Few investors are more revered on Wall Street than the aptly named "Oracle of Omaha." Since Warren Buffett became the CEO of Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) in the mid-1960s, he's overseen a greater than 5,700,000% aggregate return in his company's Class A shares (BRK.A) and guided Berkshire to become only the ninth public company to reach the $1 trillion market cap plateau.
When you outperform Wall Street's major stock indexes by as much as Buffett has spanning almost six decades, you're going to garner quite the audience. Investors regularly wait on the edge of their seat to find out which stocks he and his investment team have been buying and selling.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
At the moment, Buffett and his top aides are overseeing a 45-stock, $318 billion portfolio. However, the outlooks for these holdings meaningfully differ.
As we motor ahead into September, three sensational Warren Buffett stocks stand out for all the right reasons and make for slam-dunk buys.
Amazon
The first outstanding Buffett stock that long-term investors can confidently add to their portfolio in September is e-commerce leaderAmazon(NASDAQ: AMZN).
The biggest knock you'll find with Amazon is that it's cyclical. Most people are familiar with the company because of its world-leading e-commerce segment. If the U.S. or global economy weakens and online retail sales growth slows or shifts into reverse, there's the perception that Amazon is going to struggle.
However, there's a lot more to Amazon than just e-commerce. Though online retail sales generate a lot of revenue, the razor-thin margins associated with e-commerce are responsible for little in the way of operating cash flow and net income. Rather, the bread-and-butter of Amazon's cash flow can be traced to its three high-growth ancillary operating segments.
Amazon's linchpin is its cloud infrastructure service platform, Amazon Web Services (AWS). Based on estimates from tech analysis firm Canalys, AWS accounted for a third of global cloud infrastructure service spending in the June-ended quarter. Through the remainder of this decade, businesses are expected to shift more of their spending toward cloud services, which should only fuel double-digit growth potential for AWS.
The second fast-paced operating segment that's been a cash cow for Amazon is advertising services. The ability to draw well over 3 billion visitors to its website each month provides an insatiable lure for businesses that want to get their message(s) in front of consumers. Whether its Amazon's growing content library or its online marketplace, it's having little issue commanding top-notch ad-pricing power.
The third piece of the puzzle is subscription services, such as Prime. In April 2021, former CEO and Amazon founder Jeff Bezos cited that Prime had surpassed 200 million global subscribers. With the company securing an 11-year streaming deal with the National Basketball Association (NBA) and becoming the exclusive streaming partner for Thursday Night Football, Prime also possess exceptional pricing power.
Shares of Amazon can be purchased right now for less than 12 times forecast cash flow for 2025, which works out to a 47% discount to its average forward-year cash flow multiple over the trailing-five-year period.
Image source: Getty Images.
Mastercard
A second phenomenal Warren Buffett stock that makes for a slam-dunk buy in September is global payment-processing juggernaut Mastercard(NYSE: MA).
Similar to Amazon, being cyclical is typically the biggest concern for current and prospective shareholders of Mastercard. When the U.S. and/or global economy weaken, it's pretty normal for consumers and businesses to reduce their discretionary spending.
The good news for Mastercard is that the long-term numbers game is very much on its side. Out of the 12 U.S. recessions that have occurred since the end of World War II, only three reached the 12-month mark, and none surpassed 18 months. Conversely, a majority of economic expansions endured multiple years, with two lasting at least 10 years. Long-term growth in the U.S. economy leads to a fairly steady increase in spending activity.
Another reason Mastercard's management team has been able to successfully navigate the company through periods of uncertainty is because it steers clear of lending and focuses entirely on payment facilitation. Although Mastercard's brand is well-known, and it would likely have no issue becoming a respected lender, its avoidance of lending means the company doesn't have to set aside capital to cover loan losses and credit delinquencies during economic downturns. This helps it bounce back from recessions faster than most financial stocks.
Mastercard is also still in the early innings of expanding its infrastructure into faster-growing, but chronically underbanked, emerging markets. Sans currency changes, cross-border payment volume grew by 17% on a year-over-year basis in the June-ended quarter, and has been rising by a double-digit percentage with consistency for as far back as the eye can see. Regardless of whether this expansion is organic or acquisitive, Mastercard has a multidecade opportunity to infiltrate these underbanked markets in Southeastern Asia, Africa, and the Middle East.
Shares of Mastercard can be picked up for 29 times forward-year earnings. Though this might sound pricey, it's actually a 14% discount to its average forward price-to-earnings (P/E) ratio over the last five years, and represents a reasonable bargain with the company expected to grow its earnings per share by an annual average of 17% through 2028.
Sirius XM Holdings
The third sensational Warren Buffett stock that makes for a slam-dunk buy in September is the only high-profile stock-split stock of 2024 that's set to conduct a reverse-stock split. I'm talking about satellite-radio operator Sirius XM Holdings(NASDAQ: SIRI).
The key headwind to monitor with Sirius XM is the health of the auto market. Sirius XM's satellite-radio services are offered with most new vehicle sales. The company counts on a certain percentage of these promotional three-month trials turning into self-pay subscribers. If auto sales weaken, self-pay subscriber additions can slow -- and we've certainly seen some evidence of a slowdown through the first six months of 2024.
While Sirius XM's high-growth heyday is long gone, it does have a handful of sustained competitive advantages it can lean on that should, over time, help make patient shareholders richer.
For one, it's a legally licensed monopoly. Although it still competes for listeners with terrestrial and online radio providers, being the only satellite-radio company should afford Sirius XM strong subscription pricing power.
There's also a huge difference in revenue generation between Sirius XM and traditional radio providers. Whereas terrestrial and online radio companies rely heavily on advertising to keep the lights on, Sirius XM generates less than 20% of its net sales from ads. Its primary revenue driver is subscriptions -- about 77% of net sales through the first six months of 2024.
Being reliant on ad revenue isn't a bad thing a majority of the time. But when recessions do occur, it tends to clobber terrestrial and online radio operators. Since Sirius XM brings in most of its net sales from subscriptions, its operating cash flow has far fewer ebbs-and-flows than traditional radio companies.
The other big catalyst for Sirius XM is its imminent merger with Liberty Media's Sirius XM tracking stock, Liberty Sirius XM Group. This combination will create a single class of Sirius XM shares, with Sirius XM effecting a 1-for-10 reverse split upon completion. A higher nominal share price should put Sirius XM on the radar of more institutional investors.
Lastly, Sirius XM's forward P/E ratio of a little over 10 is very close to a 30-year low. When coupled with its hearty 3.2% yield, Sirius XM makes for a no-brainer buy.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams has positions in Amazon, Mastercard, and Sirius XM. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and Mastercard. The Motley Fool 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.
