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Three Buffett-Approved Stocks for Long-Term Investors

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  Published in Stocks and Investing on Friday, November 7th 2025 at 5:43 GMT by The Motley Fool
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Three Warren Buffett‑Approved Stocks for Long‑Term Investors

Warren Buffett’s investment philosophy has long been a benchmark for value investors. His focus on durable competitive advantages, solid cash flow, and disciplined buying tactics—often described as “hand‑over‑fist” buying when prices dip—continues to influence market sentiment. In a recent Motley Fool analysis, three stocks that Buffett has publicly expressed confidence in were highlighted as attractive long‑term plays. These companies represent sectors Buffett traditionally favors: consumer staples, financial services, and health care. Below is a detailed summary of why each stock stands out, the financial metrics that support Buffett’s enthusiasm, and the broader context that frames their investment appeal.

1. Coca‑Cola (KO)

Why Buffett Loves It

• Brand Power & Moat: Coca‑Cola’s global brand is synonymous with soft drinks, providing a wide‑ranging moat that protects margins even amid changing consumer tastes.
• Consistent Free Cash Flow: The company has delivered robust free cash flow for more than 25 years, a key Buffett criterion for sustainable dividend growth and share buybacks.
• Dividend Reinvestment: Coca‑Cola has a long history of paying and increasing dividends, aligning with Buffett’s preference for companies that generate excess cash and reward shareholders.

Key Metrics

• Return on Equity (ROE): 43% (2023), indicating efficient use of shareholder capital.
• P/E Ratio: 28x, slightly above the 2022 average but still within Buffett’s acceptable range for a high‑quality brand.
• Dividend Yield: 3.1%, comfortably above the 2% threshold Buffett often uses to gauge attractive income stocks.

Recent Performance

The stock has rebounded from a 2023 dip caused by supply‑chain hiccups and a slight shift toward healthier beverages. In 2024, Coca‑Cola returned to a 12‑month high, with EPS growing at a 5% CAGR over the past five years. Analysts continue to support a long‑term upside, citing a solid earnings forecast and a potential rebound in global distribution channels.

Risks & Considerations

• Health Trends: The ongoing move toward low‑calorie and sugar‑free products could erode traditional revenue streams if Coca‑Cola fails to innovate quickly.
• Currency Exposure: A significant portion of sales comes from emerging markets, exposing the company to currency volatility.

2. American Express (AXP)

Why Buffett Loves It

• Network Effects & Brand Loyalty: AXP’s payment network has a built‑in customer base that drives repeat transactions, providing a defensible moat similar to Coca‑Cola’s brand moat.
• High Profit Margins: With operating margins consistently above 30%, AXP is able to sustain a healthy dividend and fund share buybacks.
• Capital Allocation Discipline: Buffett frequently praises AXP’s management for prudent capital deployment, maintaining a consistent dividend payout ratio and allocating excess cash for growth initiatives.

Key Metrics

• Return on Equity (ROE): 33% (2023), a benchmark of efficient asset use.
• P/E Ratio: 23x, below the average for the financial sector, suggesting undervaluation relative to earnings.
• Dividend Yield: 1.9%, a moderate figure that balances income with growth potential.

Recent Performance

American Express experienced a significant decline in 2023 due to heightened regulatory scrutiny and the impact of a global economic slowdown on consumer spending. Nonetheless, 2024 has seen a recovery, as the company diversified its merchant base and expanded into digital payment solutions. The EPS growth in 2023 was 7%, beating analyst estimates.

Risks & Considerations

• Regulatory Risk: Ongoing scrutiny over interest rates on credit cards and potential changes in payment regulations could compress margins.
• Competition: Rising fintech competitors and digital wallets threaten to erode AXP’s market share if the company fails to keep pace with innovation.

3. Johnson & Johnson (JNJ)

Why Buffett Loves It

• Diversified Business Model: JNJ’s portfolio spans pharmaceuticals, medical devices, and consumer health products, providing multiple revenue streams that buffer against sector downturns.
• Consistent Cash Flow: The company consistently generates strong free cash flow, enabling dividends and buybacks.
• Strong Balance Sheet: Low debt-to-equity ratio and high liquidity provide a cushion for pursuing growth and weathering market volatility.

Key Metrics

• Return on Equity (ROE): 22% (2023), indicating efficient use of capital.
• P/E Ratio: 17x, positioned well below the pharmaceutical average, suggesting undervaluation relative to peers.
• Dividend Yield: 2.5%, a robust yield for a health‑care stock.

Recent Performance

In 2023, JNJ’s pharmaceutical division delivered a 4% revenue increase, driven by new drug launches and patent extensions. The medical devices segment saw a 6% growth, buoyed by innovations in minimally invasive surgery. Despite a slight dip in the consumer health line, the company’s overall earnings per share rose by 5% from 2022 to 2023.

Risks & Considerations

• Patent Expirations: The loss of patents on key drugs could erode revenue unless offset by new product launches.
• Regulatory Scrutiny: Drug approvals and safety concerns can impose delays and additional costs.

Buffett’s Hand‑Over‑Fist Buying Strategy

Buffett’s “hand‑over‑fist” strategy is not a reckless buying spree; it’s a disciplined approach that prioritizes high‑quality businesses at reasonable valuations. The principle is simple: buy more shares when the price falls below intrinsic value, while holding off when the stock trades above its worth. This tactic maximizes the upside while minimizing downside risk. The three stocks highlighted above are ideal candidates because they combine Buffett’s criteria—durable competitive advantages, robust free cash flow, and disciplined capital allocation—with attractive valuation metrics.

Bottom Line for Investors

Investors who emulate Buffett’s approach should focus on: - Quality: Look for companies with strong, defensible moats. - Cash Flow: Ensure the firm generates ample free cash to support dividends and growth. - Valuation: Compare the price-to-earnings, price-to-book, and other ratios against industry averages. - Long‑Term Outlook: Favor businesses with enduring demand and scalable business models.

By keeping these pillars in mind, an investor can evaluate whether Coca‑Cola, American Express, or Johnson & Johnson fit their portfolio strategy. Each of these companies offers a combination of proven profitability, defensive market positions, and the ability to generate consistent cash flow—all hallmarks of Buffett’s winning investments.