2 Warren Buffett Stocks That Could Set You Up for Life

Key Points

• Berkshire Hathaway's leadership change doesn't mean a shift in strategy.

• Mastercard leads an industry with massive remaining whitespace.

• Both companies are built to perform well over the long run.

• 10 stocks we like better than Berkshire Hathaway ›

Warren Buffett, arguably the greatest investor of all time, is renowned for his long-term investment approach. He's been quoted as saying that his favorite holding period is forever. For those looking to apply Buffett's wisdom -- which might not be such a bad idea considering his track record -- it's helpful to consider investing in the stocks he loves.

With that said, let's consider two Buffett-approved stock picks that look likely to provide terrific returns for a long time: His own Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) and Mastercard (NYSE: MA).

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1. Berkshire Hathaway

Buffett surprised the investment world earlier this year when he announced that he would be stepping down as CEO of Berkshire Hathaway at the end of the year. It was bound to happen eventually, as he's well into his 90s, but now that it's official, some might wonder whether the conglomerate can generate the same kinds of returns under different management.

My view is that it can. Warren Buffett and his late right-hand man, Charlie Munger, who passed away in 2023, spent decades building a remarkable business and grooming its next generation of leaders to step into their shoes.

Looking at the business first, Berkshire Hathaway boasts dozens of subsidiaries across various major industries, including insurance, energy, railroads, and apparel. Some of the companies' brands are well known in their fields: GEICO, Fruit of the Loom, and Duracell come to mind. Additionally, Berkshire Hathaway has a portfolio comprising over 30 holdings, which further enhances diversification.

That's one of the company's strengths; it is diversified enough to survive even the most severe downturns. Some of Berkshire Hathaway's subsidiaries (or companies in which it holds shares) will perform relatively well even when others aren't. What about the company's next leaders? The man who will soon become the CEO of Berkshire Hathaway is Greg Abel, the current CEO of Berkshire Hathaway Energy. He has been with the company for years and has risen through the ranks, likely absorbing Buffett's and Munger's wisdom along the way to the top.

Abel has been responsible for the company's non-insurance operations, including its energy and railroad businesses, for a while. That already says something about Abel. But he won't be alone. Todd Combs and Ted Weschler, Buffett's investing lieutenants, have been responsible for 10% of the company's portfolio for a decade. Ajit Jain, VP of insurance operations, has been responsible for that side of the business for a long time.

Berkshire Hathaway's robust underlying operations and its next generation of leaders should lead the company into a new era of success that is likely to last for decades, just like the old one under Buffett and Munger. Though things are changing, the stock remains a top long-term pick.

2. Mastercard

Berkshire Hathaway first bought a sizable share of Mastercard in 2011. Here's how the stock has performed since.

MA Total Return Level data by YCharts

Clearly, this was a great decision. Although Mastercard has crushed the market in the past 14 years, it's not too late to invest in the stock. Mastercard operates a payment network that facilitates debit and credit card transactions by connecting merchants with issuing banks -- the institutions that provide these cards. Mastercard's role is that of an intermediary. The company is an undisputed leader in its niche.

There are millions of cards branded with its logo in circulation, and few respectable businesses do not accept them as a form of payment. Mastercard benefits from a powerful network effect. The more consumers own cards branded with its logo, the more attractive its ecosystem is to merchants.

Some might argue that since card transactions are already widespread, there isn't much room left for Mastercard to grow. However, nothing could be further from the truth. Here are two powerful long-term tailwinds the company should benefit from for years to come. First, Mastercard estimates that there is still over $12 trillion in cash and check transactions worldwide, which creates a significant opportunity to bring more of that into its ecosystem.

Second, the growth of the e-commerce market will create a need for more digital payment methods, including the kinds that the company offers. Cash and checks are usually not an option when buying things online. Mastercard will have to contend with competition from its eternal rival, Visa. However, there is more than enough space for both leaders to thrive, as they have over the past decade (and beyond).

Expect Mastercard to continue performing well over the long term, and it's worth noting that its excellent dividend program makes the stock even more attractive. Despite a meager 0.5% forward yield, Mastercard has increased its dividend by 375% over the past decade. Mastercard is an excellent pick for growth and income-oriented long-term investors.

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Prosper Junior Bakiny has positions in Berkshire Hathaway and Mastercard. The Motley Fool has positions in and recommends Berkshire Hathaway, Mastercard, and Visa. The Motley Fool has a disclosure policy.