Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) CEO Warren Buffett is viewed as one of the greatest investors of our generation. In over six decades, Buffett has amassed more than $80 billion in net worth, almost entirely through investments, and has created more than $400 billion in value for shareholders of conglomerate Berkshire Hathaway, which he's run for roughly 50 years.
The secret to Buffett's success has simply been patience and value. The Oracle of Omaha, as Buffett is affably known among the investment community, buys into businesses with the perception that he'll be invested for many years to come. Known for touting a holding period of "forever," Buffett and his team seek out businesses that are time-tested, offer clear-cut competitive advantages, and are trading at a perceived value. Though "value" is in the eye of the beholder, Buffett has certainly leaned toward value stocks over his multidecade investing career.
However, you might be surprised to learn that Buffett does own a handful of growth stocks. Of Berkshire Hathaway's current portfolio of 47 securities, four of his holdings are set to grow sales by a double-digit percentage in 2020, along with grow earning per share by at least 10% (on average) over the next five years.
Let's take a closer look at Buffett's four fastest-growing stocks.
Earlier this year, Berkshire Hathaway began purchasing shares of e-commerce giant and cloud services provider Amazon.com (NASDAQ:AMZN). Though Buffett has, himself, admitted regret for not buying into the Amazon story earlier, it wasn't him, but rather one of his trusted investment managers, who made the decision to buy Amazon stock. As of June 30, Berkshire Hathaway owned 537,300 shares, which is worth close to $950 million. For context, Berkshire Hathaway's portfolio has $224 billion in invested assets.
The real story here is that Amazon's earnings per share (EPS) growth is considerably higher than every other security in Buffett's portfolio. Wall Street's consensus suggests EPS growth of nearly 56% annually over the next five years. This goes along with the almost 19% sales growth Amazon is expected to deliver in 2020.
Though Amazon is best known for its e-commerce division, which according to eMarketer could be responsible for 38% of all U.S. online revenue in 2019, it's the company's other operating segments that are the most exciting. Amazon Web Services (AWS) is growing significantly faster than e-commerce, and it generates mind-blowing margins when put side by side with the retail segment. Through the first six months of 2019, AWS's $16.1 billion in sales accounted for 13% of total revenue. But AWS's $4.34 billion in operating income was responsible for 58% of the entire company's operating income over the same period. With AWS growing much faster than e-commerce, it sets Amazon up for a substantial surge in profits and cash flow in the years that lie ahead.
While hardly a household name, midcap financial technology and payment processing company StoneCo (NASDAQ:STNE) is one of Buffett's fastest-growing holdings. Buffett currently owns close to 14.2 million shares of StoneCo, which works out to a nearly $470 million stake.
In terms of sheer revenue growth, no company in Berkshire's portfolio is more impressive. The consensus forecast on Wall Street is that StoneCo will deliver 52% sales growth in 2019, and another 38% in 2020. Meanwhile, EPS growth should come in at close to 12% per year over the next five years. This disparity between sales and EPS growth is an indication that StoneCo is reinvesting a good portion of its earnings on growing out its financial infrastructure and ancillary operations.
A brief look at StoneCo's second-quarter operating results shows that the company is doing a lot right. With a focus on small and medium-sized businesses, StoneCo has added nearly 160,000 active clients over the past year, and witnessed its total payment volume rise by more than 60%. Beyond payments, the company has also seen impressive growth on the software subscription front. Given how underbanked Brazil currently is, StoneCo's growth runway extends well out into the horizon.
Visa and Mastercard
The other two fastest-growing stocks in Buffett's portfolio, which I've chosen to lump together for simplicity given their parallel business models, are Visa (NYSE:V) and Mastercard (NYSE:MA). Berkshire Hathaway owns a little over 10.5 million shares of Visa, worth $1.8 billion, and more than 4.9 million shares of Mastercard, worth close to $1.3 billion.
Though these are well-established payment processing providers, their growth rates continue to be impressive. Visa and Mastercard are forecast to grow their annual EPS over the next five years by 16% and 17%, respectively, with sales growth of 11% and 13% in 2020.
What makes this dynamic duo so special, other than their incredible brand recognition, is their lack of exposure to the lending side of the equation. Visa and Mastercard stick to the processing side of the transaction, which means they're relatively immune when inevitable economic contractions lead to higher credit delinquencies.
Visa and Mastercard also lean on their massive global reach to drive growth. Weakness in one country doesn't sink the ship, so to speak, and with 85% of global transactions still being conducted in cash, both payment processors have ample opportunity to drive long-tail growth from regions such as Africa, the Middle East, and Southeast Asia.