August 9, 2022

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My Favorite Warren Buffett Stock to Buy for 2022

Legendary investor Warren Buffett is one of the best stock pickers of all time. His stock picks are available for everyone to view every quarter when his holding company, Berkshire Hathaway (NYSE:BRK.B) (NYSE:BRK.A), files a 13F, as required by law. 

His portfolio has a host of powerhouse stocks, including Apple, Coca-Cola, and Bank of America. However, my favorite stock from the portfolio for 2022 is Amazon (NASDAQ:AMZN). Let me explain why.

Image source: Getty Images.

Amazon is growing sales and cash flow

Amazon has been an excellent business for a long time, and it got a booster dose of growth at the onset of the pandemic. Hundreds of millions of people turned to the e-commerce retailer to deliver the goods they needed and wanted while they were mostly stuck at home. Amazon fulfilled the vast majority of those orders with relatively few problems. 

Indeed, revenue surged by 37% at Amazon in 2020. For a company its size, that meant a revenue increase of over $105 billion from the year before. Impressively, Amazon has sustained and even expanded on the higher level of sales even as economies are well on their way to reopening.

In the nine months ended Sept. 30, Amazon grew sales by 28% from the same period the year before. Notably, the revenue growth is flowing to profits and cash flow. In the same nine months ended Sept. 30, operating income grew by $5.4 billion to reach $21.4 billion.

And operating cash flow in the trailing 12 months has remained at over $50 billion for six consecutive quarters. That’s a lot of money it can use to reinvest in its business, adding fulfillment centers, delivery trucks, cargo planes, and staff members. That is precisely what Amazon did in the most recent 12 months, reinvesting in the business almost dollar for dollar what it earned in operating cash flow.

Investors are mostly pleased when Amazon management finds opportunities to put money to work. From 2015 to 2020, Amazon has increased its return on invested capital from 2.3% to 14.1%. When management is so skillful in allocating capital, you should hope for it to deploy more, and $52 billion in purchases of property and equipment in the last 12 months is a significant sum.

A compelling case to buy Amazon stock

With millions of new customers added since the pandemic onset, billions more in revenue and profits, and a fresh $50 billion investment in the business that will bear fruit over the next few years, Amazon’s business is arguably the strongest it has ever been.

What makes Amazon’s stock even more attractive to me is that it’s selling at near its lowest price to earnings in the last 10 years. A business that’s stronger than ever, selling for a price that is almost cheaper than ever: It’s no surprise that Amazon is my favorite Warren Buffett stock to buy for 2022.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.