Studying Warren Buffett's portfolio for investment ideas requires that investors differentiate between companies that remain a buy and the stocks Berkshire Hathaway owns for other reasons. It makes sense for Berkshire to hold its 400 million shares of Coca-Cola as it receives $656 million in annual dividends from an initial $1.3 billion investment. However, new buyers may not want to pay 23 times forward earnings when non-GAAP profits increased by only 1% last year.
Still, Buffett's portfolio also contains numerous growth stocks that remain buys for today's new investors. Investors looking for such companies should consider Berkshire holdings like Barrick Gold (GOLD 0.18%), DaVita (DVA 0.82%), and StoneCo (STNE 5.07%). Let's take a closer look at these companies to learn why they remain compelling buys.
Barrick Gold
Berkshire's purchase of just over 20.9 million shares of Barrick Gold is a recent acquisition. Gold stocks tend to glitter in times of high gold prices and lose their luster when gold prices plummet. Since Buffett has criticized gold investments in the past, it is likely one of his top lieutenants believes gold has entered another bull market.
Buffett's team may have a point. The price of gold has risen steadily since 2018. It has likely also benefited from the Federal Reserve's reaction to the COVID-19 crisis. The Fed flooded the market with liquidity. Such actions tend to devalue the dollar, thus increasing the value of gold relative to the reserve currency. Since the Fed cannot print more gold, it often becomes a safe haven in times such as these.
In its most recent quarter, Barrick Gold reported $0.20 per share in net earnings, 82% higher than the same quarter last year. That is only slightly below the 104% earnings growth analysts forecast for the year. They also predict a 40% profit increase in 2021.
Investors should expect a temporary bull market in Barrick stock, as history points to considerable selling whenever gold prices fall. Nonetheless, as long as gold prices shine, Barrick stock should remain golden.
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DaVita
DaVita more closely fits the stereotypical mold of a Warren Buffett stock. It is the country's largest provider of kidney care services. Berkshire owns almost 36.1 million shares, nearly 32% of the company. On the surface, it is not a particularly exciting business. However, when looking at the value proposition, one might wonder why it does not garner more attention.
About 10,000 baby boomers per day age into Medicare. Over time, many of these patients will probably need kidney dialysis. Moreover, a diagnosis of ESRD (end-stage renal disease, or kidney failure requiring dialysis) automatically enrolls patients into Medicare regardless of age. This aspect of Medicare all but plays into the hands of DaVita.
Investors can also buy this stock at a reasonable price. DaVita trades at a forward price-to-earnings (P/E) ratio of about 12. This comes despite a drop in operating income as DaVita had to pivot more into home dialysis thanks to COVID-19. Fear of the disease may have also led to a revenue miss during this quarter.
Nonetheless, analysts forecast 27% earnings growth for the year. With the low cost and demographics serving as a tailwind, DaVita can provide critical care for ailing portfolios.
StoneCo
As much as DaVita is typical for Warren Buffett, StoneCo, as a fintech start-up, is likely atypical. Buffett had traditionally avoided start-ups. Nonetheless, Berkshire bought nearly 14.2 million shares of this stock in late 2018 as it launched its IPO, about 4.4% of the company. StoneCo stock has risen more than 80% since that time.
The company offers fintech solutions in its native Brazil. It provides an ecosystem for merchants and partners to conduct online, mobile or in-store commerce. This is especially challenging for StoneCo as it serves a heavily cash-based society where numerous consumers do not hold a bank account. That said, StoneCo has a competitive, and possibly first-mover, advantage over Visa or PayPal in this region.
At a forward P/E ratio of 60, StoneCo is not a cheap stock. The effects of COVID-19 have also led analysts to forecast a 4% drop in profits this year. However, they also expect profit growth of almost 74% in 2021 as activity and payment volumes recover.
Additionally, that growth rate could continue, especially if StoneCo expands into surrounding countries. As e-commerce forces Latin America to adopt cashless payment options, StoneCo should help Berkshire cash in on fintech.
