Warren Buffett and Berkshire Hathaway Have made a name for themselves as some of the best investors of all time. As a result, the company has gained a significant following who like to copy its trades.Thank you for reading this post, don't forget to subscribe!
While no one should follow anyone’s moves in the stock market without question, it’s useful to take a look at what management thinks Berkshire has to offer to understand whether it will be a winning investment. Having done so, I’ve seen two companies that investors can buy with confidence, and one they should avoid.
Buffett is a big fan of toll-booth-style companies. The business model is quite simple: build an infrastructure and take a bit of revenue from everything that passes through it. Perhaps one of the greatest toll-booth model businesses of all time visa(V 0.05%) Payment processing infrastructure.
Every time a Visa-branded card is swiped, the company charges a small fee for using its network — and it adds up. It has been incredibly profitable, with Visa consistently posting some of the highest profit margins of any company.
Few companies can convert more than half of every dollar of revenue into net profit, but that’s what Visa does. Additionally, Visa is still posting solid growth despite being so large. In Visa’s fourth quarter of fiscal 2023 (ending Sept. 30), its revenue grew 11% to $8.6 billion – a new record high.
Despite its top-tier business model and strong growth, Visa trades at 32 times trailing earnings and 27 times forward earnings – some of the lowest levels seen by investors during the last five years. This creates a strong buying opportunity, and although Berkshire may not consider the stock cheap here, it still looks like a deal from a long-term perspective.
Although Berkshire doesn’t have much Amazon (AMZN -0.36% ) stock, it’s a great buy right now. Amazon’s business has improved dramatically under the leadership of Chief Executive Officer Andy Jassy, who took over from founder Jeff Bezos in 2021.
Under Jassy, Amazon has discovered something that eluded Bezos-led Amazon: consistent and growing profits. Amazon has recently focused on improving its profitability, which appeared to peak in 2023.
Amazon’s revenue growth has also bounced back, rising 13% in the third quarter. Amazon is a company that is firing on all cylinders right now, and even though Berkshire Hathaway reduced its position in Q3, I think Amazon is a great buy right now.
Apple (AAPL +0.18%) is undoubtedly Buffett and Berkshire’s favorite stock. It makes up about half of Berkshire’s portfolio (currently about 47%).
However, this could be an issue in 2024.
While Apple’s stock performed well in 2023 (it rose 48%), the business struggled.
Apple reported revenue declines in every quarter through fiscal 2023 (ending September 30). This weakness wasn’t limited to just one product line, and the iPhone, Mac, and iPad all struggled at different times of the year.
When a company struggles, yet the stock doesn’t rise or grow, it’s a clear sign of over-optimism. This may cause a bubble to form which, if burst, can cause serious damage. Although I don’t think Apple is in a bubble yet, it is valued at 32 times trailing earnings and 29 times forward earnings estimates — an expensive price for a shrinking company.
So, while Apple may be Berkshire’s favorite stock, it’s far from a buy right now. The other two companies above are in a much better position than Apple, so investors should pay attention to them if they’re trying to keep up with Berkshire-owned shares.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Keithan Drury has positions at Amazon and Visa. The Motley Fool has positions in and recommends Amazon, Apple, Berkshire Hathaway, and Visa. The Motley Fool has a disclosure policy.