Please ensure Javascript is enabled for purposes of website accessibility

2 Warren Buffett Stocks Worth Buying Now

By Will Ebiefung - Aug 18, 2020 at 6:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When Warren Buffett buys a stock, it pays to find out why.

Warren Buffett is the greatest investor of our time, so when he invests in a particular stock, it pays to find out why. Buffett is famous for his focus on value stocks -- companies trading at relatively low valuations compared to their earnings and long-term growth potential. But he and his team are also increasingly choosing growth companies, businesses that are taking big steps forward in their sector -- often with the price appreciation to match.

Here are two Buffett stocks that are worth adding to your portfolio. The first is Costco Wholesale (COST 0.83%), a consumer defensive retailer with a business model that is perfect for these uncertain times. And the second is StoneCo (STNE -0.51%), a Brazil-based fintech with plenty of room to expand in its market. Both stocks would make great buys right now.

Stacked coins on a wooden table.

Image Source: Getty Images.

1. Costco Wholesale: Consumer defensive cash flow

Berkshire Hathaway bought 24 million shares of Costco back in 2000. After trimming its initial position, Berkshire now owns 4.3 million shares, giving it a roughly 3% stake in the warehouse retailer. At Monday's share prices around $340, Costco's stock has soared almost 1,100% from Buffet's entry point of $28.62 per share. And the company looks poised for continued growth because of its consumer defensive business model and customer retention.

Costco passes on savings to customers by eliminating overhead and keeping operations as streamlined as possible. While consumers must pay an annual membership fee to shop at Costco warehouses, they can enjoy massive savings if they buy items in bulk. The strategy is working. In the fiscal third quarter, sales jumped 7% to $36.451 billion while the membership renewal rate stood at 91% in the U.S. and Canada.

Costco's membership renewal rate is a key metric to watch because once consumers pay for a membership, they are incentivized to maximize their shopping at Costco -- boosting same-store sales.

Costco generated a net income of $906 million in the third quarter, which is 8% lower than the prior-year period due to the coronavirus pandemic's negative effect on margins and the company's travel booking business. However, this crisis has created an opportunity for Costco to drive e-commerce adoption, which soared 64.5% in the quarter due to stay-at-home demand for goods and services.

2. StoneCo: An emerging market growth opportunity 

StoneCo provides financial technology solutions to online retailers in Brazil -- an e-commerce market projected to expand at a compound annual rate of 7.5% until in 2024. Berkshire bought shares in StoneCo when it went public in October 2019, and the stock has roughly doubled since then (as of Monday).

StoneCo is poised for continued success because of its massive market opportunity and innovative business model.

According to McKinsey, 47% of payment transactions in Brazil are carried out in cash, and up to 55 million adults are still unbanked -- leaving ample room for StoneCo to compete for market share as the country's financial system modernizes. Analysts at Goldman Sachs believe Brazilian fintechs can also take business from traditional Brazilian banks due to their technological edge and improved efficiency.

To compete in a country where face-to-face interactions reign supreme, StoneCo has invested in a massive brick-and-mortar footprint that brings it closer to its clients. These physical locations are called Hubs, and they offer service, sales, and operations teams that can tailor solutions to local clients' needs.

StoneCo is also expanding within the fintech vertical through specialized software like Mlabs, a social media e-commerce platform, and Delivery Much, a food delivery marketplace. In August, the company completed a business combination with Linx, an integrated business management software company focused on retail clients. The combination looks highly synergistic and should help to boost long-term growth.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool owns shares of Stoneco LTD. The Motley Fool recommends Costco Wholesale and recommends the following options: short September 2020 $200 calls on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), and short January 2021 $200 puts on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$457,400.01 (0.03%) $122.52
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$304.27 (0.00%) $0.01
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$560.96 (0.83%) $4.64
StoneCo Ltd. Stock Quote
StoneCo Ltd.
STNE
$11.66 (-0.51%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
394%
 
S&P 500 Returns
127%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.