Warren Buffett's Berkshire Hathaway has been a wealth-building machine for shareholders. His investing skills ultimately delivered a cumulative return on the stock of over 5,500,000% over the last 60 years.
Even as Buffett prepares to hand over the reins to long-time lieutenant Greg Abel, along with others like Todd Combs and Ted Weschler, the company continues to invest in outstanding businesses. Here are two stocks from Berkshire's portfolio that could be great buys for 2025 and beyond.
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1. Amazon
Berkshire Hathaway has held an investment in Amazon(NASDAQ: AMZN) since 2019 and still held 10 million shares at the end of the first quarter. Amazon fits right in with Berkshire's portfolio of competitively positioned businesses with solid growth prospects.
Amazon generates revenue from several businesses, including cloud services, advertising, and Prime subscriptions. Its non-retail services made up 60% of the company's revenue last quarter. These services generate much higher margins than retail goods and point to many paths where Amazon can invest, innovate, and continue to grow in value for shareholders.
But Amazon's largest revenue source remains its online retail store, which generates 37% of the company's revenue. The company attracts millions of customers with its Prime benefits like free shipping and digital entertainment. There are over 130 million people in the U.S. watching Prime Video with the ad-supported membership plan.
Amazon's ecosystem of services should protect its competitive moat as other retailers try to catch up. Walmart and Costco Wholesale have seen tremendous growth in their online businesses in recent years, and these companies are growing online sales much faster than Amazon.
However, Amazon's share of the U.S. e-commerce market was still about six times larger than its next closest competitor (Walmart) as of 2023, according to Statista. Its massive lead speaks to the investments Amazon has made in building out a massive amount of warehouse space over the last few decades to get closer to customers with fast delivery.
Amazon is a small position for Berkshire. Out of $263 billion in stock holdings, the value of its Amazon shares was worth just $1.9 billion at the end of Q1. But Amazon is trading at a reasonable multiple of just 19 times its trailing 12-month operating cash flow. This multiple is at the low end of Amazon's historical trading range, indicating that the stock may be undervalued.
2. Domino's Pizza
One recent addition to Berkshire's stock portfolio was Domino's Pizza(NASDAQ: DPZ). Berkshire bought shares in third-quarter 2024 and has bought more shares of this leading pizza chain in each of the last two quarters.
Domino's stock delivered a total return of nearly 400% (including dividends) over the last 10 years, driven by 19% annualized growth in the company's earnings per share. Despite high inflation and other macroeconomic headwinds going back to the pandemic, the Domino's brand has remained very resilient.
The company experienced a small dip in sales in 2022, when inflation spiked to a 40-year high. This shows that the business could be vulnerable to a recession, which is something to keep in mind with the uncertainty over tariffs. However, Domino's has promising opportunities to deliver more growth over the long term.
The company's competitive advantage stems from a massive store base of over 21,000 worldwide. This puts Domino's fairly close to a large part of the population, especially in the U.S. It is gradually opening more stores while earning a healthy profit margin of 13%. This profitability indicates an extremely efficient supply chain supporting a large store footprint.
There are lots of pizza restaurants, making for a highly competitive market. But Domino's is the No. 1 brand in the industry, generating global retail sales of $19 billion last year.
The stock is not cheap, trading at 28 times earnings. However, Berkshire wouldn't be buying the stock if Buffett and his investing deputies didn't see a lot of growth ahead. Despite leading the market, Domino's captures less than 25% of pizzas sold in the U.S.
Its ability to offer value to consumers should keep sales relatively stable in a soft economy, while opening up a lot of opportunities to gain market share and drive growth over the long term.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, Costco Wholesale, Domino's Pizza, and Walmart. The Motley Fool has a disclosure policy.
