Warren Buffett's legendary investment prowess has long captivated the financial world. As the chairman and CEO of Berkshire Hathaway, Buffett has consistently delivered remarkable gains for his shareholders over the years, inspiring countless investors to emulate his buy-and-hold strategy. By closely examining the stocks that Berkshire Hathaway buys and sells, investors can gain valuable insights into the investment principles that have made Buffett one of the most successful investors of all time.

Uncover the Gems in Berkshire Hathaway's Portfolio

Riding the Wave of Amazon's AI Dominance

Just a few years ago, investors were concerned about Amazon's future, as its sales growth was decelerating, and the company had reported its first annual net loss in over a decade. However, the recent launch of ChatGPT, a groundbreaking generative artificial intelligence (AI) platform, has breathed new life into the e-commerce giant. Amazon has quickly responded by releasing a string of AI solutions, and its AI business already boasts a multibillion-dollar run rate.The future AI opportunity for Amazon is massive. CEO Andy Jassy has emphasized the expected shift in company IT spending to the cloud, with only 10% of information technology (IT) spending currently on the cloud. Jassy anticipates a watershed moment when this transition accelerates, and Amazon's Amazon Web Services (AWS) division will be well-positioned to capitalize on this trend. In the third quarter, AWS sales growth accelerated to 19%, as clients seeking to participate in the generative AI revolution realize the need to leverage cloud platforms like AWS.Amazon is also leveraging its vast stores of data and machine learning to drive its advertising program, which continues to outpace other segments in sales growth. The company is now offering third-party sellers tools that can create full marketing campaigns from prompts and promotional videos from a single image, further demonstrating its commitment to harnessing the power of AI.Despite the short-term ups and downs that may come, investors who buy Amazon's stock at its current, relatively cheap valuation and hold it for the long term are likely to be well rewarded as the company continues to capitalize on the transformative potential of AI.

Ulta Beauty: A Classic Buffett Stock

Earlier this year, Berkshire Hathaway made its first-ever investment in cosmetics retailer Ulta Beauty, and it's easy to see why this stock fits the mold of a classic Buffett pick. Ulta is a clear leader in its niche, with more than 1,400 stores across the country, as well as roughly 800 store-in-store venues at Target locations, rivaling industry peer Sephora.While Ulta's business may be maturing, the stock still has significant growth potential. As interest rates are predicted to come down, consumer confidence is expected to improve, which should help propel a rebound for Ulta and its stock. Additionally, the company has revealed plans to accelerate the pace of new store openings, with a goal of growing its footprint to more than 1,800 stores in the long term. Ulta is also seeing strong adoption of its loyalty program, which it expects to reach 50 million members by 2028.Ulta's competitive advantages extend beyond its extensive store network. Most of its full-line stores feature hair salons, providing customers with an additional reason to visit. This is a service that e-commerce rivals cannot replicate, giving Ulta a distinct edge. Moreover, Ulta's stores are much larger than other pure-play beauty retailers, essentially serving as superstores that carry a wide range of products and brands, making them a one-stop shop for beauty shoppers.Currently, Ulta offers investors an excellent value, trading at a price-to-earnings ratio of just 15. The company has also announced a new $3 billion share repurchase program, further enhancing the stock's appeal. It's no surprise that Berkshire Hathaway took advantage of the stock's discount to add it to its portfolio, as it fits the investment conglomerate's preference for well-established, competitively advantaged businesses trading at attractive valuations.

American Express: A Timeless Buffett Favorite

American Express has been a staple of Berkshire Hathaway's portfolio for more than 30 years, and the financial company's strong performance in 2023 demonstrates why Buffett continues to hold its shares. American Express's spending-centric business model, which relies on cardholder perks and special offers to attract new customers who will regularly use their cards and generate merchant fees, has proven to be a reliable formula for growth.In the third quarter, American Express reported record revenue, growing 8% year-over-year, and this top-line growth also fueled strong growth in earnings. Management has raised its full-year revenue and earnings guidance, and now expects 2024 earnings per share to be between $13.75 and $14.05.Buffett places a high value on American Express's brand, and the company's appeal is evident from its success in winning over younger customers. Millennials and Gen Z consumers make up the company's fastest-growing cohorts, providing 80% of new U.S. accounts it acquired for its gold card last quarter.While American Express shares trade at a price-to-earnings ratio of about 21, which is on the high side for a financial services business, it's still within the stock's historical trading range. If consumer spending picks up, it could further boost cardholder spending and drive the company's earnings growth. With analysts expecting American Express's earnings to grow at an annualized rate of 15% over the next five years, investors who buy the stock now could be well-positioned to reap excellent returns.