Many people would wholeheartedly agree that Warren Buffett is one of the greatest capital allocators ever. His track record heading Berkshire Hathaway speaks for itself, as the Oracle of Omaha has crushed the market over the past several decades.
Combing through the conglomerate’s holdings might reveal potentially strong buying opportunities. In fact, I’ve identified three no-brainer Warren Buffett stocks investors should consider buying right now.
Although Amazon (AMZN 0.25%) is by far the largest company on this list, it constitutes less than half a percent of Berkshire Hathaway’s entire portfolio. But that doesn’t mean this FAANG stock — comprising Facebook’s parent Meta Platforms, Amazon, Apple, Netflix, and Google’s parent Alphabet — should be underestimated.
Amazon is a dominant force in multiple industries. It has spearheaded the expansion of online shopping, which still makes up the bulk of company revenues today. The business has made it a priority to keep bolstering its logistics and fulfillment capabilities, a strategy that will only propel Amazon’s lead in the sector.
Previously a major cost center for the company, cloud infrastructure services has turned into a high-growth and extremely profitable segment known as Amazon Web Services (AWS). AWS has a 32% market share globally, well ahead of chief rivals Microsoft Azure and Alphabet‘s Google Cloud.
What’s more, these industries are all poised to continue on their paths of rapid growth in the decades ahead, mainly thanks to the proliferation of the internet. Even though Amazon is already a massive enterprise, it’s easy to imagine the business registering double-digit revenue growth going forward.
So far in 2023, shares of this tech titan are up 56%. But they are still 30% below their all-time high, presenting investors with a good buying opportunity for this proven winner.
2. American Express
Berkshire Hathaway currently owns 20.6% of the outstanding shares of American Express (AXP 0.45%). That goes to show just how bullish Buffett remains on the credit card giant. Perhaps investors should follow Buffett’s path and own the stock.
American Express (Amex) shares trade at a trailing price-to-earnings (P/E) ratio of 15.5, a figure that is cheaper than the stock’s trailing three-, five-, and 10-year average valuations. This is the chance to buy an outstanding company at a rare discount.
What makes Amex unique is that it operates a closed-loop payments network, meaning only its own 138 million branded cards can run through the platform. The benefit for the business is that it collects all the fees anytime someone swipes its cards as a method of payment. This so-called discount revenue increased 8% year over year in the last quarter to $8.5 billion.
And thanks to Amex’s strong brand and the perks and rewards it offers its customers, the cards are extremely popular, especially with a higher-income demographic. These consumers typically have a better-than-average credit quality, keeping default risks significantly lower compared to other major card-issuing financial institutions.
Management expects revenue and diluted earnings per share (EPS) to jump 16% and 14% (at the midpoint), respectively, in 2023, impressive gains given the uncertain macro environment.
3. Procter & Gamble
Consumer goods maker Procter & Gamble (PG -0.70%) represents a tiny position in Berkshire Hathaway’s overall portfolio. But it’s not hard to see why Buffett still likes the business.
Procter & Gamble’s most important characteristic is its strong brand, which makes up its economic moat. And this has resulted in enduring pricing power. In the latest quarter (Q4 2023, ended June 30), sales were up 5%, primarily due to rising prices for its well-known products.
I think the durability and relevance, particularly over many decades, of Procter & Gamble’s various products are something Buffett really appreciates. He is known for saying that his favorite holding period is forever, a statement I think suits this business well. That’s because far into the future, the stuff Procter & Gamble sells — like Tide laundry detergent and Gillette razors — will likely still be popular household items.
Investors shouldn’t expect monster revenue growth from this mature company, but that doesn’t mean strong returns aren’t possible. In the past five years, for example, the stock’s 78% return was much better than the S&P 500‘s 48%. This was helped by management’s ongoing share repurchase activity, which boosts EPS figures. Buffett appreciates businesses that buy back their stock.
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