3 Top Buffett Stocks to Buy and Hold for the Long Haul

Key Points

• Amazon seems set to boost profits from AI-powered growth and cost savings.

• American Express continues to post GDP-beating growth 35 years after Buffett's initial purchase.

• Chubb Limited is a new addition to Buffett's insurance empire.

• These 10 stocks could mint the next wave of millionaires ›

Warren Buffett once said that at Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), "our favorite holding period is forever."

By holding the highest-quality companies for long periods, the miracle of compound earnings works its magic, enabling truly great results without investors having to do anything aside from that initial purchase.

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While Buffett and his investing lieutenants have been buying and selling more often over the past few years, many names in the Berkshire portfolio have the qualities of "forever" stocks -- like the following three.

Amazon

Buffett only holds two of the "Magnificent Seven" stocks, with Amazon (NASDAQ: AMZN) being one of them.

At first, one might wonder why Berkshire holds Amazon. After all, the stock is not "cheap" by any means, and it's also a lower-margin business than its software and internet peers. And while other Mag Seven stocks pay dividends and do share repurchases, Amazon doesn't pay a dividend and hasn't bought back much stock over its corporate life.

However, Amazon management operates much like Berkshire Hathaway, in that Amazon takes a long-term view and is willing to invest lots of money for years to build a long-term sustainable competitive advantage. Most notably, Amazon spent tons of money building a nationwide e-commerce delivery platform, and is miles ahead -- pun intended -- of any would-be competitor in delivering packages within one or two days.

Notably, Amazon hasn't performed as well as other Mag Seven stocks in recent years in the age of AI. However, that may be short-sighted.

While artificial intelligence is a hugely competitive field, Amazon is one of the few companies with the ability to compete. But it's not just its AI offerings, bolstered by its big investment in Anthropic, that will enable Amazon to get its share of AI business. AI also has the potential to greatly enhance Amazon's two large existing businesses in e-commerce and the cloud.

As All-In podcast host Jason Calacanis noted on social media platform X, Amazon's e-commerce operations are set to greatly enhance profitability as a result of AI innovation. In a few years, Calacanis predicts AI robots will soon replace most Amazon factory and warehouse workers, while Zoox self-driving vans may replace most human-driven delivery vehicles.

Amazon's e-commerce business has already improved its profit margins by a lot over the past few years. Its North American business has increased operating margins from 5.2% in the first quarter of 2024 to 7% last quarter, while its international e-commerce business has grown margins from a 0.4% operating loss to a 3.4% positive operating margin over those same six quarters.

As Amazon implements more and more AI and automation into its e-commerce and digital advertising platforms, those margins should continue to rise.

And while Amazon's leading cloud platform hasn't grown as much as some rivals, Amazon Web Services is also the largest player, and it's harder to grow off a bigger base. That being said, AWS still grew a strong 17% pace off a massive $116.3 billion run rate last quarter, with healthy operating margins in the mid-30s. Look for its AI services, such as Amazon Bedrock and Anthropic, to continue boosting revenues by double-digits, while Amazon gains efficiencies from AI on the cost side.

Finally, look for Amazon to cultivate more new business in the future with its innovation-focused culture and long-term mindset. One such new business, satellite-based internet service Project Kuiper, is set to make its first revenues in the next year.

Image source: The Motley Fool.

American Express

Some candidates for "forever" stocks are luxury brands that cater to upper-income consumers. As long as a company maintains and nurtures a brand that customers associate with excellent service and value, that brand can usually maintain high margins and pricing power.

Pricing power can allow a company to grow at above-GDP rates for long periods of time, which is a recipe for long-term outperformance. It's one of the reasons Buffett has never sold a share of American Express (NYSE: AXP), a stock he's held for 35 years.

Thirty-five years into Buffett's investment, American Express is still growing at above-average rates. Revenues net of interest expense grew 9% last quarter, while adjusted (non-GAAP) earnings per share grew at 17% as margins expanded. Discount revenue was up 5%, card fees were up 20%, and net interest income on loans was up 12%. And Amex continues to have delinquencies and charge-offs well below the industry average, showing good underwriting and marketing to the right type of consumer.

While the stock doesn't appear as cheap as other banks, American Express' valuation is still much cheaper than the other big card networks Visa and Mastercard.

Meanwhile, American Express just raised the annual fee on its Platinum Card by a whopping $200 to $895, while also adding $1,400 of new benefits. As long as American Express continues to attract partners that seek out its high-spending clientele, it should continue to be able to offer customers more discounts on luxury goods and services -- thereby attracting good credits while also being able to raise card fees, leading to long-term profitable growth.

Chubb Limited

Like American Express, Chubb Limited (NYSE: CB) caters to high-end clients in the homeowner's and business property and casualty insurance market. Unlike other insurers which generally offer standardized plans and then attempt to mitigate costs when claims come due, Chubb takes a different approach.

In its Masterpiece Homeowner's insurance plans, Chubb generally offers customized coverage for high-end items and other features that are usually only add-ons to other plans. When claims come due, Chubb generally pays the full replacement costs of damaged or lost items in full without depreciation, and generally gets payments out very quickly to claimants.

That high level of customer service and peace of mind comes at a higher premium cost, giving Chubb pricing power in the market, which generally allows for consistently high profits and sub-100 combined ratios year in and year out.

The insurance market has also hardened in recent years, allowing insurers to raise prices dramatically, creating a rather favorable environment in the industry. For its part, Chubb continued to deliver stellar results in the second quarter, with a combined ratio of 85.6% in its P&C business.

While natural disasters such as January's Los Angeles wildfires always have the potential to decimate earnings in any particular quarter, Chubb's highly profitable niche should enable the company to bounce back and remain profitable through cycles. With the stock trading at just 12.3 times earnings, now is a solid entry point to buy and hold Chubb for the long haul.

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American Express is an advertising partner of Motley Fool Money. Billy Duberstein and/or his clients have positions in Amazon and Berkshire Hathaway. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, Mastercard, and Visa. The Motley Fool has a disclosure policy.