In Berkshire Hathaway‘s 1996 letter to shareholders, Warren Buffett shared this piece of investing advice: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” That does not mean investors must hold every stock for a decade. Selling is the right decision in certain situations. Buffett was simply warning investors about the perils of short-term thinking. The market is often volatile when measured in days and months, but good businesses tend to outperform over long periods of time.
Here are two Warren Buffett FAANG stocks (shorthand for Facebook, Amazon, Apple, Netflix and Google, before the first and last companies in this group changed their names) to buy and hold for the next decade.
Berkshire Hathaway initially bought Amazon (NASDAQ: AMZN) shares in the first quarter of 2019, and it added more shares in the second quarter. Buffett called himself an “idiot” for not buying the stock sooner. But investors can learn something from the situation. Amazon had an average market cap of $867 billion through the first two quarters of 2019 — about $100 billion less than its current market cap — but Berkshire still bought shares despite its already-massive size.
Amazon had an average price-to-sales ratio of 3.7 through the first two quarters of 2019, which is much more expensive than its current valuation of 1.9 times sales. Given Amazon’s strong competitive position in three growing markets, investors should jump on that buying opportunity.
The Amazon brand is synonymous with e-commerce. The company operates the most-visited online marketplace in the world, and it accounted for about 38% of all digital retail sales in the U.S. last year. That positions Amazon to be a major winner in the years ahead, with global e-commerce spending forecast to increase 13% annually to reach $15 trillion by 2030, according to Ameco Research.
Meanwhile, Amazon has leveraged the popularity of its marketplace to expand into digital advertising, and business is booming. Amazon is the fourth-largest ad tech company in the world, and it is gaining ground on the industry leaders, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Meta Platforms. That positions Amazon for major success in the coming years. Global digital ad spending is expected to grow 9% annually to reach $1.3 trillion by 2030, according to Precedence Research.
Finally, Amazon Web Services (AWS) dominates the cloud infrastructure and platform services (CIPS) market. In fact, research company Gartner recently recognized AWS as the CIPS leader for the 12th consecutive year, noting that it has “the greatest breadth and depth of capabilities” of any cloud vendor. That means Amazon should be a major beneficiary as IT spending continues to move away from on-site data centers. Cloud spending is expected to increase 14% annually to reach $1.6 trillion by 2030, according to Grand View Research.
In a nutshell, investors have good reason to believe Amazon can increase revenue at a double-digit percentage pace through the end of the decade, which makes its current price-to-sales multiple of 1.95 look quite reasonable. That’s why this growth stock is worth buying today.
Berkshire Hathaway does not have a direct stake in Alphabet. However, its subsidiary New England Asset Management (NEAM) started a position in Alphabet in the fourth quarter of 2022, and Buffett ultimately owns those shares because he owns Berkshire. My colleague Sean Williams frequently refers to NEAM as Buffett’s secret portfolio.
Alphabet is best known for Google. Brand Finance ranked Google as the third most valuable brand in the world last year, reflecting the immense popularity of Google Search and YouTube video sharing site. For context, Google holds over 92% market share among search engines, and YouTube is the most popular streaming service in the U.S. in terms of viewing time. Those popular content platforms have paved the way for Alphabet to dominate the digital ad industry.
Meanwhile, Google is also gaining momentum in cloud computing. Alphabet has worked diligently to accelerate product development and improve its capabilities, and those investments are paying off. In the fourth quarter, Google Cloud held 11% market share in CIPS, up from 10% in the prior year. As a caveat, Alphabet is still a distant third to Amazon and Microsoft, but the company is upgrading its product more quickly than any other vendor, according to Gartner.
Despite that progress, Alphabet still reported lackluster financial results in the fourth quarter. Revenue rose only 1% to $76 billion and net income fell 31% to $1.05 per diluted share. Generally speaking, investors can chalk up that disappointing performance to economic headwinds, though Alphabet is losing market share in its core advertising business to rivals like Amazon and The Trade Desk. That said, the company still accounts for 28% of global digital ad spending, and its leadership in internet search and strength among streaming services should keep Alphabet at the forefront of the advertising industry for years.
As discussed earlier, global digital ad spending is forecast to grow at 9% annually through 2030, and cloud spending is expected to rise 164% annually over the same time period. Those tailwinds should help Alphabet increase revenue in the double-digit percentages through the end of the decade. And with the shares trading at 4.5 times price to sales, a discount to the five-year average of 6.4, investors should buy a small position in this growth stock today.
10 stocks we like better than Amazon.com
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now… and Amazon.com wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
*Stock Advisor returns as of February 8, 2023
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon.com and Trade Desk. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Berkshire Hathaway, Meta Platforms, Microsoft, and Trade Desk. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.