This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
When looking for long-term stock holdings, following multi-billionaire Warren Buffett's investments is a good place to start. He's certainly built a long-term track record, but he's also known for his patient approach. One of his sayings is, "Our favorite holding period is forever."
It's tempting to follow Buffett's stock picks blindly, but you still should do your own homework. After all, he's not infallible. These two stocks have been a part of Berkshire Hathaway's portfolio for some time. While their prices are down for the year, both offer excellent long-term growth prospects, presenting a wealth-creating opportunity.
1. Amazon
Amazon's (NASDAQ: AMZN) stock investors have become a little skittish this year. The stock has dropped by more than 37% since the start of 2022, making this a good time to evaluate the company's long-term growth prospects. Fortunately, these look solid.
Looking at Amazon's first-quarter results, sales grew 9% to $116.4 billion, excluding foreign currency exchange translations, but operating income was down by over 58% to $3.7 billion. While this isn't great, it looks likely that Amazon will get back to growing profits down the road. That's because higher costs weighed on profitability as management increased staffing and capacity to meet surging demand, but management has pledged to focus on higher productivity and efficiency.
Even better, its fast-growing, high-margin Amazon Web Services (AWS) business still has bright prospects. In the latest period, AWS' sales increased by 36.6% to $18.4 billion, driving operating income 56.6% higher to $6.5 billion. It was the only segment to report a profit in the latest period.
With an over 35% operating margin, this dwarfs the North American and International segments, which are typically single-digit figures. AWS, the leader in the fast-growing cloud computing business with a 33% market share, faces little competition. Its main rivals are Microsoft's Azure and Alphabet. Better still, the business has significant barriers to entry due to the high cost and space needed for data centers.
The price-to-earnings ratio (P/E) of 50.4 is well below the 80 times it was selling for in April. While Amazon's P/E is higher than the S&P 500's 20 times, as Warren Buffett has stated, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
2. Moody's
Moody's (NYSE: MCO) stock may have fallen by about 31% this year, but the company's long-term competitive position remains strong. So this looks like an opportune time to purchase shares.
The company has become known for providing ratings on debt instruments issued by corporations and countries, among other entities. Along with S&P Global, it has a dominant share of the market, with Fitch Ratings coming in a distant third place. Last year, this business produced revenue of $3.8 billion, accounting for over 61% of the total.
There's also its analytics business, which represented the balance of Moody's revenue. While the rating business' results can fluctuate, depending on the economic cycle and debt issuance, this business is steadier since it charges subscription fees for items like data and information.
Moody's first-quarter revenue fell by 4.9% to $1.5 billion. However, the period showed the benefit of having the fee-based analytics business. While the rating business' revenue declined by 20% to $827 million, analytics increased by 9% after excluding the impact of acquired businesses.
The stock currently has a 26 P/E multiple, much lower than the roughly 32 times when 2022 began. With a strong ratings business that will certainly rebound when the markets recover and a growing analytics segment, the stock looks like a bargain for long-term stock investors.
Two stocks to celebrate down the road
Amazon has a strong brand in retailing, but it's become so much more than an online seller. It generates considerable revenue and profits from its AWS business, which looks like it can continue growing quickly for a considerable period. Moody's franchise includes ratings, which debt issuers pay for and many people rely on, plus a steadily growing analytics business.
When you add in that these two stocks currently sell at a much lower valuation than earlier in the year, long-term investors who purchase them likely will have a lot to celebrate when looking back to this moment.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
