3 Top Buffett Stocks to Buy and Hold for the Next 20 Years

In the ever-evolving world of investing, few strategies have proven as reliable and lucrative as Warren Buffett's approach to stock picking. Buffett's success at buying stocks of great businesses and holding them for the long term has inspired many investors to follow his style. As of the end of 2024, Berkshire Hathaway held a stock portfolio worth $271 billion, with three standout picks that are poised for significant growth over the next two decades: Amazon, Apple, and Domino's Pizza. Let's delve into why these stocks are not just great investments but also align perfectly with Buffett's long-term investment philosophy.

Amazon: The E-commerce and AI Juggernaut

Amazon (AMZN) is a surefire stock for growth over the next 20 years, dominating two high-growth sectors: e-commerce and artificial intelligence (AI). With around 40% of the U.S. e-commerce market, Amazon is the undisputed leader in this rapidly expanding sector. The company's continuous addition of new brands and products, such as Estee Lauder and Armani Beauty in 2024, and its investments in delivery speed and cost efficiency, position it well for future growth.

Amazon's early entry into generative AI and its extensive tools for clients of Amazon Web Services (AWS) make it a leader in this multibillion-dollar business. AWS sales growth had been slowing but accelerated again in the fourth quarter of 2024, up 19% year over year, making it Amazon's highest-growth segment. The stock is down 26% from recent highs and trades at a price-to-earnings ratio (P/E) of 35, which is near its lowest level in more than a decade. This attractive valuation makes it an excellent time to buy shares of this "forever Buffett stock."

Apple: The Power of Strong Brands

Apple (AAPL) is another strong brand that Buffett has bet big on. The iPhone is one of the most valuable products in the world, generating around half of Apple's $395 billion in trailing-12-month revenue. The company has delivered stellar returns to shareholders over the last decade, earning a high return on capital employed of 61%. This indicates how well management turns investments in new products into profits.

Apple's high customer satisfaction scores have fueled solid growth in its services segment, which now generates $100 billion of annualized revenue and earns higher margins than devices. This aligns with Buffett's preference for investing in companies that earn high returns on capital, which usually indicates a business that can deliver strong earnings growth and returns to shareholders. Apple's stock is down 7.28% from recent highs, making it an attractive buy for long-term investors.

Domino's Pizza: The Timeless Franchise

Domino's Pizza (DPZ) is a timeless business with a strong economic moat, similar to other dominant fast-food chains. It has more than 21,300 locations in over 90 countries and is known for convenient delivery, tasty food, and low prices. Its low-priced, small-footprint franchise model makes it an attractive partner for franchisees. The business has delivered strong results over its history, and its global reputation positions it well for future growth. Domino's stock is down 4.31% from recent highs, presenting an opportunity for long-term investors to buy into a company with a defensible, sustainable competitive advantage.

Implications for Future Growth Potential

The current market conditions, with Amazon, Apple, and Domino's Pizza stocks down from recent highs, present an excellent opportunity for long-term investors to buy into these companies. These stocks align with Warren Buffett's investment strategy of buying great businesses at bargain prices and holding them for the long term. The future growth potential for these companies is high, given their dominant market positions, strong brands, and innovative strategies. Amazon's leadership in e-commerce and AI, Apple's high return on capital and strong services segment, and Domino's Pizza's global reputation and franchise model all position them well for continued growth over the next 20 years.

Key Factors Driving Amazon's Growth

1. Dominant Market Position in E-commerce:
- Amazon controls around 40% of the U.S. e-commerce market, making it the undisputed leader in this high-growth sector. This dominance allows Amazon to capture a significant share of the growing e-commerce market, which is expected to continue expanding as a percentage of retail sales.
- Amazon's continuous addition of new brands and products, such as Estee Lauder and Armani Beauty in 2024, expands its assortment and raises its cachet, attracting more customers and increasing sales.

2. Investment in Delivery Speed and Cost Efficiency:
- Amazon has overhauled its distribution network to reach more geographic areas faster and is now changing its inbound network to keep the flow of merchandise moving and become more efficient. This investment in logistics ensures that Amazon can maintain its competitive edge in delivery speed and cost efficiency, which are critical factors for customer satisfaction and retention.

3. Early Entrant into Generative AI:
- Amazon was an early entrant into generative AI and offers a huge assortment of tools for clients of Amazon Web Services (AWS). This includes developer services for clients to create their own custom foundation models, the Bedrock system for simple semi-custom solutions, and many cheaper turnkey solutions for smaller businesses.
- AWS sales growth had been slowing but accelerated again in the fourth quarter of 2024, up 19% year over year, making it Amazon's highest-growth segment. This growth is driven by the increasing interest in generative AI from clients who want to explore these technologies.

4. Strategic Investments in AI Infrastructure:
- Amazon releases new upgrades and features on a regular basis and more frequently than competitors. Although it offers Nvidia's chips for its users, it's creating its own line of efficient chips for clients who need budget options. This strategic investment in AI infrastructure ensures that Amazon can continue to innovate and offer competitive solutions to its clients.

5. Attractive Valuation:
- The stock is down 26% from recent highs and trades at a price-to-earnings ratio (P/E) of 35, which is near its lowest level in more than a decade. This attractive valuation makes it an excellent time to buy shares of this "forever Buffett stock," as it offers a rare bargain price for a company with such strong growth prospects.

Conclusion

In conclusion, Amazon, Apple, and Domino's Pizza are three top Buffett stocks that are poised for significant growth over the next 20 years. These companies align perfectly with Warren Buffett's long-term investment strategy of buying great businesses at bargain prices and holding them for the long term. With their dominant market positions, strong brands, and innovative strategies, these stocks offer excellent opportunities for long-term investors seeking to build a robust and profitable portfolio.