The best Warren Buffett stocks to buy now for $1,000

Warren Buffett’s approach to stock picking may seem outdated. But it still works. That is, given enough time, Buffett’s Berkshire-Hathaway reliably outperforms the overall market. This will not change in the foreseeable future.

The conglomerate owns shares of dozens of different companies, and you can do that too by buying Berkshire stock. However, if you prefer to own individual stocks rather than a whole basket, that’s an option too. Just pick the most attractive names that Berkshire holds at any given time.

To that end, here we take a closer look at three of the best investments in Berkshire Hathaway’s current portfolio.

1. Chevron

Contrary to a growing belief, the oil and gas business is not dying. In fact, it is growing, despite the introduction of clean energy alternatives. Standard & Poor’s predicts that liquid fuels (gasoline, oil, diesel) will be the largest source of energy on Earth even in 2050. The growth of alternative energy simply will not keep pace with the growth in demand resulting from population growth and the continued proliferation of electricity-consuming technologies.

Input Chevron (NYSE: CVX).

There’s nothing particularly unique about this. The company is an integrated major player, meaning it’s not just big, but it also offers everything from exploration to drilling to refining, both onshore and offshore. The company understands that it needs to adapt and evolve even though the inevitable future of clean energy is decades away, and so it’s also looking at renewables.

However, likely longevity is not the only reason Buffett is a fan of this energy giant. Chevron also offers a very attractive dividend at an attractive valuation. The stock currently trades at just 12 times expected earnings per share for the next four quarters and offers a dividend yield of 4.5%. At this valuation and low risk, it would be hard to find a better return.

That dividend, by the way, is growing reliably. While Chevron’s earnings fluctuate with the price of crude oil, the company is large enough – and its profit centers are diversified enough – to have seen annual dividend payout growth for 37 years in a row.

2. American Express

A handful of analysts are more than a little angry with the credit card company American Express (NYSE:AXP) lately. Bank of America recently downgraded the rating from “Buy” to “Neutral,” citing, for example, limited consumer spending. BofA analyst Mihir Bhatia also fears that investors will avoid American Express and instead look for similar but cheaper alternatives such as Synchrony Financial or Capital One Finance.

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And to be honest, these are not unfounded concerns.

Still, most people buy stocks based on their long-term prospects rather than their short-term prospects. And given American Express’s track record, the stock’s relative weakness since May is more of an opportunity than a warning.

You know AmEx as a credit card company. But that categorization isn’t entirely accurate. Its role as a payment facilitator is arguably more of a means to an end. Its core business is actually managing perks and rewards programs around its credit cards. Some cardholders are willing to pay up to $695 a year to get credits for shopping, entertainment, and hotel stays, in addition to access to airport lounges, travel agents, preferred car rentals, and travel insurance. The cards’ annual fees can more than cover these, especially if the holder uses their AmEx card regularly. That’s not likely to change in the long run, even if consumer spending slows a bit in the short term.

Of course, AmEx collects a fee of about 10 cents for each card transaction it processes (plus a small percentage of the total transaction amount) – the ultimate goal of its generous rewards program.

That could help: Thanks to Buffett’s exit from a significant portion of his stake in Bank of America, American Express is now Berkshire Hathaway’s second-largest holding. The fund holds nearly 152 million shares worth a total of $37 billion. That’s more than a fifth of the total value of American Express and over 12% of Berkshire’s entire stock portfolio.

3. Amazon

Finally, add Amazon (NASDAQ:AMZN) to your list of Warren Buffett stocks to buy if you have a spare $1,000 that you don’t think you’ll need any time soon.

It’s a seemingly unusual choice for Berkshire. Buffett isn’t typically a fan of technology stocks with business models that are not only difficult to understand, but whose products and services can easily be upended by competitors.

But when you think about it, Amazon isn’t all that surprising a choice from Buffett. It has some of the key qualities that the Oracle of Omaha recommends for any potential investment. These are companies with a clear competitive advantage and companies with compelling – but plausible – long-term growth prospects. Amazon fits both criteria very well, even as it adapts. For example, Amazon entered the cloud computing business a few years ago because it knew there would be a huge need at some point, and because it knew it could provide such a service as well as any other company.

Amazon.com itself is also evolving. At one point, it was a pure e-commerce site. Today, it’s an advertising platform that also happens to offer online shopping. It’s not inconceivable that the high-margin advertising business will one day generate more net operating profit than the sale of goods (if it doesn’t already).

The proof is in the numbers. Amazon is expected to grow its revenue by over 10% this year and next, and repeat this feat at least in the years after that.

Amazon is not a huge holding of Berkshire Hathaway. The company owns just 10 million shares worth just under $2 billion. That’s less than 1 percent of Amazon itself and also less than 1 percent of Berkshire’s total value.

Yet Buffett is willing to hold on to this ticker that virtually no one would have expected to buy before 2019. That alone speaks volumes.

Should you invest $1,000 in Amazon now?

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Bank of America is a promotional partner of The Ascent, a Motley Fool company. Synchrony Financial is a promotional partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. American Express is a promotional partner of The Ascent, a Motley Fool company. James Brumley does not own any of the stocks mentioned. The Motley Fool owns and recommends Amazon, Bank of America, Berkshire Hathaway, Chevron, and S&P Global. The Motley Fool has a disclosure policy.

The best Warren Buffett stocks to buy now for $1,000 was originally published by The Motley Fool.