Want to make money in the stock market? Make sure to track the stocks that are in Berkshire Hathaway's portfolio. Buffett has led Berkshire for decades, showing himself as one of the best investors of all time, and monitoring the positions he's ultimately responsible for can give your portfolio a leg up.
If you want to follow Buffett's best ideas, the two stocks below are for you.
This is one of Buffett's best stock picks ever
In 2011, Buffett made one of his best stock purchases ever. The company? None other than Visa(NYSE: V). You're likely very familiar with Visa as a brand, but you might not know what makes the company an incredible investment.
When Buffett first bought shares in Visa, the stock price was between $30 and $40. Today, the share price is closing in on $300. The market cap, meanwhile, is around $550 billion, and I've speculated that the company could eventually top the $1 trillion mark. What factors caused Visa's historical success, and why is the company primed for more success in the years and decades to come? It all comes down to a valuable competitive advantage that continues to strengthen the more time goes on.
Nearly everyone reading this article right now has heard of Visa. Many of them have a Visa credit or debit card in their wallet right now. Why? Because Visa has a stranglehold over the U.S. credit and debit card market. Data compiled by Statista shows the company with a 61% domestic market share. Just three companies control the remaining 39%. Suffice to say this is a highly consolidated market. And it's not hard to understand why. Payment networks like Visa are driven by network effects. Network effects describe how a company or service becomes more valuable as more people use it. Because payment networks need to connect customers, merchants, and financial institutions, the network that connects the most nodes seamlessly will win. This dynamic naturally favors scale, creating a handful of giant competitors like Visa and Mastercard.
Huge scale has given Visa not only a durable competitive advantage, but impressive profitability. Its returns on equity are nearly 50% despite minimal leverage. And profit margins last quarter hit 55%. And yet shares trade at just 28 times earnings -- slightly less than the S&P 500 average. Buffett still owns $2.2 billion in Visa stock. Both growth and value investors should consider joining suit.
V PE Ratio data by YCharts
Looking for maximum growth? Check out this company
Buffett isn't known for being a growth investor. But in recent years, Berkshire has loaded up on many companies that have been able to generate strong growth. One of those companies is Nu Holdings(NYSE: NU). Berkshire has accumulated a stake in this fintech business worth more than $1 billion. It's not hard to see what he loves about the company.
At its core, Nu is a bank -- but not just any bank. It offers its services only in Latin American countries like Brazil, Mexico, and Colombia exclusively via smartphone. This is a huge variation from history, in which a handful of powerful incumbent banks charged consumers high prices for simple services through brick-and-mortar branches. Nu disrupted the status quo by going directly to customers with services and prices that the competition couldn't match. In under a decade, it went from essentially zero customers to more than 100 million. More than half of all adults in Brazil are now Nu customers. And growth keeps chugging along. Despite a $70 billion market cap, Nu is consistently growing sales by 50% to 100% per quarter on a year-over-year basis.
The stock isn't cheap at 45 times earnings, but few companies have this type of growth profile. In a few years, the current multiple will likely look like a steal. Berkshire hasn't sold a single share since acquiring his stake. Investors looking for maximum growth upside should take a closer look.
Should you invest $1,000 in Visa right now?
Before you buy stock in Visa, consider this:
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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.
