According to recent filings, Warren Buffett's holding company Berkshire Hathaway currently has several-dozen positions in publicly traded companies. Through these filings, we can perhaps figure out which areas of the market Buffett likes most -- and also which ones might be especially good opportunities today.
Right now, two stocks in Berkshire's portfolio stand out as having the potential to deliver massive long-term gains.
The market keeps underestimating this Buffett stock
Buffett has long been a fan of Visa (NYSE: V). Berkshire first established a position in 2011, the year the company went public. Public filings show Berkshire with 8.3 million shares, worth around $2.3 billion. When Buffett first bought Visa stock, he paid between $30 and $40 per share. Now, the stock trades above $250.
Despite the massive rise in value, Berkshire hasn't been selling any shares. Why might Buffett be so loyal to the company? It all comes down to network effects. This is how a product or service gets more valuable as more people use it. As more people use Visa payment cards, for instance, more merchants are incentivized to accept them. And as more merchants accept Visa, more people are incentivized to use its network.
This is a self-reinforcing feedback loop that only gets stronger the larger Visa becomes. It's a big reason why just two companies -- Visa and Mastercard -- control more than 80% of the U.S. credit and debit card market.
But it's not just network effects that have given Visa tremendous market power. According to research from the Harvard Business School, "Visa and MasterCard control the most critical aspect of any payment transaction – authorization and clearing using a secure line, thus preventing fraud."
This creates a huge incentive for trust. That is, merchants and customers need to have complete faith in the parties that conduct the verification and authorization of payments. As with most situations, the result is to place trust in a few proven players instead of a large list of relative unknowns.
These durable competitive advantages have helped Visa trounce the market's returns since going public. Yet over the past year, its shares have lagged the S&P 500 by 18% and now trade at 29 times earnings, in line with the average S&P 500 company. As a high-quality business with long-term competitive advantages and Buffett's backing, Visa shares are priced right for patient investors focused on multi-decade returns.
V total return level, data by YCharts.
Want maximum growth potential? Head south.
Visa is a wonderful long-term holding, but the company's current market capitalization of $530 billion somewhat limits its growth. If you're looking for a Buffett stock with greater growth potential, check out the fintech Nu Holdings (NYSE: NU).
Last month, I highlighted two reasons to buy Nu stock like there's no tomorrow. The first was the company's incredible proven success growing in North America. It launched its banking services in 2013 to anyone in Brazil with a smartphone. It was one of the region's first banks to reach customers directly through a handheld device -- no physical branches needed.
Since then, the company has grown to more than 100 million customers. And as I wrote last month, more growth should be ahead because Latin America as a whole contains more than 650 million people.
And there is another reason to like Nu stock: Warren Buffett was an early investor. He still hasn't sold his position, a stake of 107 million shares worth around $1.2 billion. Nu was also funded by Sequoia Capital, one of the most renowned venture capital firms.
The shares look expensive at 9.9 times sales, but the company's growth should quickly make that premium look like a steal. Based on next year's expected sales, Nu stock trades at just 4.4 times forward sales.
Many U.S. investors still haven't heard of this rapid-growth fintech, but investors looking for high growth potential should consider following in Buffett's footsteps.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,904!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,562!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $349,245!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of July 15, 2024
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Mastercard, and Visa. The Motley Fool recommends Nu Holdings and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
