Between negative economic growth and still high inflation rates, times are tough for most Americans and investors. Still, investing now is more important than it has been in quite a long time as investing provides one of the key paths to potentially keeping up with inflation over time. In times like these, it's important to have a smart approach to where to put your money, and there are few investors with a smarter approach than Warren Buffett.
With that in mind, three successful investors looked for companies within Buffett's universe that they think could be worth buying today. They picked Visa (V -0.59%), Amazon (AMZN -2.56%), and Berkshire Hathaway (BRK.A 1.18%) (BRK.B 1.30%). Read on to find out why and decide for yourself if any of them deserve a spot in your portfolio.
Image source: The Motley Fool.
All hail the king of payment cards
Eric Volkman (Visa): Buffett has never been able to resist the lure of a good finance sector stock, and in my view one of the best on the market is longtime Berkshire holding Visa. It's the undisputed emperor of the payment card realm, and it's a good buy now since its price is essentially stagnant year to date on lingering worries about the global economy.
Yet the company has a great many strengths that will not only carry it through any macroeconomic turbulence, but allow it to really zoom ahead when the skies grow calmer.
It's by far the most ubiquitous payment card brand in its peer group, which is saying something given the powerful competition -- namely Mastercard and American Express. All told, according to recent statistics from researchers such as Nilson Report and Statista, there are around 336 million Visa cards in circulation, versus 231 million for Mastercard and 63 million for AmEx.
It's also an open-loop operator, which in payment-card-industry speak means that it issues no credit on its own. Rather, it's a processor of transactions made on the cards carrying its brand (banks and other financial institutions are the actual issuers). This differs from AmEx, which as a closed-loop company also acts as the issuer; you are borrowing directly from the company when you transact with one of its credit cards.
One great advantage of being an open-loop operator is that the profit margins are much higher, because there are no delinquent payers to chase nor credit accounts to monitor. Visa's most recent net margin was a whopping 52%, eclipsing even the 46% of fellow well-managed open-looper Mastercard, and miles ahead of the sub-16% of AmEx.
Visa's cards might be common items throughout the world, but they're not yet in every consumer pocket. The War on Cash is ongoing, and there are plenty of places in the world where plastic and digital means of payment still aren't popular.
As people continue their relentless move toward non-cash purchasing, it's going to be the biggest card company in the world that will emerge as the biggest winner. That company is Visa.
Amazon provides convenience at a low price
Parkev Tatevosian (Amazon): One of my favorite Warren Buffett stocks to buy now is Amazon. The e-commerce-giant-turned-everything-store gained millions of new customers during the pandemic when folks looked to avoid shopping in person. Many of them will stick around long term. Amazon has constructed one of the fastest, most reliable, and least expensive fulfillment experiences for consumers worldwide. Scarcely anywhere can consumers receive their online orders faster than from Amazon. That competitive advantage is probably at least one feature of Amazon that attracted Buffett.
Even though Amazon offers fast and free shipping to many customers ($25 minimum for non-Prime members and free for Prime members), building its logistics network was expensive and time consuming. That's good news for investors because it will require the same of Amazon's competitors if they try to encroach on its fulfillment superiority. It's also a feature that allowed Amazon to expand its operating profit margin from 1.1% in 2012 to 5.3% in 2021. As its revenue grows, it spreads the fixed costs across a larger total of sales, which increases profitability over time.
Amazon's revenue has exploded. From 2012 to 2021, it increased from $61 billion to $470 billion. Hundreds of millions of customers go to Amazon when they want to buy something without leaving their homes. Millions more subscribe to a slate of items they regularly need, including cereal, detergent, paper towels, dog food, and more. In that way, Amazon adds convenience by removing the need to visit several brick-and-mortar stores and by delivering these items at regular intervals.
Amazon's excellent and defendable customer value proposition makes it one of my favorite Warren Buffett stocks to buy now.
A company built to survive super tough times
Chuck Saletta (Berkshire Hathaway): Perhaps the best Warren Buffett stock to consider buying right now is the one that represents the company that Buffett himself runs: Berkshire Hathaway. There are a lot of great reasons to do so. First, if you buy shares of Berkshire Hathaway, you also get a sliver of all the other companies that Buffett holds within that business. It's like buying an instant Buffett portfolio, with Buffett and his protégés to manage it, and no additional fund-management overhead costs.
In addition to a broad portfolio of Buffett investments, Berkshire Hathaway also has some incredibly strong operating businesses. There are the core insurance businesses, of course, but also some great non-insurance subsidiaries. Duracell batteries, BNSF railroad, Clayton Homes, and Benjamin Moore paints are just a small handful of the lines that are owned by Berkshire Hathaway.
As if that weren't enough of a reason to like Berkshire Hathaway, one of the most consistent criticisms of the company is that it tends to generate cash faster than Buffett can effectively invest it. Although inflation is eating through the value of that cash, the company continues to generate it through its operations and the dividends it receives. That helps insulate it against a rough economy, which makes it likely the company will both survive the current stagflation and emerge stronger on the other side.
Put all that together with a market price of around 1.3 times book value and a debt to equity ratio below 0.3, and Berkshire Hathaway looks like a fortress-like Buffett company worth considering today.
Islands of stability in uncertain times
Visa, Amazon, and Berkshire Hathaway all have different primary business models, but they all have great characteristics that make them worthy of Buffett's investment. Those same characteristics make them look like survivors even in today's tough economy. If that's enough for one or more of them to earn a place in your portfolio, then today is a great day to get your plan in place to make it a reality.
