portfolio, the beverage company Coca-Cola (NYSE:KO) reigns supreme. Buffett’s company has held Coca-Cola shares continuously since 1988 and, at a cost of $3.2475 per share, generates a dividend yield on cost of nearly 60% each year.

The advantage of CPG stocks like Coca-Cola is that they provide a basic necessity. No matter how the U.S. economy and/or stock market performs, consumers still need beverages. This helps generate consistent and predictable operating cash flow year after year.

On a more company-specific basis, Coca-Cola is present in every country except North Korea, Cuba, and Russia (the latter linked to its invasion of Ukraine). This virtually unprecedented geographic diversity allows the company to reap the rewards of stable operating cash flow in developed countries, while enjoying dynamic organic growth in emerging markets. In total, Coca-Cola has more than two dozen brands worldwide that generate more than $1 billion in annual sales.

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Branding and marketing are other reasons why Coca-Cola is a phenomenal long-term investment. Kantar’s annual Brand Footprint report indicates that Coca-Cola has been the most chosen brand by consumers on store shelves globally for 12 consecutive years. The company’s marketing team relies on digital channels to engage its younger consumers and can still rely on its rich history and well-known brand ambassadors to connect with its mature audience.

With Berkshire Hathaway collecting $776 million in annual dividends on its stake in Coca-Cola, there is absolutely no incentive to sell that position.

American Express: continuously owned since 1991

A second stock that has been a staple of Warren Buffett’s investment portfolio at Berkshire Hathaway for more than three decades is the credit services heavyweight. American Express (NYSE: AXP). “AmEx”, as it is better known, has been a stable position since 1991.

AmEx is the embodiment of Buffett’s prototypical investment. It’s a financial stock (Buffett’s favorite sector) with a well-known brand, a rock-solid and cyclical management team.

Even though the Oracle of Omaha and Berkshire’s brightest investment minds know that U.S. recessions are a normal and inevitable part of the business cycle, they know that downturns are short-lived. Nine of the 12 U.S. recessions since the end of World War II have been resolved in less than 12 months. Buffett loves buying branded companies like AmEx and allowing them to thrive during long periods of economic expansion.

The secret to American Express’ success is its ability to leverage both sides of the transaction chain. American Express is the third-largest payment processor by credit card purchase volume in the United States, which allows it to generate predictable revenue from merchant fees. At the same time, American Express is also a lender (through credit cards), which helps it generate annual fees and net interest income from its group cardholders. When the U.S. and global economies are firing on all cylinders, this ability to pull double duty comes in handy.

Additionally, AmEx has always done a magnificent job attracting higher income earners as cardholders. High earners are less likely to change their spending habits or not pay their bills during minor economic disruptions.

Finally, Berkshire Hathaway’s annual return on the cost of its American Express stake (based on a cost per share of $8.49) is a staggering 33%! In other words, Berkshire is nearly doubling its initial investment in AmEx based on dividend income alone every three years.

Moody’s: continuously held since its IPO on September 30, 2000

The third company that billionaire Warren Buffett has owned since 2000 is a rating agency. Moody’s (NYSE:MCO). Berkshire Hathaway has been a shareholder since Dun & Bradstreet spun off Moody’s in September 2000.

Moody’s long-term outperformance reflects the fact that at least one of its two main operating segments is operating at full capacity at any given time.

Moody’s is best known for its Investors Service segment, which provides credit ratings for corporate and government debt. More than a decade of historically low interest rates has prompted businesses and government agencies to issue debt. This allowed Moody’s to continue to drive its leading business.

But starting in March 2022, the Federal Reserve began its most aggressive rate-hike cycle in four decades. As interest rates rose, the appetite for raising capital through debt issuance became less attractive. As demand for corporate debt ratings slowed, the growth potential shifted to Moody’s Analytics.

The Company’s Analytics segment offers its clients various risk management, economic assessment and compliance solutions. In a context where several predictive tools predict a recession in the United States (for example, the historic decline in the M2 money supply in the United States), risk management tools are very popular.

Without wanting to repeat you, Berkshire Hathaway also earns dividends from Moody’s. Even if new investors in Moody’s stock generate a yield of only 0.8%, Berkshire’s stock price of about $10.05 per share produces a stock price yield of about 34%! The fact that Berkshire can triple the initial investment in Moody’s every three years means that Warren Buffett has no reason to get rid of this position.

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American Express is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway and Moody’s. The Motley Fool has a disclosure policy.

Find Out the Only 3 Stocks Billionaire Warren Buffett Has Owned Continuously Since 2000, originally published by The Motley Fool