Think “forever” like Warren Buffett
Many investors are trying to figure out how to play the election well in the short term. I think investors need to take to heart one of Warren Buffett’s great quotes: “Our favorite time to own stocks is forever.”
When you invest, you are buying real businesses. Regardless of elections or pandemics, I want to own businesses that will not just operate 10 years from now, but will continue to grow and prosper.
Given Warren Buffett’s forever buy and hold strategy, here are two stocks I would like to own.
This railroad stock will go away for a very long time
Warren Buffett has often promoted stocks with strong competitive moats and consistent cash flow. I can’t think of any company with a stronger competitive gap than Canadian Pacific Railway (TSX: CP) (NYSE: CP). There are only two major Canadian railways, so CP operates only as a duopoly.
CP faced a number of volume issues when the pandemic hit. However, he used this time to improve the capacity of his network, create more efficient routes, and complete maintenance. As a result, CP is a lighter and more efficient payout machine than it was before.
In fact, you can see from the graph below that the CP was able to outperform CN Rail stock of 8.5% since the beginning of the year. Yet its price / earnings ratio continues to trade at an 8% discount to CN. It just goes to show that much of the appreciation in CP stocks is in fact due to real earnings growth rather than a single multiple expansion.
CP stock is not necessarily cheap today. Yet its transportation infrastructure across Canada is essential to the Canadian economy. It’s hard to imagine a world where we don’t need CP, and that’s why it’s great to own Warren Buffett’s stock forever.
This stock has strengths that even Warren Buffett would envy
Brookfield Infrastructure Partners (TSX: BIP.UN) (NYSE: BIP) is another stock that may meet Warren Buffett’s investment criteria. BIP has the entrepreneurial capacity, financial strength and expertise to achieve economies of scale around the world. It has critical infrastructure such as regulated electricity and gas transmission lines, intermediate natural gas assets, railways, toll roads, and data storage / distribution assets.
In typical Warren Buffett fashion, BIP acquires, manages and transforms struggling infrastructure assets into highly predictable cash cows. During the 2009 financial crisis, BIP acquired a number of utility assets that then fueled +10 years of CAGR FFO growth per unit of 15%!
Today, BIP’s balance sheet is primed with $ 4.3 billion of dry powder. I think it also helps him get out of this economic crisis. This title has the resilience and stability of a utility, but a better growth profile than many mainstream businesses. Combine acquisitions and organic growth, and it could achieve 7-14% annual cash flow growth for many years.
While there is nothing exciting about BIP’s pipeline and utility pole portfolio, no one can complain about the 7-14% annual growth potential. All this while the stock pays a growing dividend of 4.2%! Overall, BIP’s assets are expected to produce strong cash flow for many years to come, making his portfolio a portfolio even Warren Buffett would envy.
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Robin Brown, a mad contributor, owns shares of Brookfield Infrastructure Partners. David Gardner owns shares of Canadian National. The Motley Fool owns stock and recommends Canada’s National Railways. The Motley Fool recommends BROOKFIELD INFRA PARTNERS LP UNITS, Brookfield Infrastructure Partners and Canadian National Railways.