If you want your investment portfolio to outperform Warren Buffett, it's important to hold stocks for long periods of time like he does. When asked what an ideal holding period would be for the shares he had increased Berkshire Hathaway(BRK.A -0.44%) (BRK.B -0.25%) stock portfolio, the Oracle of Omaha confidently says “forever” to anyone who will listen.
No matter how long you hold a stock, the price you pay affects the size of your return. If you want to invest like Buffett, buying stocks at the right time is an important part of the strategy.
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Now could be a good time to pick up a pair of Buffett shares. At current prices, $24.6 billion of Berkshire's stock portfolio is invested in two companies that Wall Street is eyeing. Recently updated price targets from some analysts City suggest that these stocks can rise 37% and 14%, respectively, over the next 12 months.
1. Amazon
Buffett cut Berkshire's Amazon (AMZN -0.94%) shares increased by about half a million shares in the third quarter and even retained 10 million. Ronald Josey, a sell-side analyst at Citi, probably thinks Buffett should have kept the entire position.
Amazon shares are up about 83% this year, but Josey thinks the rally could go even higher. He recently raised his price target on Amazon to $210, representing a 37% upside over the next 12 months.
Josey is encouraged by Amazon's dominant position in the American e-commerce industry. Its third-party merchants are tied to their relationship with Amazon, as evidenced by their skyrocketing ad sales. In addition to its standard take rate, Amazon extorted $12.1 billion in additional ad payments from third-party sellers in the third quarter. That was 26% more than in the same period last year, and that's not the company's only big growth driver at the moment.
Amazon Web Services (AWS) is America's largest cloud services provider and has posted stable growth this year despite a difficult macroeconomic environment. AWS revenue rose 12% year-over-year to $23 billion in the third quarter, and this segment still has plenty of room to grow. The global cloud services market reached $484 billion in 2022 and is expected to grow at an annual rate of 14.1% through 2030.
2. Coca Cola
It didn't start out that way, but at more than $23 billion Coke (KO 0.31%) is currently Berkshire Hathaway's fourth-largest holding. Coca-Cola shares have fallen about 8% in 2023, but Citi analyst Filippo Falorni expects a recovery in 2024. He recently raised his price target on the stock to $67 per share, implying an increase of $14 % in the next 12 months means.
The main appeal of this stock is the constantly increasing dividend payments. In February, Coca-Cola increased its payout for the 61st consecutive year.
With exactly 400 million shares in its portfolio, Berkshire is expected to receive more than $736 million in dividends from Coca-Cola in 2024 if the company continues its long-standing track record.
Fears that increasingly popular weight-control drugs like Mounjaro could drive up sales of sugary sodas are putting pressure on Coca-Cola's stock price. The fear seems exaggerated. North American case volume did not increase in the third quarter, but it did not decrease either.
Time to buy?
Amazon offers a chance to win big thanks to some exceptional companies. Amazon Web Services is the world's largest cloud services provider, and its e-commerce operations have logistics capabilities that its competitors can only dream of.
While Amazon has plenty of growth opportunities, there's already a lot of success in its stock price. It traded at a bloodthirsty multiple of 94 times trailing free cash flow. If earnings don't rise sharply in the next few years, the stock could decline. If you don't have a high risk tolerance, it's probably best to watch from a safe distance.
With some of the world's most recognizable brands, Coca-Cola has all the pricing power that will allow it to overcome a long-standing trend toward lower consumption of sugary sodas. If we ignore the negative impact of a stronger dollar, third-quarter sales rose 11% year-over-year.
At current prices, Coca-Cola shares offer a 3.1% yield, and most likely much more when you're ready to retire. For most investors, adding some stocks to a diversified portfolio in 2024 and holding them for the long term isn't a bad idea.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Cory Renauer holds positions at Amazon. The Motley Fool holds positions in and recommends Amazon and Berkshire Hathaway. The Motley Fool recommends the following options: Long $47.50 January 2024 calls on Coca-Cola. The Motley Fool has a disclosure policy.