Every investment you make should be your single best stock to buy. Just 14 stocks account for over 90% of Berkshire Hathaway‘s (NYSE:BRK-A, NYSE:BRK-B) $377 billion investment portfolio.
Warren Buffett lives by what he calls his “20-slot rule” and you should too. The 20-slot rule has investors imagine they get a stock investment punch card that has only 20 slots available. After making 20 investments, they can’t make anymore. Such an exercise really focuses your mind to only choosing the best stocks to buy.
“You’d really have to think carefully about what you did,” Buffett said. “And you’d be forced to load up on what you really think about. So you’d do much better.”
So, if you think of your next investment as one of only a handful you can buy in your lifetime, it should probably be one of these three stocks.
Apple (AAPL)
Apple (NASDAQ:AAPL) is certainly one that Buffett likely believes everyone should own. It is his single biggest investment that represents more than 46% of Berkshire Hathaway’s portfolio – and there’s solid reasoning behind such a large bet.
Although products generate the most revenue, services are the most profitable. iPhones, Macs and other hardlines had 36% gross margins on $74 billion in sales. The App Store, Apple Music, Apple Pay and iCloud had $21 billion in sales, but margins of 71%. Services growth is where Apple’s future lies.
But don’t ignore the growth in products, because they fuel the services business. The iPhone in particular is a massive driving force. Wall Street often gets it wrong when it comes to predicting the lifespan of Apple’s premiere product. Yet there is plenty more to come and at least one analyst sees that Apple is one of the best stocks to buy.
Wedbush Securities analyst, Dan Ives, predicts Apple is poised to benefit from another major upgrade cycle. He estimates there are 250 million iPhones that have not been upgraded in the past four years. The next iteration of the iPhone will drive consumers to purchase a new one. They will also likely pay more for the device, boosting Apple’s revenue and profits. Ives also predicts services will soon be a $100 billion business for Apple.
Apple’s stock is not cheap on traditional metrics like price-to-earnings or price-to-sales. The tech giant, though, has rarely been a discounted stock. However the opportunity for growth remains clear for the foreseeable future. Apple is one of the best single investment stocks you can buy today.
Genuine Parts (GPC)
Auto parts retailer Genuine Parts (NYSE:GPC) may seem an odd choice for a must-own stock. This boring company owns the 9,600-store NAPA Auto Parts chain. It also owns an industrial replacement parts and supplies distribution business serving repair shops, service stations and fleet operators. It may seem lackluster, but it’s actually one of the best stocks to buy.
Genuine Parts was founded in 1928. It survived recessions and depressions, world wars, political upheavals, natural disasters and a global pandemic or two. It also paid a dividend for 75 years. Genuine Parts has raised the payout for 67 consecutive years. That makes it a Dividend King, a small, select group of stocks that increased their dividend for 50 years or more.
The retailer is benefitting from unique circumstances in the auto industry. There remains a critical shortage of parts and labor at vehicle manufacturers. Fewer vehicles are making it to dealer lots, forcing consumers to keep their existing vehicles on the road longer. That increases demand for replacement parts, thereby allowing Genuine Parts to raise its prices.
Genuine Parts reported record second quarter sales of $5.9 billion last week. It generated adjusted profits of $2.44 per share, up 11% from last year. The retailer also raised full-year earnings guidance from a range of $8.95 to $9.10 per share to $9.15 to $9.30 per share.
Genuine Parts trades at 15 times next year’s earnings and for a fraction of sales. With a dividend payout ratio of just 44%, there’s plenty of safety built in with more room for further increases.
SPDR S&P 500 ETF Trust (SPY)
Arguably even more head-scratching than Genuine Parts for inclusion on this list is the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). Yet the exchange traded fund is here because of its superior historical performance. Over rolling 20-year periods for the past century, it never had a losing year.
According to data from Crestmont Research, between 1900 and 2023 the SPDR ETF enjoyed 104 consecutive years of positive returns for investors. It analyzed the rolling 20-year total returns, including dividends paid. So long as an investor held and didn’t sell, they would never have a year of negative returns.
It goes to show the old adage that the plain vanilla choice of investing — the S&P 500 index — is still the best option for most investors. Buy it, set it and forget it.
The S&P 500 was not actually created until 1957. Crestmont Research had to look at other indexes with similar components that did exist back then. It was able to extrapolate their data and estimate the hypothetical returns going back to the start of the century.
Perhaps even better for investors, though, is that today’s stock market is much different than it was back in 1900 — or even 1957 for that matter. More current returns are even better. That’s why I say that for the vast majority of investors the SPDR 500 ETF Trust is one of the best stocks to buy.
— Rich Duprey
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Source: Investor Place