Whether you’re an investor just starting out or one who might have a limited budget, it’s a good practice to invest an amount that you’re willing to be without in the short term so that you can build for the long term. If $1,000 is that mark for you, these two Warren Buffett-backed stocks could provide the foundation you want for your long-term investment strategy.
AbbVie ( ABBV 0.66% † and Verizon Communications (VZ 0.55% † offer innovative products in growing markets, combined with a strategy that withstands market volatility, to reward investors with long-term gains. They also carry a special characteristic that is shared by 63% of the stocks owned by Buffett in his Berkshire Hathaway (BRK.A 1.92% † (BRK.B 1.81% † portfolio.
AbbVie: Building a pipeline to keep revenue flowing
AbbVie is one of the smallest holdings in Buffett’s Berkshire Hathaway portfolio, at only 0.1% of the portfolio’s total holdings. But that’s the only thing small about this leading innovator in biopharmaceuticals that has seen its stock price grow 53% over the past year — crushing the S&P 500‘s 14.7% one-year return.
AbbVie has experienced strong growth of its best-selling drug, Humira, which helped the company realize a 22.7% increase in net revenue in 2021. That growth is expected to continue with an 8% increase in sales for Humira during 2022, but could come to a screeching slowdown in 2023. The company estimates a 45% erosion in sales as a result of biosimilar competition entering the US market on the heels of an expiring patent, with a rebound not expected to happen until 2024.
To offset those losses, the company is depending on a spike in sales of two potential successors to Humira, Rinvoq and Skyrizi. Together these two medications brought in a combined $4.5 billion in 2021 and are expected to reach $15 billion in 2025. AbbVie is also seeing positive results from its Allergan acquisition in 2020, which netted the company Botox, contributing nearly $5 billion to total sales in 2021 .
Going forward, the company has high expectations for a post-COVID rebound in sales of two leading cancer treatment drugs, as well as a pipeline of late-stage programs in cancer treatment. In total, the company has 13 drugs in phase 3 trials across immunology, neuroscience, eye care, oncology, and gastroenterology. Some of these drugs are already approved for certain indications, which could lead to a smoother path toward approval by the US Food and Drug Administration.
AbbVie also offers a quarterly dividend that can help keep investors engaged during times of trouble. If you include the time before AbbVie was spun off from Abbott Laboratories, the company has been increasing its annual dividend for 50 years, placing it among the elite class of Dividend Kings. At the current share price, the stock’s annual payout of $5.64 per share results in yield of 3.5%. Over the long term, this can be quite a hefty sum due to compounding gains.
A robust pipeline of drugs combined with a hefty dividend yield of 3.5% that leads most of its big-cap pharma peers makes AbbVie a Buffett-backed stock I’d see no problem investing $1,000 in.
Verizon: Checking off boxes to keep investors satisfied
Verizon ranks ninth in Buffett’s Berkshire Hathaway portfolio of 47 stocks in terms of portfolio holding and total value. But the company’s investors have not been exempt from the broader market volatility that has impacted tech stocks, as Verizon’s stock price has seen a 15% decline since May of last year.
Fortunately, CEO Hans Vestberg, who came on board in 2018 after a stint as chief technology officer, has a clear plan in place that could trigger a rebound. It includes reducing the company’s capital intensity to under 12%, growing dividends, paying down debt, and speeding up a timeline for share repurchases.
Boxes are already being checked off for that plan. Verizon’s Q4 report highlighted a 6.5% year-over-year growth in wireless services revenue, driven by higher revenue per account, meaning existing customers are spending more. Growth is also coming from an increase in subscriptions for wireless and broadband. FiOS (its bundled service for internet, cable, and telephone) finished Q4 of last year with a 5.7% year-over-year spike in revenue, allowing the company to post its best full-year performance for FiOS since 2014.
The company expects to check off a few more boxes during 2022, starting with a continued quarterly dividend payout of $0.64 per share, to be paid on May 2 to investors of record on April 8. This represents a 5% dividend yield, topping the telecom sector average of 4.36%.
By year-end, the company is looking to complete an accelerated plan to bring 5G ultra wideband service to an additional 30 major markets serving over 175 million people — a full year ahead of schedule. And while doing so, Vestberg has his eyes on reducing capital expenditures 9% to $16.5 billion.
If 2022 goes according to plan, the company is projecting full-year earnings per share that just slightly tops Wall Street estimates. Management is also looking for 9% to 10% growth in services revenue. Ultimately, Verizon’s technological advancements should lead to new revenue, supported by acquisitions in the telecom space and collaborations with companies such as Meta Platforms (formerly Facebook) as the two work toward building out the immersive digital world referred to as the metaverse.
Verizon investors should stand to gain from continued dividends and a wireless market that is projected to grow at a 15.4% compound annual rate through 2027. The company’s shares currently trade at a P/E ratio of 9.6, far below the wireless telecom industry average of 30. All in all, Verizon is an excellent opportunity for long-term investors who are looking for somewhere to invest $1,000.
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.