3 Warren Buffett Stocks to Hold Forever

I think the Warren Buffett quote most frequently taken out of context is his famous proclamation that his "favorite holding period is forever." To be sure, the legendary investor did say those exact words in his 1988 letter to Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) shareholders. However, he conditioned the statement on owning "portions of outstanding businesses with outstanding managements."

Even a cursory look at Buffett's trades in recent quarters will show that he often doesn't hold stocks for long periods. But several stocks he owns meet his criteria of exceptional businesses and management teams. Here are my picks for three Buffett stocks to hold forever.

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1. Berkshire Hathaway

Buffett's favorite forever stock of all is probably the easiest choice -- Berkshire Hathaway itself. It's hard to beat a stock that has nearly doubled the average return of the S&P 500 over six decades.

There's no guarantee that Berkshire will continue this level of outperformance, of course. However, Berkshire still has several factors that work in its favor. I'd put diversification at the top of the list. Berkshire isn't just one company; it's a conglomeration of over 60 subsidiaries spanning multiple industries. The conglomerate also owns stakes in over 40 other publicly traded companies.

Another big advantage for Berkshire over the long term is its financial strength. I'm not just referring to the company's current financials, although they are formidable (especially with a cash position of nearly $348 billion). Berkshire's insurance businesses are a cash machine because of their float. As Buffett said in Berkshire's annual shareholder meeting last month, "There's no property casualty company that has our float."

Berkshire's management team remains top-tier. Buffett is as sharp as a tack at 94 years old. While he's stepping down as CEO next year, his successor, Greg Abel, shares his mindset. Buffett even told shareholders, "I think the prospects of Berkshire will be better under Greg's management than mine."

2. Amazon

Berkshire Hathaway first invested in Amazon (NASDAQ: AMZN) in 2019. Buffett didn't make the decision. Instead, the Amazon purchase was initiated by either Todd Combs or Ted Weschler. Amazon is nonetheless a Buffett stock, in my view, by virtue of its inclusion in Berkshire's portfolio. And it's one I think is a great pick to hold forever.

I believe that we've only seen the tip of the iceberg with artificial intelligence (AI). Over the coming years, I expect AI will permeate nearly every aspect of business operations. I predict that Amazon will be one of the biggest beneficiaries of this. Why? Amazon Web Services (AWS) is the largest cloud provider, and most AI models will run in the cloud.

But AI isn't the only reason to buy and hold Amazon stock. The company is the 800-pound gorilla in the e-commerce industry, but it only has around 1% of the global retail market. Amazon CEO Andy Jassy said last year that he thinks e-commerce will capture a much bigger chunk of the retail market over the next 10 to 20 years. If he's right (and I suspect he is), Amazon should have significant growth opportunity in this huge market.

Amazon also checks off Buffett's outstanding management box. The culture established by founder Jeff Bezos remains in place today under Jassy. As Jassy explained in his latest shareholder letter, much of the company's success is due to continually asking, "Why?" All of Amazon's major innovations in the past resulted from asking this question. I predict more big breakthroughs in the future.

3. Mitsubishi

Mitsubishi (OTC: MSBHF) might be a surprising name on this list. However, it's one of the handful of stocks Buffett has said that Berkshire will "maintain indefinitely." He initiated positions in five Japanese stocks in 2019. I could have included any of them on the list, but I selected Mitsubishi because Berkshire has the largest position in it.

One reason Buffett likes Mitsubishi so much is that its business model is somewhat similar to Berkshire's. The Japanese company's diversification into industries including energy, materials, food, automobiles, and more should make it a safer stock to own over the long term.

He also likes Mitsubishi's valuation. Granted, Berkshire can buy shares at a lower price than most investors can. However, the stock's valuation is still attractive with a trailing-12-month price-to-earnings ratio of only 12.25.

Buffett also admires Mitsubishi's management team. He especially appreciates their capital allocation strategy, including making stock buybacks at opportune times. I agree with the Oracle of Omaha: Mitsubishi is a stock to hold forever.

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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. Keith Speights has positions in Amazon and Berkshire Hathaway. The Motley Fool has positions in and recommends Amazon and Berkshire Hathaway. The Motley Fool has a disclosure policy.