Warren Buffett has been the greatest proponent that time is an investor’s best ally. When investors buy in the stock market, they need to think of the stocks they own as businesses. Generally, you don’t buy a business in the hopes of trading it a month later. Rather, you invest your time, your capital, and your energy to see it succeed — hopefully, for years and decades. It should be the same way when you buy stocks.
Warren Buffett: Forget the markets; own the best businesses
Markets are swayed by day-to-day news and rumours. Yet businesses with competent managers, strong balance sheets, and long-term prospects operate consistently through bear and bull markets. Largely, this is how Warren Buffett built his fortune. He’d buy great businesses at a decent price and then let time accrete the value. That’s likely why he famously stated, “Our favourite holding period is forever.”
Are you looking for some “forever” stocks that even Warren Buffett might envy? Here are two interesting picks for 2021.
Warren Buffett would love this forever railroad
Canadian Pacific Railway (TSX:CP)(NYSE:CP) is certainly a stock with some Warren Buffett investment characteristics. Firstly, as Buffett loves, it has a massive competitive moat. Railroad infrastructure is incredibly costly to install. Once railroad infrastructure is installed, it is generally in the ground for next to forever. Consequently, CP has become essential to the Canadian and North American economy. There is no other technology that can transport thousands of tons of goods and materials in an efficient manner like a railway.
Secondly, CP is relentless about creating efficiencies and growing its volumes. In fact, this year CP was able to transport its largest volume of grains ever! CP is unlocking some of its land value by creating intriguing port and intermodal transport partnerships. These should benefit from a continuing trend toward e-commerce.
New investors need to note that right now, CP stock is not cheap. It is trading well above its historical valuation range. With concerns over the pandemic, many investors have come to this stock for safety. I would perhaps wait for a slight pullback. Yet, as with any Warren Buffett-like stock, this is one you buy and just plan to hold forever.
These essential assets will be needed for a very long time
Another stock with some very durable buy-and-hold forever characteristics is Fortis (TSX:FTS)(NYSE:FTS). Like CP, Fortis’s electric and gas transmission/distribution assets are incredibly difficult to replicate. In markets where it transports power, it holds an essential monopoly. Also its cash flow stream is 99% regulated, meaning its cash flows are incredibly stable and consistent. Based on similar characteristics, Warren Buffett acquired AltaLink (an Alberta electric transmission utility) in 2014.
Fortis is attractive for its stable business model and attractive growth profile. The company pays a great 3.9% dividend that is well covered by cash flows. Likewise, management is investing in a $19.6 billion capital program that should expand its rate base by 6% annually for the next five years.
Renewable power producers have gotten a strong bid in 2020. Yet Fortis still trades below its January 2020 levels. The more green electricity produced/required will also result in society requiring more power transmission assets. Fortis is setting up to benefit from this “electrifying” trend.
The stock has a higher-than-average yield right now. It looks attractively valued today. Given the quality of its assets, the strength of its balance sheet, and the stable growth outlook, Fortis looks like an ideal Warren Buffett stock to buy and own forever.
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Fool contributor Robin Brown owns shares of FORTIS INC. The Motley Fool recommends FORTIS INC.