You would be hard-pressed to find a list of higher-quality or better-known companies than those owned by Warren Buffett's Berkshire Hathaway. That's why many investors across the globe pay close attention to what Berkshire Hathaway buys and sells in any given quarter. If you're looking for Warren Buffett stocks worth buying now, three Motley Fool contributors think you should take a closer look at Facebook (FB 0.89%), General Motors (GM +0.63%), and Visa (V 1.40%).
The 21st century's newspaper
Jeremy Bowman (Facebook): Warren Buffett was long a fan of newspaper stocks. Berkshire Hathaway owns his hometown Omaha World-Herald; he was a longtime investor in The Washington Post, and in 2012 Berkshire Hathaway acquired Media General, the parent of dozens of daily newspapers around the country.
Buffett historically liked the local monopolies that many newspapers enjoyed, as they were a crucial source of local news and enjoyed a bumper advertising business due to their unique position in the community.
However, in the 21st century, all that has changed. Buffett well knows it, and he's become bearish on newspapers, with the exception of a few standouts like The New York Times.
The company more responsible for that disruption than any other is Facebook, which has built a monster advertising business with the help, ironically, of newspapers that feed content into its portals.
In addition to its strength in advertising, Facebook enjoys a number of competitive advantages that seem to make it a classic Buffett stock, as the Berkshire chief favors stocks with "economic moats." Thanks in part to network effects, Facebook has built a massive user base of over 2.7 billion monthly active users across its family of properties, which include Instagram, WhatsApp, and Facebook Messenger.
Those users are on Facebook properties because so many other people are -- that's the network effect in action -- and there's no real substitute for any of Facebook's apps.
Though some investors are concerned about the company's regulatory troubles, as it just agreed to pay the Federal Trade Commission a $5 billion fine for mishandling users' private information, Buffett has generally been nonchalant about such concerns. Buffett defended Wells Fargo despite a series of scandals, including opening fake customer accounts, that led to the ouster of its CEO, and has played down criticism against Coca-Cola for its role in global health problems like diabetes.
With Facebook, Buffett-style investors get a fast-growing company with a bulletproof business model -- and one trading at a discount, as the stock has fallen nearly 15% over the last couple of months. Facebook is now trading at a forward P/E ratio of just 18.7, less than the market average. Now, that looks like what Buffett would call a wonderful company trading at a wonderful price.
Don't sleep on this Detroit automaker
Daniel Miller (General Motors): Warren Buffett is well known for his long-term investing philosophy, and that's exactly the mentality investors need if they own General Motors. Another Buffett mantra is to be greedy when others are fearful, and that applies to General Motors and its 5.7 times price-to-earnings ratio as doom and gloom surround the automaker thanks to plateauing U.S. light-vehicle sales and escalating trade tensions.
Despite the pessimism engulfing most of the automotive industry, General Motors has quietly performed well. While revenue declined 1.9% during the second-quarter, compared to the prior year, GM's net income increased 1.6% to $2.4 billion and its adjusted earnings per share reached $1.64, well ahead of analysts' estimates calling for $1.43 per share. GM's better-than-expected earnings were driven by a sales mix that increasingly favors more expensive SUVs, crossovers, trucks and rising average transaction prices (ATPs). In fact, GM's ATPs set a second-quarter company record at $37,126 and checked in at much higher than the $33,681 industry average.
2020 Chevrolet Silverado. Image source: General Motors.
GM's performing well now despite a slowdown in sales, but the long-term story could very well be its driverless vehicle subsidiary, GM Cruise. In March, GM Cruise announced it would double its employee head count by the end of 2019 in preparation for launching its ridesharing service in San Francisco, and its latest round of equity investment brought its valuation up to a staggering $19 billion. If you need some context around that $19 billion valuation, consider that General Motors' market capitalization is just over $51 billion, and that GM acquired Cruise Automation for less than $1 billion in 2016. That should illustrate GM Cruise's lucrative potential as driverless car technology accelerates.
If you have a long-term investing mindset, GM offers investors a Warren Buffett stock at a cheap 5.7 times price-to-earnings ratio, with a 4.2% dividend yield and an opportunity to become a leader in driverless vehicle technology.
A tollbooth on commerce
Brian Feroldi (Visa): Warren Buffett and I invest very differently, so we don't own many of the same stocks. However, one company that we both hold in high esteem is Visa, the operator of the world's largest payment network.
You might not realize it, but every time you swipe a debit or credit card that has the Visa logo on it, Visa gets a cut of the transaction. That fact is hidden from the consumer because those fees are paid for by the merchant. In exchange, Visa's network authorizes the payment, moves the money, and clears and settles the transaction.
There are numerous benefits to paying with plastic. Consumers and businesses don't have to bother with cash or change, which speeds up transactions and increases security. Consumers also get loyalty and rewards benefits, and they don't have to pay for fraudulent transactions. Plastic also makes e-commerce possible.
With trillions of dollars flowing through its network every year, those small fees really add up. Visa is expected to haul in almost $23 billion in annual revenue in 2019. The company's highly scalable business model allows a huge chunk of that revenue to fall straight to the bottom line, too. That gives management plenty of financial firepower to pay out a growing dividend, buy back copious amounts of stock, and make acquisitions on occasion.
Credit and debit cards are becoming more popular around the world, a megatrend that should fuel Visa's growth for years to come. While Visa's stock might look expensive -- shares trade for 29 times forward earnings -- market watchers believe that Visa's profits will grow by more than 15% annually over the next five years.
Perhaps now you'll understand why Buffett and I agree that Visa is simply one of the best stocks that you can own.
